MONDAY MAY 10, 2021 VOL. 186 No. 88 AMERICANBANKER.COM Follow us on Twitter @AmerBanker Trade groups call on 5 OCC to withdraw CRA rule Organizations representing banks and other Building a buffer financial services firms said implementing Shareholders' equity and loan-loss allowance at Pacific the Office of the Comptroller of the Mercantile have risen over the past year. The company must Currency’s overhaul of the Community keep them above Dec. 31 levels to complete its sale to Banc of Reinvestment Act could be wasteful as California. regulators discuss a new interagency plan to modernize the law. Page 5 See story on page 4 Shareholders' equity Loan-loss allowance Banking groups to 6 Congress: Don’t throw out ‘true lender’ rule $200M Critics say the regulation issued by the Office of the Comptroller Currency is a $17.5M $17.4M $17.1M $150M $17.5M $18.2M gift to predatory lenders. But the trade $155.1M $158.7M $161.3M $147.5M $149.9M organizations warned lawmakers that invalidating it will make it difficult for the $100M agency to create an improved framework in the future. Page 5 $50M Five policy challenges $0 7 awaiting next OCC chief 1Q 20 2Q 20 3Q20 4Q20 1Q 21 The Biden administration may finally be close to naming an acting comptroller of the currency. Source: The company Whoever gets the interim job or is confirmed to run the agency over the longer term will have a lengthy to-do list. Page 6

After crackdown on Chime, Banks seek Biden’s dailybriefing 3 Green Dot trumpets bank status 8 aid after Trump’s It’s “powerful … to be able to use the word 1,000-sanctions-a-year pace Do Wells Fargo, U.S. Bancorp ‘bank’ in our marketing because we are a Wall Street firms have urged the Biden ad- 1 investigations signal legitimate financial institution,” CEO Dan ministration to ease the industry’s burden in a new era at CFPB? Henry said Wednesday. Its rival Chime complying with a flood of financial sanc- The banks disclosed this week that they recently agreed to stop referring to itself tions the U.S. has levied in recent years as a are under scrutiny for conduct that may as a bank in a settlement with California primary tool of foreign policy toward Russia, have harmed consumers. The timing regulators. Page 3 China, Iran and other adversaries. Page 7 raises questions about whether the Consumer Financial Protection Bureau The credit-quality kicker Small businesses under President Biden is poised to bring 4 in the Banc of California- 9 fueling Zelle’s growth more enforcement actions against large Pacific Mercantile deal First-quarter transaction volume rose 61% banks than it did under Trump-appointed About 13% of Pacific Mercantile Bancorp’s from a year earlier as merchants began using Director Kathy Kraninger. Page 2 loans are tied to high-risk sectors such the bank-backed network to accept and as entertainment and food services. The make more payments. Page 8 CFPB investigating company must build shareholders’ equity 2 U.S. Bancorp over or its loan-loss allowance above last year’s As fintechs develop consumer sales practices levels to make sure the sale goes through. 10 ‘super apps,’ are banks The probe is the latest example of the (See chart above.) Page 4 partners or rivals? consumer bureau scrutinizing sales tactics PayPal, Square and other companies are at big banks following the Wells Fargo fake- building multipurpose apps that can access accounts scandal. U.S. Bancorp said it is traditional bank accounts — or make them cooperating fully. Page 3 obsolete. Page 9 MONDAY MAY 10, 2021 AMERICANBANKER.COM PAGE 2

highest total in the bureau’s history, the complaints, internal fraud and sales practices LAW AND REGULATION penalties that it collected were less than 20% conduct, according to regulatory filings of those collected in the agency’s peak year, by the company. The $553.8-billion asset in large part because many of the companies company also has a sales practices oversight Do Wells targeted were relatively small. policy that is designed to ensure a unified But the agency’s recent enforcement approach across the company to prevent or Fargo, U.S. record is nuanced. Sales practices, which otherwise detect sales misconduct, it said in landed Wells Fargo in trouble starting in 2016, a report published last year. are one area where the agency’s scrutiny of The CFPB declined to comment on the Bancorp big banks has spanned both Republican and investigation. Democratic administrations. In 2019, the CFPB opened a civil investigations In a securities filing on Tuesday, investigation into Bank of America to U.S. Bancorp revealed that it is under determine whether the Charlotte, North investigation by the CFPB regarding “certain Carolina, company violated federal law signal a new of the company’s consumer sales practices.” by opening credit card accounts without The Minneapolis-based firm disclosed customers’ knowledge. That investigation era at CFPB? that it “has responded and continues began during Cordray’s tenure. to respond to the CFPB.” It added that Last year, the consumer bureau sued By Kevin Wack and Allissa Kline it is “cooperating fully with all pending Cincinnati-based Fifth Third Bancorp May 07, 2021 examinations, inquiries and investigations, for allegedly opening customer accounts Wells Fargo and U.S. Bancorp disclosed any of which could lead to administrative or without their authorization between 2010 this week that they are under investigation by legal proceedings or settlements.” through 2016. That case is expected to go to the Consumer Financial Protection Bureau A U.S. Bancorp spokesperson said in an trial in 2022 or later, unless a settlement is over conduct that may have harmed their email Thursday that the company cannot reached. customers. provide additional information because of Since 2018, the CFPB has reached The disclosures, which came in quarterly the confidential nature of supervisory work. settlements with TCF Financial and TD Bank securities filings, do not make clear whether “It is important to note that due to their Group in connection with the marketing and the investigations began under Presidents complex nature, regulatory exams, inquiries sale of overdraft services. And in November, Trump or Biden, and in Wells Fargo’s case, and investigations often take some time Regions Financial disclosed that it was the probe involves business practices that before they are resolved,” the statement read. responding to a civil investigative demand first attracted public scrutiny in 2019. After the Wells Fargo fake-accounts from the CFPB over certain overdraft policies Still, the timing of the disclosures raises scandal broke in 2016, then-U.S. Bancorp and practices. questions about whether a shift is taking CEO Richard Davis said that the company In Wells Fargo’s latest regulatory place at the agency charged with protecting did not impose sales quotas on its bankers disclosure, the company revealed that consumers from financial abuses. and had “never, ever” looked at cross-sell it is under investigation by the CFPB Legal observers have been expecting the ratios. in connection with past disclosures to consumer agency to focus more attention on U.S. Bancorp has a conduct risk committee consumer deposit customers regarding the enforcement, and particularly enforcement that oversees the risks associated with ethics minimum debit card usage that was required cases against big banks, during the Biden administration than it did under Trump- appointed Director Kathy Kraninger. Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 Cases against large banks have the Phone 212-803-8200 AmericanBanker.com potential to make a bigger impact than those against smaller firms, argued Chi Chi Wu, Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 a staff attorney at the National Consumer Managing Editor Dean Anason 770.621.9935 Law Center. “I think it’s certainly our hope, Reporters/Producers and maybe somewhat our expectation, that Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 the CFPB would not continue Kraninger’s Washington Bureau Chief Joe Adler 571.403.3832 pattern of going after small fish,” she said. Executive Editor, Technology Miriam Cross 571.403.3834 The CFPB delivered more than $10 billion Penny Crosman 212.803.8673 Jim Dobbs 605.310.7780 of relief to consumers in 2014 and 2015, but BankThink Editor Rachel Witkowski 571.403.3857 it collected less than $3 billion over the next John Heltman 571.403.3847, Allissa Kline 716.243.2679 Community Banking Editor Paul Davis 336.852.9496 five years combined, spanning the tenure of Hannah Lang 571.403.3855 both Obama-era Director Richard Cordray Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 and his Trump-era successors. Digital Managing Editor While the Kraninger-led agency brought Christopher Wood 212.803.8437 Kevin Wack 626.486.2341 48 enforcement actions last year, the second-

For up to date and complete coverage go to AmericanBanker.com MONDAY MAY 10, 2021 AMERICANBANKER.COM PAGE 3 to receive a waiver of monthly fees. according to a securities filing this week. Wells stated in 2019 that it was reviewing U.S. Bancorp said that it “has responded FINTECH past disclosures regarding the minimum and continues to respond to the CFPB.” debit card usage that was necessary to avoid The Minneapolis-based company added paying monthly fees, and that it expected to that it is “cooperating fully with all pending After make refunds to affected customers. But it examinations, inquiries and investigations, did not reveal the CFPB investigation until any of which could lead to administrative or crackdown on Wednesday. legal proceedings or settlements.” A Wells spokesman said in an email The CFPB did not immediately respond Thursday that the bank is issuing refunds to to a request for comment. A U.S. Bancorp Chime, Green customers who may have found its previous spokesperson said in an email that the disclosures unclear. company cannot provide additional Dot trumpets “Wells Fargo has simplified the options for information because of the confidential our customers to avoid the monthly service nature of supervisory work. fee on their checking account, and we no “It is important to note that due to their bank status longer offer an option to waive the monthly complex nature, regulatory exams, inquiries service fee based on debit card usage,” the and investigations often take some time By Kate Fitzgerald spokesman said. before they are resolved,” the statement read. May 06, 2021 Wells Fargo previously charged customers The CFPB has been scrutinizing banks’ As more fintechs offer banklike services, $10 per month to maintain either an sales practices in the wake of Wells Fargo’s Green Dot sees its banking charter as a Everyday Check or an Opportunity Checking fake-accounts scandal. In 2019 the agency differentiator. account, but waived the fee for customers opened a civil investigation into Bank of While Green Dot promotes the who conducted at least 10 transactions per America to determine whether the Charlotte, immediacy of mobile-first banking with its month, according to a 2019 letter by Rep. North Carolina-based company violated new GO2bank for low- to middle-income Katie Porter, D-Calif. federal law by opening credit card accounts consumers, it’s also leveraging the stability “ATM withdrawals are not credited without customers’ knowledge. and broad services of a true bank while toward that ten-transaction threshold,” Last year, the consumer bureau sued some fintechs struggle to clearly define Porter wrote, “but for years and despite the Cincinnati-based Fifth Third Bancorp for themselves. bank’s knowledge of widespread confusion allegedly opening customer accounts without Digital bank Chime must soon cease using among its customers, those customers their authorization between 2010 through the word “bank” on its website, according were not informed of the exclusion of these 2016. That case is expected to go to trial in to a settlement it reached with California transactions in the bank’s calculations.” 2022 or later, unless a settlement is reached. regulators. Since 2018, the CFPB has reached “It’s powerful for us to be able to use the settlements with TCF Financial and TD Bank word ‘bank’ in our marketing because we are SALES AND MARKETING Group in connection with the marketing and a legitimate financial institution,” said Dan sale of overdraft services. And in November, Henry, CEO of Green Dot, in an earnings Regions Financial disclosed that it was call Wednesday. “Words like ‘bank,’ ‘savings CFPB responding to a civil investigative demand account’ and others are things that other from the CFPB over certain overdraft policies neobanks and challenger banks should not investigating and practices. be allowed to use.” After the Wells Fargo scandal broke in Green Dot bought Bonneville Bank of 2016, then-U.S. Bancorp CEO Richard Davis Provo, Utah, in 2011, enabling the company U.S. Bancorp said that the company did not impose sales to issue its own prepaid cards. In the decade quotas on its bankers and had “never, ever” that followed, Green Dot has diversified its over consumer looked at cross-sell ratios. product line, and now plans to enhance U.S. Bancorp currently has a conduct risk GO2bank with lending and investment committee that oversees the risks associated services that may include buy now/pay later sales practices with ethics complaints, internal fraud options. and sales practices conduct, according to The Pasadena, California-based company By Allissa Kline regulatory filings by the company. invested heavily to launch GO2bank in May 06, 2021 The firm also stated in a report last year January, and the expense dented first- U.S. Bancorp is facing regulatory scrutiny that it has a sales practices oversight policy quarter profits somewhat — but the service over how it sells products to consumers. that is designed to ensure a unified approach is off to a brisk start with Green Dot now. The $553.8 billion-asset company is under across the company to prevent or otherwise Green Dot has reorganized its business investigation by the Consumer Financial detect sales misconduct. reporting structure into three segments, Protection Bureau regarding “certain of This story has been updated to add including consumer, business-to-business the company’s consumer sales practices,” comments from U.S. Bancorp. and money-movement services, as it

For up to date and complete coverage go to AmericanBanker.com MONDAY MAY 10, 2021 AMERICANBANKER.COM PAGE 4 builds a multi-pronged strategy to reach together with our cash access network, we issues it inherits from Pacific Mercantile. consumers directly and through businesses see great opportunities to expand to other About 13% of Pacific Mercantile’s its loans are and employers. verticals, including digital card programs, in high-risk categories such as entertainment, Green Dot reported revenue of $380 gaming, insurance, claim payouts and food services and transportation, according million, up 10% from $347 million for the lending,” Henry said. to a recent investor presentation. Classified same period a year earlier. Net income was This article originally appeared in assets at Pacific Mercantile fell by 30% in $25.7 for the quarter, compared with $46.8 PaymentsSource. the first quarter from the end of 2020 to $63 million for the same quarter a year earlier. million. Revenue was strongest in the consumer The stipulation tied to Pacific Mercantile’s segment, up 21% during the first quarter, M&A shareholders’ equity and its allowance was while the business and money-movement the product of talks between the companies segments saw declines in revenue due to that began late last year. marketing and operations investments. The credit- Denis Kalscheur, Pacific Mercantile’s Henry is optimistic about Green Dot’s chairman, held informal talks with Jared ability to gain market share in employer- quality kicker Wolff, Banc of California’s CEO, and the sponsored banking channels in the next few leader of an unnamed bank, in December and years. January, though no terms were discussed, GO2bank customers are using the product in the Banc according to the recent regulatory filing. for online and in-app purchases, with Green Banc of California and Pacific Mercantile Dot’s anti-overdraft feature contributing to of California- agreed to a nondisclosure agreement on Jan. revenue growth, according to Henry. Green 30 that allowed them to exchange information Dot gives customers a $200 cushion for privately. Two days later, Banc of California overdrafts. Pacific sent an all-stock proposal that valued Pacific “Over 65% of the overdraft transactions Mercantile at roughly $200 million, or a 46% we cover are no-fee transactions, which Mercantile premium to its stock price at the time. means we’re helping our customers when The filing noted that James Deutsch, a and where they need it,” Henry said. Pacific Mercantile director, and Kirk Wycoff, Green Dot plans to extend its “consumer- deal who is on Banc of California’s board, abstained friendly” overdraft feature in the direct from discussions and votes because of their business to all products at the end of May, By Paul Davis affiliation with Patriot Financial Partners, he said. May 06, 2021 which owns shares in both companies. In its banking-as-a-service business, Bank mergers are no slam dunk. The companies went back and forth on Green Dot still getting its footing, and profit A new regulatory filing tied to the some key matters in early February, including was down 12% due to flat-fee contracts. pending merger between two West Coast the number of board seats each would get Green Dot has seen very low turnover community banks is a reminder that, after and the nuts and bolts of the allowance among direct deposit-based customers that an announcement, sellers often have to work requirements. But they were close enough to have made Green Dot their primary banking quickly to get their houses in order or risk an agreement on Feb. 4 that they set up a 45- account, he said. derailing the deal. day exclusivity period. Payroll cards continue to be a steady When Pacific Mercantile in Costa Mesa, Pacific Mercantile informed the other driver of revenue for Green Dot. Rapid California, agreed to be sold to Banc of interested bank that it “was moving in a PayCard revenue was up 11% year-over-year California in Santa Ana in late March, it different strategic direction and would reach during the quarter, with 336 new employers pledged to shore up credit quality before out [if it] decided to continue exploring a coming onboard during the quarter. Nearly the deal’s expected completion in the third potential transaction,” the filing said. 5,000 small and midsize businesses are quarter. The company has been able to meet Banc of California submitted the initial now offering banking services to employees that condition of the $235 million transaction. draft of the merger agreement on Feb. 23. The through Green Dot. The $1.6 billion-asset Pacific Mercantile filing said that the final negotiations, which Green Dot recently began rolling out early is required to shore up credit quality by took place in late February and early March, wage access — which allows employees to increasing the total amount of shareholders’ centered on “certain due diligence matters, obtain the funds they’ve already earned equity and the loan-loss allowance above including … certain [Pacific Mercantile] between paydays — to employers using Dec. 31 levels, according to the filing. The credit matters.” Rapid. So far only a handful of companies company raised that total by nearly 5% in the Banc of California’s board approved the are using the service, but Henry expects first quarter to $184.4 million, as an increase merger on March 19. Pacific Mercantile’s adoption to increase over the next year. in shareholders’ equity offset a slight decline board signed off on the deal on March 22. Green Dot is also one of the top five in the allowance. Recoveries of charged off The deal value, boosted by an 18% increase U.S. providers of push-to-debit through its loans also factor into the equation. in Banc of California’s share price since its various distribution channels Henry said. The requirement should help the $8 initial offer, priced Pacific Mercantile at 146% “As we combine push-to-debit offerings billion-asset Banc of California manage any of its tangible book value.

For up to date and complete coverage go to AmericanBanker.com MONDAY MAY 10, 2021 AMERICANBANKER.COM PAGE 5

Banc of California expects the transaction evaluated and how banks are graded for their “As we have indicated in previous to be 12.9% accretive to its 2022 earnings overall CRA activity needs to be updated. correspondence, banks, community per share. It should take about two years for The OCC has taken quiet steps behind the advocates, and policymakers overwhelmingly the company to earn back any dilution to its scenes in recent months to slow the rule’s agree that the OCC should undertake CRA tangible book value. rollout. But in a letter sent to the agency by modernization jointly with the Federal Banc of California plans to cut about 35% trade organizations covering a wide swath of Reserve and the FDIC,” the trade groups of Pacific Mercantile’s annual noninterest financial services, representatives said that wrote in their letter to the OCC. expenses while incurring $18.1 million without more formal action from the OCC, An OCC spokesperson declined to in merger-related expenses. Two Pacific banks will waste considerable resources comment. Mercantile directors will join Banc of trying to prepare for a regulatory framework California’s board. that will likely never materialize. “Pacific Mercantile is a strong strategic fit “[A]s budget season and the 2023 REGULATORY REFORM for Banc of California,” Wolff said in a press compliance date draw near, CRA personnel release announcing the deal. “Their size, will be required to allocate significant funds business focus, and deposit profile perfectly and other resources to begin building new Banking align with our existing operations, and will technology systems, hiring consultants, accelerate our growth and operating scale in assembling project management teams, and groups to key markets.” retooling CRA programs,” the trade groups The filing noted that six investment wrote in the letter. “These will be significant funds collectively own nearly 52% of Pacific expenditures that will be wasteful if the OCC Congress: Mercantile, including Patriot, with an 11.3% significantly modifies the Rule as part of a stake, and Fourthstone, which has 10.6% of future interagency rulemaking.” Don’t throw the company’s outstanding shares. The letter, dated May 3, was signed by the American Bankers Association, Association of Military Banks of America, Bank Policy out ‘true REGULATORY REFORM Institute, Community Development Bankers Association, Consumer Bankers Association, lender’ rule Housing Policy Council, Independent Trade groups Community Bankers of America, Mortgage By Brendan Pedersen Bankers Association, National Association May 06, 2021 call on OCC to for Affordable Housing Lenders, and the WASHINGTON — A group of bank and National Bankers Association. fintech trade associations urged Congress “[W]e urge you to take official action now not to strike down a rule defining the “true withdraw CRA — to publicly pursue a joint CRA rulemaking lender” in bank-nonbank partnerships, the with the Federal Reserve and the FDIC and latest salvo in a long-running fight between rule to officially withdraw the Rule or issue a two- consumer groups and financial firms. year delay,” the groups wrote. The rule, finalized by the Office of the By Brendan Pedersen One of the Trump era’s most contentious Comptroller of the Currency in October, May 06, 2021 rollouts in financial regulation, Otting’s has come under significant scrutiny from WASHINGTON — Financial industry approach to modernizing the CRA was Democrats on Capitol Hill in recent months. groups called on the Office of the controversial from the beginning. The Consumer advocates say the regulation Comptroller of the Currency this week to rule sought to make compliance more would make it far easier for predatory lenders formally withdraw its rule modernizing the objective and transparent but was blasted to evade state interest rate caps. Community Reinvestment Act. by community advocates, who feared But in a letter dated May 6 addressed to The rule, finalized last May under former the changes would significantly weaken Senate leadership, the trade groups asked Comptroller Joseph Otting, has technically bank obligations. Banks also protested Congress to reject Senate Joint Resolution 15, been in effect since October but the most over potential data and recordkeeping introduced by Sen. Chris Van Hollen, D-Md., significant changes won’t take hold until 2023 requirements. in March. If approved through a simple or later. With the Biden administration now But one of the more fundamental majority vote, the resolution would throw in office, analysts widely expect policymakers complaints from financial services providers out the OCC’s rule using the Congressional to re-open negotiations on the historic anti- and community groups alike was the lack of Review Act. redlining law. consensus between the OCC, Federal Deposit “Changes should be made to the True The CRA was originally intended to Insurance Corp. and Federal Reserve. The Lender Rule,” the groups conceded in encourage banks to invest in their market absence of an interagency rule, they argued, the letter. But they also cautioned that areas and boost community development in would create long-term confusion and a congressional rejection “would create low-income neighborhoods. But many say ultimately worsen industry performance significant legal impediments to creating a the assessment boundaries in which a bank is under the law. much-needed framework for providing safe

For up to date and complete coverage go to AmericanBanker.com MONDAY MAY 10, 2021 AMERICANBANKER.COM PAGE 6 and affordable credit to consumers.” comptroller of the currency, reports began the negotiating table, policymakers have Under the Congressional Review Act, to circulate this week that the Treasury a second chance to issue a final, joint Congress has the authority to undo policy Department was set to appoint Michael Hsu, rulemaking. actions taken by federal regulators. If a senior Federal Reserve official, to the post. A new acting comptroller could play a key a regulation is successfully blocked by It is still a mystery whom the role in the progress of the such negotiations Congress, future regulators are prevented administration plans to nominate for the as would a Senate-confirmed head of the from issuing a subsequent rule that is permanent job after several names were agency. “substantially the same” as what was struck floated. The new leadership of the Office of Several financial trade groups this week down. the Comptroller of the Currency will face a wrote to acting Comptroller Blake Paulson The trade associations — including the long to-do list of difficult policy questions urging him to withdraw the agency’s CRA American Bankers Association, American ranging from reforming the Community rule or delay its January 2023 compliance Fintech Council, Consumer Bankers Reinvestment Act to determining how the date by at least two years. Association, Electronic Transactions agency proceeds with its efforts to offer “To date, most banks have conducted Association, Independent Community charter options to fintech firms. preliminary preparations to implement the Bankers of America and the Mid-Sized Bank An interim comptroller would likely play June 2020 Rule; they have not yet dedicated Coalition of America — said that constraint a key role advancing the ball on several the full scope of resources that will be needed could seriously impede the OCC from issuing issues until the administration’s nominee is to create the technological infrastructure an improved “true lender” rule in the future confirmed. necessary to comply with the Rule and with more built-in consumer protections. If Hsu is officially tapped for the job, its new data reporting requirements,” the “A vote of disapproval using the CRA Democrats would welcome the move. Many groups wrote. would prevent the OCC from considering have blamed the White House for leaving the “However, as budget season and the 2023 whether other factors could supplement the agency on autopilot since Trump appointee compliance date draw near, CRA personnel agency’s true lender framework,” the trade Brian Brooks stepped down at the end of the will be required to allocate significant funds groups wrote. “We believe the True Lender prior administration and the baton shifted and other resources to begin building new Rule could be improved if it establishes to Blake Paulson, an OCC career veteran. technology systems, hiring consultants, expectations for regulatory compliance and They say the delay in naming a new acting assembling project management teams, consumer protection that will limit the risk of comptroller has wasted time on making and retooling CRA programs. These will be predatory and abusive lending.” progress on several policy fronts. significant expenditures that will be wasteful “Invalidation of the True Lender Rule Here are five policy areas that will face a if the OCC significantly modifies the Rule as removes that opportunity to create a more future comptroller of the currency on day part of a future interagency rulemaking.” fulsome true lender framework,” the groups one. Ultimately, the agency’s new leadership said. would need to decide just how much of Democrats on Capitol Hill are likely Re-making the Community Reinvest- Otting’s approach should be preserved. approaching a key deadline on the matter. ment Act Pressing questions include: How exactly Under the Congressional Review Act, No policy challenge looms quite as large should banks receive CRA credit for activity legislators must vote to overturn a regulation for the next comptroller of the currency as outside their typical assessment areas, within 60 legislative days of its publication in picking up the pieces of CRA reform. The and will regulators need to introduce new the Federal Register. effort to finally reform the historic anti- recordkeeping requirements for banks? redlining law — last updated in 1995 and requiring banks to invest a certain amount of Future of fintech charters CRA money and services to the nation’s poorest Another item high on the list of policy neighborhoods — will impact billions of questions for the next comptroller is: Which dollars of community investment in the nontraditional firms should be able to 5 policy years to come. qualify for a national bank charter? Although former Comptroller Joseph The question has dogged the OCC for challenges Otting technically finalized his own version years. Under the Obama administration, of reform last May, few analysts expect former Comptroller Tom Curry introduced the changes to stick under the Biden a special-purpose charter for fintech firms, awaiting next administration given a clear lack of support but no company has yet applied and the from fellow regulators at the FDIC and charter is tied up in a federal court challenge OCC chief Federal Reserve. Banks and community brought by New York state that is currently groups alike oppose a fragmented, two- awaiting a decision from the Second Circuit By Brendan Pedersen tiered system for CRA compliance. Court of Appeals. May 06, 2021 But with the OCC rule not yet Under former acting Comptroller Brian WASHINGTON — After months implemented, the Biden administration Brooks, the agency advanced applications of suspense over when the Biden poised to appoint a new head of the agency for the OCC’s preexisting trust charter by administration would name an acting and other regulators willing to return to cryptocurrency firms, and Brooks proposed

For up to date and complete coverage go to AmericanBanker.com MONDAY MAY 10, 2021 AMERICANBANKER.COM PAGE 7 a charter option that would be tailored to business decisions deemed political such payments-focused firms. as denying financial services to unpopular COMPLIANCE While a future OCC appointee could weigh industries like firearms manufacturers. in on whether the agency offers the yet-to- Under the rule, finalized by Brooks, banks be-used special fintech charter, a new acting must provide “fair access” to customers Banks seek comptroller could face immediate decisions seeking their services. on whether to approve pending applications Conservatives cheered the rule, while Biden’s aid of fintech firms that are seeking other types banks blasted it as unworkable. After of charters, including Figure Technologies, Brooks left the agency, his successor, Oportun and the cryptocurrency firm BitPay. Paulson, announced that the agency paused after Trump’s publication of the rule in the Federal ‘True lender’ rule Register, effectively leaving it in limbo and 1,000-sanc- Consumer advocates and their unenforceable. Democratic allies in Congress have become The individual Biden appoints to become increasingly critical of banks that allow comptroller in the short or long term has a tions-a-year nonbank partners to export interest across decision to make. A Democratic comptroller state lines, thereby avoiding usury laws. could simply allow the unpublished rule to pace The fight centers on the OCC’s “true gather dust. If a Democrat chooses not to lender” rule. Published under Brooks in act, analysts say, it will be easier for future By Bloomberg News October, the rule introduced a simple test Republicans to pick up where Brooks left off. May 06, 2021 the agency would use to determine who is Wall Street firms have urged the Biden ultimately responsible for ensuring a loan Real estate appraisal reform? administration to ease the industry’s burden complies with the law within the context Absent a Biden pick to lead the OCC, in complying with a flood of financial of a bank-nonbank partnership. If a bank acting Comptroller Blake Paulson has made sanctions the U.S. has levied in recent years funds a loan or is named the lender in a clear in recent weeks that he has limited as a primary tool of foreign policy toward loan agreement, the rule said, it would be policy ambitions atop the country’s national Russia, China, Iran and other adversaries. considered the “true lender.” But critics bank regulator. But there is one area where Financial services industry groups have say that validates predatory “rent-a-bank” he has signaled having an interest in reform asked for more transparency and flexibility to structures that allow nonbanks to market where a Biden comptroller could pick up on: target big-money evasion of the restrictions, loans while evading their applicable state residential real estate appraisals and the role as the Treasury Department undertakes an interest rate caps. they play in bank loan evaluations. exhaustive review of its sprawling sanctions Democratic lawmakers are attempting At a virtual event hosted by the Consumer programs, led by Deputy Secretary Wally to invalidate the rule through the Bankers Association last month, Paulson Adeyemo. Congressional Review Act, but it is unclear if said appraisals had become “more of a Banks have made their case in meetings there are enough votes in the Senate. compliance exercise” for banks. He also with Adeyemo in recent weeks, according “Like so much of what we do, this comes criticized the appraisal industry for putting to Treasury statements. The agency plans back to one question: Whose side are you up “significant barriers to entry” over to issue its findings this summer, an official on?” said Senate Banking Committee the years, adding that “when you put up said. Chairman Sherrod Brown, D-Ohio. “You can barriers to entry, you inhibit diversity in the Avoiding U.S. penalties for violations has stand on the side of online payday lenders industry.” grown more challenging for banks as the that brag about their creativity in avoiding Appraisal reform could potentially government’s dependence on sanctions has the law, … or we can stand up for families interest a Democratic comptroller in surged. The Trump administration issued and small businesses and state attorneys light of progressives’ aims to address about 1,000 sanctions a year — twice as many general and state legislators who have said racial inequities in the financial system. as the Obama administration, according to enough, and are trying to protect themselves Some point to appraisals as having the law firm Gibson Dunn & Crutcher. and their states from predatory lending played a discriminatory role in limiting Not only must banks and other companies schemes.” homeownership and wealth-building steer clear of anyone sanctioned by the U.S. But a new acting comptroller or Senate- among Black consumers. Studies have Treasury Department, they must also watch confirmed head of the OCC could announce found that Black-owned homes are routinely for so-called secondary sanctions on non- that the agency is reopening the rulemaking appraised at lower values than white-owned Americans who do business with sanctioned process to attempt overhaul or rescind the homes. A 2018 Brookings Institution study entities. true lender policy. argued that homes in Black neighborhoods “Sanctions have definitely gotten more were undervalued by $48,000 on average. complex,” said Angelena Bradfield, senior Fair access rule vice president for sanctions and privacy at One of the most controversial rulemakings the Bank Policy Institute in Washington, of the Trump-era OCC was a policy intended a trade group. “Banks are having to create to punish large national banks for making bespoke compliance apparatus to cope with

For up to date and complete coverage go to AmericanBanker.com MONDAY MAY 10, 2021 AMERICANBANKER.COM PAGE 8 an increasingly complex landscape and companies and fake names. going into business with U.S. adversaries. complex sanctions.” The industry has suggested to Adeyemo He cited Russian President Vladimir In recent weeks, Adeyemo has solicited that the government issue regulations Putin as an example. After the U.S. began recommendations to address “unanticipated explicitly allowing banks to focus compliance sanctioning Putin’s associates following challenges” created by sanctions in virtual efforts on high-value transactions. Russia’s annexation of Crimea in 2014, the meetings with some of the financial services The escalation in U.S. sanctions reflects financial services industry often sought industry’s largest lobbying groups, including the nation’s weariness with taking military Fried’s advice on compliance with each the Securities Industry and Financial action against its enemies, after nearly two round of penalties. Markets Association, the BPI and the decades of war in the Middle East spurred by Fried says they shouldn’t have been American Bankers Association, according the Sept. 11, 2001, terrorist attacks. surprised: “Did it just occur to them that to Treasury statements. An official said the In recent years, the U.S. has imposed Putin is a difficult person?” outreach also includes foreign counterparts. sanctions to punish Russia for aggression Financial institutions must use their own against its neighbors, cyberattacks and the resources to figure out which businesses are poisoning of dissidents. Senior Chinese B-TO-B PAYMENTS majority owned by sanctioned individuals. government officials have been cut off LexisNexis Risk Solutions estimated in from the global dollar-based economy an October report that financial institutions over human-rights abuses. Sanctions Small in the U.S. and Canada together would have targeted relatives of heads of states, spend $42 billion in 2020 on financial crime such as Venezuela’s Nicolas Maduro, businesses compliance — which includes sanctions drug smugglers, weapons traffickers and and anti-money-laundering efforts — an even individual oil tankers used to evade increase of a third from the year before. prohibitions on doing business with Iran fueling Zelle’s and Venezuela. 50% rule One key goal of Adeyemo’s review is growth Groups including the ABA and the Bank to figure out the cost of sanctions to the Policy Institute have asked Treasury for economies of the U.S. and its allies, a By David Heun assistance managing what is known as the Treasury official said. The examination is May 05, 2021 50% rule: Any business whose majority expected to result in recommendations More consumers and businesses are owner is under U.S. sanctions is also for internal changes in the management of using Zelle, and the bank-backed payment sanctioned. sanctions and public guidance, the official network wants to remove any points of For now, the federal government does not said, asking not to be identified. friction for new users. provide financial institutions a list of entities Adeyemo and his team, including his Early Warning Services wants banks to that fall under the 50% rule. The onus is on counselor Elizabeth Rosenberg, seek to concentrate on making sure their customers banks, who don’t share the information with ensure that U.S. sanctions reflect the nation’s know how the Zelle service works — one another. They have also asked for help values abroad and don’t harm the domestic especially first-time users who may get a from the U.S. intelligence community to financial system, the agency says. notification of receiving a Zelle payment, but create a list. The basis for Treasury’s review is, in aren’t aware they have to register an email One recommendation offered topart, driven by concerns former Treasury address or phone number to create the token Adeyemo during virtual meetings is to allow Secretary Jacob Lew outlined in a 2016 needed for the account-to-account transfer. information sharing between the public speech, during the Obama administration, “The comforting words of ‘you have and private sector so that together they can a Treasury official said. Lew warned at the money’ is a strong motivator for people create a master list of entities subject to the time that U.S. overreliance on sanctions when notified of a Zelle payment, so we have 50% rule. posed risks to the dollar’s centrality in the high conversion rates,” said Albert Ko, CEO “It is not always a simple matter to identify global financial system. of Early Warning, which operates the Zelle those 50% entities,” said Rob Rowe, a lawyer It’s a risk that became real during the network. “But when the recipient clicks at the ABA. Clarity from Treasury would Trump era. The reinstatement of economic on that the first time, does it send them to “enhance” compliance work for banks, he restrictions on Iran drove even close U.S. register or to a web page they have to log said. allies such as France and Germany to look into? Some people don’t get past that.” for ways to work around the dollar in order Early Warning announced Wednesday Cost of compliance to maintain ties with Tehran. that $106 billion was sent through the Zelle One key concern the industry has As the financial services industry lobbies network on 392 million transactions during aired in Adeyemo’s review is prioritizing for relief, it’s finding limited sympathy the first quarter. Sent payment values enforcement. Regulators now expect banks among some experts. Daniel Fried, a former increased by 74% compared with the first to apply the same sanctions screening and State Department official who is now a quarter of 2020, while payment transactions investigative techniques to a dinner put distinguished fellow at the Atlantic Council, increased by 61%. on a credit card, for example, as they do to said banks should take due diligence more Zelle Small Business is one of the major million-dollar transactions involving shell seriously and consider the consequences of growth areas for the Zelle Network, with

For up to date and complete coverage go to AmericanBanker.com MONDAY MAY 10, 2021 AMERICANBANKER.COM PAGE 9 transactions increasing 180% from a year The transaction growth in the first quarter will be an all-in-one personalized app,” Dan earlier. of 2021 continued a trend that started last Schulman, PayPal’s president and CEO, “If you look at overall numbers, run rate year during the height of the pandemic — said during the company’s earnings call and growth rate, we will be doing north of a large-scale consumer shift to digital and Wednesday. a half a trillion dollars moved this year and contactless payments. “Consumers are turning to brands they exceeding 2 billion transactions,” Ko said in Early Warning reported a 60% increase in trust when it comes to choosing a super an interview about first-quarter results. “The Zelle transaction volume during the first six app. That clearly plays into our strength,” vast majority of them are repeat users and months of 2020 compared with the first half Schulman said. that is what drives the network. People are of 2019. Other than PayPal, apps from Curve, delighted by the solution and use it more.” Currently, consumers of nearly 8,000 Instarem, Revolut and Wise that started The average Zelle transaction value is financial institutions participate in the Zelle with a single service are adding a raft of $273, indicating that the service has moved Network, whether accessing Zelle through features such as fast low-cost remittances, beyond a tool to split restaurant meals or their financial institution’s mobile banking bill payments, savings, budgeting and pay small amounts to friends or family app or enrolling their debit cards in the Zelle installment loans. While providing some of members, Ko said. mobile app. the services themselves, these fintechs can “The average shows an amount that Early Warning is closing in on 1,000 also provide access in a single location to matters and it means a lot to get it quickly,” banks and credit unions with the “live” Zelle products from financial services partners. Ko added. “Small businesses see that and account-to-account experience integrated Because these apps are relatively new, use it to move money, safely and quickly into their online and mobile banking they can offer a fresher interface while using right into an account. That is what is driving services. open banking to link to customers’ external a lot of the usage and new growth. The Early Warning is a fintech company bank accounts. And in some cases, the underpinnings are recurring users now owned by seven of the country’s largest super apps are also able to substitute for a using it more — and more cases from where banks — Bank of America, JPMorgan Chase, traditional banking relationship. Zelle had its original focus.” Truist Financial, Capital One Financial, PNC “In the U.S., super apps encourage Overwhelmingly, at more than 90%, Financial Services Group, U.S. Bancorp and consumers to deposit their salaries and the use of Zelle takes place through the Wells Fargo. stimulus checks directly into their payment app on a mobile device. But that doesn’t This article originally appeared in accounts, and they all issue debit cards help a customers who mistakenly think, PaymentsSource. which make the funds accessible and for example, that they can send money to spendable,” said Talie Baker, senior analyst another person only if that person is using at Aite Group. the same bank. FINTECH “PayPal’s mobile app is intuitive and “With the volumes we’re talking about, cool,” Baker said. “It’s so much easier to sign that 90% is a very significant number,” Ko up for a PayPal account than a bank account, said. “But we recognize that even though As fintechs and the mobile experience is so much easier recognition of Zelle continues to increase, than any [financial institution’s] mobile the awareness of what Zelle is and exactly develop a p p.” what it does and how many banks offer it … Companies like Square have reported there is room for improvement there.” heightened activity from stimulus In the near future Zelle will add an option ‘super apps,’ payments. Square’s Cash App, which began to use QR codes to initiate and receive a as an interface for a simple email-based P2P payment. Users would get a QR code option are banks payment system, has become a launchpad in their Zelle service and use cases would for additional financial services including a mount once it officially becomes part of the debit card and bitcoin purchasing. payment options, Ko noted. partners or But there are also partnership Also, the Zelle process will include a new opportunities, such as Google’s work with feature that will allow the payment sender rivals? Citigroup and Stanford Federal Credit Union to see if the payee is actually signed up to on its Plex account within Google Pay. accept Zelle. If that person is not enrolled, By Robin Arnfield Baker predicts the user experience for an alert can be sent to remind the recipient May 06, 2021 super apps will continue to drive demand to sign up upon receiving the email with More fintechs are developing “super for the expanded services the super apps payment attached. apps,” which are designed to bring together are starting to offer. If the super apps were Zelle as a business tool is likely to keep services from new and legacy financial to offer payments at the point of sale, this growing as more businesses owners find it services providers — and in some cases, could catapult them to greater consumer easy to use for payments to suppliers and could replace the need for a separate bank adoption, Baker said. “This could enable vendors, or to employees. account. them to become a global WeChat or Alipay.” Early Warning did not release enrollment PayPal, for example, is promising its own There is a trend for remittance and figures, which it does not provide quarterly. super app in the third quarter of 2021. “It payment services providers to morph into

For up to date and complete coverage go to AmericanBanker.com MONDAY MAY 10, 2021 AMERICANBANKER.COM PAGE 10 all-in-one apps, according to Ruchika Kohli, they can add value, Hines said. TransferWise used by many of the incumbent banks,” U.S., Canada, EU and U.K. consumer head at rebranded to Wise to emphasize the fact that she said. “Just 2.5% of French consumers the digital remittance provider Instarem. it is now a global payments network offering changed their bank in 2019, despite nearly “Consumers don’t like having lots of multiple B2B and consumer services such as 17% saying that they wish to do so.” payments and banking apps to log in to, so multicurrency debit cards with pay-in and During 2021, Curve plans to roll out they want to consolidate,” Kohli said. payout capabilities, not just a remittance its Curve Credit product, which offers Instarem, which is owned by the provider. installment loans, and also plans at Singapore-based fintech Nium, serves over “Revolut’s vision is to become the ‘go some point to offer refinancing deals for 100 markets and has 130 million customers, to’ financial super-app for consumers and customers’ credit card debt. Curve Credit processing $6 billion in transactions businesses by offering them one place gives customers the tools to make borrowing annually. It has announced plans to move to manage all their financial lives,” said decisions that suit them, Oestmann said. beyond consumer and small-business Joshua Fernandes, Revolut’s product owner “They are able to create an affordable remittances to become an all-in-one app for open banking. Through its Lithuanian installment plan, taking control of how and provider. bank license, the U.K.-based Revolut offers when they want to make repayments.” Instarem’s first step will be to launch the banking services in 12 EU countries and Curve also plans to enter the U.S. this year, Amaze debit card that will enable consumers recently applied for U.K. and U.S. banking Oestmann said. “The U.S. is a huge market, to consolidate all their cards into one licences. so it’s natural that we want to make it there. payment instrument. It is also developing Revolut turned to TrueLayer’s open But it’s a very different market to Europe, so neobanking services that will be launched banking technology, as it was looking for a we’re ensuring that we will launch a product in various geographies in the next few years. way to give its customers a complete view that serves the needs of U.S. consumers.” While Instarem hasn’t decided what of their finances without having to log into This article originally appeared in financial services to include in its super multiple websites and apps, said Ossama PaymentsSource. app, Kohli said a possibility would be social Soliman, TrueLayer’s chief product officer. media payments and a dashboard of users’ Funding Revolut accounts using manual linked bank accounts showing holdings in bank transfers was time-consuming for MONETARY POLICY these accounts. customers, requiring them to log into their “Our customers are immigrants with external bank’s website or app to set up a bank accounts and properties in their home payment, Soliman said. Biden aide country and the country they immigrated to; “Adding funds using credit or debit they want to manage their financial life from cards was also a disjointed experience for demurs on one place,” she said. customers, and came with the risk of fraud Building a stronger and more engaged and additional transaction fees for Revolut,” client base through a super app is a driver Soliman said. “Our payments API enables question of for fintech expansion into new product customers to top up and access their areas, according to Kieran Hines, senior Revolut funds instantly in real time, without second term analyst at Celent. entering card details or sharing their bank “The more services you offer customers, credentials.” the more likely they are to remain your Curve provides a card that acts as the for Powell at customer and, with payments, being top of front end to customers’ existing cards and wallet is very important,” Hines said. accounts. “Our vision is ‘one card to rule Fed Another driver for super apps is revenue them all,’ “ said Nathalie Oestmann, the growth, since the wider the range of efficient U.K. company’s chief operating officer. By Bloomberg News and competitive products a company can “Curve isn’t a bank; we’re an over-the-top May 04, 2021 offer its customers, the better it can reach its banking platform that houses multiple cards A senior White House economic aide growth targets. and accounts in one card and app, giving demurred on the question of whether “Fintechs such as PayPal are looking to customers a tool to aggregate their finances.” President Joe Biden will nominate Federal emulate the success of Alipay and WeChat In December, Curve partnered with Plaid Reserve Chair Jerome Powell for a second Pay, which have created one-stop shops to use open banking technology so its U.K. four-year term, saying the decision on for financial services in Asia,” said Hines. customers can connect all their payment selecting the next central bank chief will “If you’re at the heart of the financial accounts at 95% of financial institutions in come after a thorough “process.” relationship with the customer, it’s far easier the U.K. and view their linked cards’ real- “It’s neither yes nor no,” Jared Bernstein, to be the organization that generates the time balances. a member of Biden’s Council of Economic financial benefit of that.” Oestmann said Curve enables customers Advisers, told a Politico event Tuesday It’s a natural next step for fintechs such to experience the benefits of 21st-century in response to question on whether the as Revolut and Wise, which were initially digital banking without ending their president should re-nominate Jerome Powell heavily focused on foreign exchange relationship with their existing bank. “In as Fed chair. services, to look for adjacent areas where France, the pain point is the legacy tech Powell’s tenure at the helm of the U.S.

For up to date and complete coverage go to AmericanBanker.com MONDAY MAY 10, 2021 AMERICANBANKER.COM PAGE 11 central bank expires in February. Biden opening two to three traditional branches in said last month that he hadn’t spoken to metropolitan markets. Powell out of respect for the institution’s “Our branches and employees are independence. passionate about providing the highest Powell, 68, was appointed to the Fed’s quality service and leadership in our local Board of Governors by President Barack communities,” Dennis Zember Jr., the Obama and elevated to chair by his successor company’s president and CEO, said in the Donald Trump. release. Biden is expected to weigh the choice of “This high-touch model is important, Fed chair, as well as other positions at the but at the same time we are cognizant of central bank, in coming months. He is already how customer behavior and demands for being lobbied to use a current vacancy on more technology have changed over the the seven-seat board in Washington to bring last year,” Zember added. “We launched a greater diversity to the central bank. new brand with a vision of being unique in this industry, wanting to use technology to improve the customer experience. Our efforts DIGITAL BANKING here should create a competitive advantage and something noticeably unique in our communities.” Primis Primis was known as Southern National Bancorp of Virginia until it rebranded in Financial March. Its Sonabank unit became Primis Bank. q in Virginia © 2021 Arizent and American Banker. planning All rights reserved. digital bank

By Paul Davis May 04, 2021 Primis Financial in McLean, Virginia, is planning a digital bank. The $3.3 billion-asset company said in a press release last week that it will launch the bank by the end of this year. The as-yet- unnamed bank will use a cloud-based core platform from Finxact and services from fintechs such as Apiture, Savana and Levvel. Primis said the digital bank will offer real-time processing and fully self- contained mobile applications, including in-app account opening. It will operate in parallel with the the company’s existing infrastructure, which is handled by Fiserv. The initial rollout will focus on deposit products for retail and small-business customers. The platform “will feature rates, fee schedules and customer incentives that recognize the substantially lower infrastructure costs borne by the bank to provide services,” Primis said in the release. Primis said the capital investment associated with launching the digital bank would be roughly equal to those tied to

For up to date and complete coverage go to AmericanBanker.com