WEDNESDAY NOVEMBER 4, 2020 VOL. 185 No. 213 AMERICANBANKER.COM Follow us on Twitter @AmerBanker Wells Fargo taps 5 Capital One executive Consumers' surprising resilience to lead diversity efforts Kleber Santos will be responsible for Credit card delinquencies have declined sharply this year even as building a more inclusive workforce unemployment numbers have risen. Figures are based on data and designing products that meet the provided by Alliance Data, American Express, Capital One, Discover needs of a broader, more diverse range of and Synchrony. customers. Page 6 Total card loans at least 30 days past due See story on page 4 Beam Financial vanishing 6 act a cautionary tale $14B for partners of fintechs Customers say the Beam savings app is down and the company isn’t returning their $12B $12.6B $12.6B $12.3B $12.1B money. The situation is putting third parties $11.9B $11.4B $11.4B like Huntington and Dwolla in the firing line, $10B $10.4B though they say they’re not at fault. Page 6

$9.2B $8B Mercantile in Michigan $8.1B $7.5B 7 expands mortgage $6B $6.8B $6.8B business to Cincinnati The company is looking to tap into a surge of $4B homebuying tied to historically low interest

Sept. Oct.Nov. Dec. Jan. Feb. MarchApril MayJuneJulyAug. Sept. rates. Page 8 2019 2020 Source: Autonomous Research ATM coating targets 8 COVID-19 and other ‘nasty things A new service from NCR aims to reduce dailybriefing How much longer will surface transmission of the coronavirus 3 consumer credit hold up? through the application of an antimicrobial Payment rates for auto lenders and credit cleaning product that kills germs. Page 8 Who would craft card issuers have remained strong despite 1 regulatory policy in a spike in unemployment. Whether these Spencer Savings in N.J. taps a Biden administration? trends continue into 2021 will depend largely 9 insider as next president A Democratic victory in Tuesday’s election on the actions of Congress and the pace of Jane Allerman-Rey, the mutual’s chief would likely produce new leaders at the medical advances. (See chart above.) Page 4 operating officer, will take on the new role in CFPB and OCC who could take bank January. Page 9 regulation in a sharply different direction. Hawaii banks gird for Here are some names potentially under 4 prolonged tourism slump Now is not the time to freeze consideration. Page 2 A prosperous decade leading up to the 10 small-business lending pandemic had left lenders in good shape, Credit is tightening to 2008 levels at a Citi’s chief risk officer to but they’re worried the economic shock to time when small businesses need help 2 depart as bank begins risk the state’s most vital industry could linger the most, former SBA chief Karen Gordon management rebuild into 2022. Page 5 Mills writes in BankThink. Page 10 The departure of Brad Hu at the end of the year opens the door for Citi’s soon-to-be CEO Jane Fraser to hire someone new to oversee the bank’s massive risk systems overhaul. Page 3 WEDNESDAY NOVEMBER 4, 2020 AMERICANBANKER.COM PAGE 2

in a Democratic administration include is how much of a majority the Dems have in ELECTION 2020 Rep. Katie Porter, D-Calif., a former law the Senate.” professor at the University of California, Both Porter and Chopra could hit the Irvine School of Law, who studied under ground running. A major caveat for Porter Who would Sen. Elizabeth Warren, D-Mass., when she is that she also is considered a contender was a law professor; and Rohit Chopra, a for the Senate seat that would be vacated by craft regula- former assistant director at the CFPB who vice presidential candidate Kamala Harris. is currently a member of the Federal Trade Chopra, meanwhile, has stood out as Commission. an FTC critic of the Trump administration tory policy in If Trump wins, the status quo would likely and a vocal supporter of consumer rights. remain. Kraninger’s term does not expire Because he already has been confirmed by a Biden ad- until 2023. A Trump appointment to head the Senate, he also could fill the CFPB role the OCC either in a lame-duck period or on an acting basis. afterward would likely reflect the current If Democrats do not win a majority in ministration? administration’s deregulatory priorities. the Senate, appointing a replacement for The current terms of Federal Reserve Chair Kraninger may be tougher. By Kate Berry Jerome Powell and FDIC Chair Jelena The next CFPB director also could come November 02, 2020 McWilliams expire, respectively, in 2022 from the ranks of state attorneys general. For If Democrat Joe Biden wins the and 2023. example, New York Attorney General Letitia presidential election, he could choose But who ultimately could become CFPB James and California Attorney General from a crop of Democratic state officials, director in a Biden administration may also Xavier Becerra have taken tough stands on members of Congress and others for top depend on the balance of power in Congress, enforcing consumer protection laws. bank regulatory jobs. where Democrats are trying to take back Other names that have been floated for In addition to nominating a Treasury control of the Senate. Some candidates the CFPB job include Chris Peterson, the secretary, replacing CFPB Director Kathy vying for the job could end up filling other Democratic gubernatorial candidate in Utah. Kraninger would likely be high on the list slots in a Biden administration. Peterson, a law professor at the University of of priorities for a Biden administration “There are some people who could Utah, is a former special adviser to former following a Supreme Court ruling earlier reasonably slot into multiple different CFPB Director Richard Cordray. this year that allows the president to fire positions at the Treasury or the Fed,” Another dark-horse candidate is Michael the CFPB head. Meanwhile, a Biden White said one policy analyst who spoke on the Barr, a former Treasury assistant secretary House could potentially select a new head condition of anonymity. in the Obama administration who was a of the Office of the Comptroller of the Many expect a CFPB director in a Biden key architect of the Dodd-Frank Act and Currency, since Brian Brooks is only the administration would need the blessing of served on the National Economic Council. acting comptroller. Warren, the agency’s architect. Barr, now a law professor at the University of Most national polls show Biden with an “Sen. Warren is going to have a say in Michigan, had been a special assistant and advantage over President Donald Trump who gets that seat,” said Isaac Boltansky, deputy assistant secretary of the Treasury in one day before Election Day, but many director of policy research for Compass the Clinton administration and decades ago commentators expect the battle for the Point Research & Trading. “The real caveat co-wrote legal articles with Warren. Electoral College to be close. Should Biden win, many expect a change at the CFPB could be announced as early as Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 January. Phone 212-803-8200 AmericanBanker.com “For consumers, replacing the CFPB director is the most important decision that Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 can be made off the bat,” said Jeremy Kress, Managing Editor Dean Anason 770.621.9935 an assistant professor of business law at the Reporters/Producers University of Michigan’s business school. Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 “The CFPB carries a level of symbolism and Washington Bureau Chief Joe Adler 571.403.3832 visibility that the OCC does not, and a Biden Executive Editor, Technology Miriam Cross 571.403.3834 administration might want to highlight that Penny Crosman 212.803.8673 Jim Dobbs 605.310.7780 role.” BankThink Editor Rachel Witkowski 571.403.3857 The CFPB director also sits on the board John Heltman 571.403.3847, Allissa Kline 716.243.2679 Community Banking Editor Paul Davis 336.852.9496 of the Federal Deposit Insurance Corp. and Hannah Lang 571.403.3855 the Financial Stability Oversight Council, Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 and therefore could weigh in on safety and Digital Managing Editor soundness policy. Christopher Wood 212.803.8437 Jackie Stewart 571.403.3852, Kevin Wack 626.486.2341 The top names being floated for the CFPB

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One candidate floated for the acting Department of Financial Protection and the management team on the firm-wide CFPB post is Patrice Ficklin, the bureau’s Innovation and a former general counsel transformation that lies ahead,” they wrote, current director of fair lending, who and chief compliance officer at the San adding that he has “been instrumental in stayed on for three years under the Trump Francisco installment lender Affirm. reducing Citi’s risk profile and securing administration. Ficklin, currently a senior A pick for acting comptroller could come credit upgrades while helping guide [the] CFPB official, fits the requirements for from inside the agency, such as Grovetta institution through significant geopolitical temporary appointments under the Federal Gardineer, the current senior deputy and economic disruptions.” Vacancies Reform Act. comptroller for bank supervision policy, “At the same time, he prepared our firm A Biden administration would face who also serves on the OCC’s executive to respond to emerging risk areas such as tremendous pressure to name more women committee. climate change and cyber security,” the and minority candidates to top posts. “There may be a period of significant stress two wrote. “He and his team have worked Filling agency slots can be difficult for a in the banking system as nonperforming tirelessly to navigate through the pandemic, presidential transition team. For every open loans work through the forbearance and allowing us to support our clients while position there are dozens of candidates. The delinquency process on bank balance keeping credit costs at a reasonable level in transition teams for each agency are tasked sheets,” said the policy analyst. “They want an unprecedented environment.” with coming up with candidates from a pool someone who understands the banking Troubles with Citi’s risk management of lawmakers, public interest groups and the system, because they are going to have to and internal control systems resurfaced in private sector, though insiders play a bigger deal with a crisis.” August when the bank accidentally paid role. $900 million to lenders of the cosmetics Some predict a Biden transition team company Revlon, a mistake the bank blamed would need to side with either progressives CORPORATE GOVERNANCE on human error. Last month, the Federal led by Warren and Sen. Bernie Sanders, I-Vt., Reserve and the Office of the Comptroller or moderates. of the Currency issued enforcement actions “There is going to be a battle during the Citi’s chief against the bank, including a $400 million transition between the Warren-Sanders civil money penalty. wing of the party and the Wall Street wing, risk officer During the bank’s third-quarter earnings and I think each side will get something they call, analysts pressed Corbat and Chief are happy with and upset about,” said Kress. Financial Officer Mark Mason on how Some candidates have also been to depart much the overhaul would cost and how floated for Treasury secretary in a Biden long it would take to complete. Mason said administration. Rhode Island Gov. Gina as bank Citigroup has spent about $1 billion so far Raimondo is reportedly among those being this year to enhance infrastructure, risk and looked at for the cabinet position. Politico controls, but could not pinpoint a total cost, also reported that Warren plans to vie for the begins risk saying he could not calculate a number for position herself if Biden is elected. next year or the year after. Other potential Treasury secretary management A search for Hu’s replacement is picks include Federal Reserve Gov. Lael underway, a spokeswoman said. Brainard and former Fed Vice Chairman His upcoming departure won’t be the only Roger Ferguson, but Ferguson also could be rebuild change to the bank’s management team. On considered for the comptroller job. Monday in the same memo to employees, If Biden wins and Trump does not By Allissa Kline Corbat and Fraser announced that Fraser’s appoint a permanent comptroller during November 02, 2020 current role as CEO of the global consumer the lame-duck period, the next Treasury The chief risk officer of Citigroup is leaving bank will be filled by longtime Citi executive secretary would have the statutory authority his post at the end of the year, making way for Anand Selva, CEO of Citi’s U.S. consumer to remove current acting Comptroller the company to hire someone else to oversee bank. Brooks and name a first deputy comptroller its massive overhaul of risk management Selva, a 29-year Citi veteran, begins his to replace him. and internal controls. new job in January, a month before Fraser Other potential candidates for the OCC On Monday in a memo to employees, is set to become the first woman to lead include Amy Friend, the OCC’s former Citigroup CEO Michael Corbat and his a major U.S. bank. Selva has run the U.S. senior deputy comptroller and chief counsel, successor, Jane Fraser, announced the consumer banking business since 2018 currently a senior adviser at FS Vector, and pending departure of Brad Hu, a 12-year and previously oversaw consumer banking Charles Yi, a former general counsel at the Citi veteran who has overseen global risk across 17 markets in Asia, Europe, Africa FDIC who is currently a partner at the law management since January 2013. The pair and the Middle East. firm Arnold & Porter. said Hu has been “an outstanding CRO.” Between the first quarter of 2019 and the Other names on the transition team’s “We respect his decision to align his own third quarter of 2020, the U.S. Consumer shortlist for comptroller include Manny timing with the CEO transition and his Bank’s average retail deposits grew 24% Alvarez, commissioner of California’s desire for the function to reset as Jane leads while assets under management climbed

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22%. Simultaneously, digital deposits rose to Washington provided in March 2020. authors wrote. $15 billion, mortgage-adjusted net revenue “If you see a wave of white-collar layoffs Hecht expressed little confidence in grew 11% and cards grew 4%. in December, January and February, then his own ability to predict how strong U.S. “Anand’s appointment is a testament to start watching payment rates very closely,” consumer credit performance will be a year the depth of experience he brings to the role warned John Hecht, an analyst at Jefferies. from now. Normally he would establish a and what he stands for as a leader,” Fraser Hecht, who has been covering the 12-to-18-month stock price target for the said Monday in a prepared statement. “In consumer finance industry for about 20 lenders that he covers, but he is now only the U.S., he has opened the door to what years, has been shocked by how well the trying to look out three to six months. “I feel is possible for our franchise, and with sector has performed this year, given the like that might be as good a visibility as we the acceleration of digital he is the right steep rise in unemployment. Historically, have,” Hecht said. leader to take us forward globally. He will defaults on consumer loans have tracked Executives at various consumer lenders play a key role shaping our firm for the closely with joblessness. expressed similar sentiments during recent future in terms of talent, our business, our Delinquent loans at five large U.S. credit earnings calls. operating performance and importantly, the card issuers were down by roughly 40% “There’s a tremendous amount of transformation ahead.” in the third quarter, compared with the uncertainty ahead, including whether The bank has also begun a search for same period a year earlier, according to further stimulus measures will be enacted,” Selva’s replacement. an analysis by Autonomous Research. said Brian Wenzel, the chief financial officer There’s one position that won’t be filled Some of that reduction is due to lower loan at Synchrony Financial, which specializes in when Fraser takes over for Corbat, who is volumes, since both lenders and borrowers store-branded credit cards, on Oct. 20. retiring in February. The spokeswoman said have become more cautious, but much of Synchrony added $4.2 billion to its Fraser’s role as president, which she gained it is the result of improved payment trends, allowance for credit losses during the in conjunction with the global consumer which have persisted this fall even after the first six months of 2020, a 64% increase, bank CEO role, will be unfilled when the expiration of temporary forbearance offers. as the Stamford, Conn.-based company transition happens. Wall Street analysts point to a range anticipated a spike in losses. But during the of factors that have contributed to the third quarter, the percentage of Synchrony surprisingly strong loan performance not loans that were at least 30 days past due was CONSUMER LENDING only in the credit card business, but also in 40% lower than it had been a year earlier. auto lending. The firm’s loss allowance grew by just 4% The list includes the expandedbetween June and October. How much unemployment benefits that were part of the Other consumer lenders are also in a federal rescue legislation, the $1,200 checks holding pattern after making large reserve longer will that went to most Americans, the decline in builds earlier this year. At Capital One consumer spending during lockdowns and Financial, the allowance for credit losses the fact that deferrals of mortgage payments ballooned from $7.2 billion at the end of consumer have allowed many consumers to keep 2019 to $16.8 billion at the end of June. It paying their other bills. declined by $700 million in the third quarter. credit hold On average, Americans used more than Capital One’s loss reserves could prove to 70% of the proceeds from their stimulus be either too large or too small, depending checks either to pay down debt or to save, on whether Congress approves another large up? according to research by the Federal Reserve relief package, according to Chief Financial Bank of New York. R. Scott Blackley. By Kevin Wack But it remains to be seen how long people “More stimulus could be a significant November 02, 2020 who are out of work will be able to keep positive factor,” Blackley said during an The remarkably strong loan repayment meeting their debt obligations. Research Oct. 22 call with analysts. But he added that rates by U.S. consumers during the first published recently by the JPMorgan in a scenario where the economy worsens seven months of the pandemic could be a Chase Institute showed that unemployed beyond the company’s current assumptions, harbinger of continuing durability, or they Americans roughly doubled their liquid and new government stimulus spending is could be the prelude to a collapse. savings between March and July, while not forthcoming, “we might be looking at Under one plausible scenario, Congress they were receiving $600 per week in the potential for reserve additions.” passes a big new stimulus package early supplemental benefits, but then spent two- Across the credit card industry, issuers next year, which shores up the finances of thirds of that new savings in August. have established reserves that assume loss unemployed Americans until a COVID-19 “Eventually, without further government rates will nearly double over the next 18 vaccine is widely available. In the bleaker support or significant labor market months, according to an analysis by Sanjay forecast, a cold-weather spike in coronavirus improvements, jobless workers may exhaust Sakhrani, an analyst at Keefe, Bruyette cases leads to another sharp decline in U.S. their accumulated savings buffer, leaving & Woods. Sakhrani wrote in a research economic activity, and ongoing political them with a choice to further cut spending note published Monday that the issuers’ gridlock prevents a repeat of the rescue that or fall behind on debt or rent payments,” the assumptions show conservatism, though he

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY NOVEMBER 4, 2020 AMERICANBANKER.COM PAGE 5 acknowledged questions about additional from the U.S. mainland, Canada, Japan program for transatlantic travel, allowing government stimulus spending, white- and elsewhere. Unemployment in the for some optimism for a recover in tourism, collar unemployment trends and the spread tourism-centric state hovered just above bankers are not ready to budge on their of the virus. 2% in March and hotels regularly had high tempered expectations for coming quarters. The credit outlook for 2021 may be rosier occupancy rates. “Our overall outlook on the economy for auto lenders than it is for card issuers. Then the pandemic hit. hasn’t changed significantly since the That’s because the pandemic has led to By April, Hawaii’s tourism industry had second quarter as we continue to actively changes in transportation patterns that are essentially shut down, and despite fits and manage our credit risk,” Harrison said. benefiting the car industry and figure to be starts over the summer it is only now trying “It’s still the early days for the economy in at least somewhat enduring. The use of both to fully reopen. The jobless rate was 15.3% Hawaii.” public transit and apps like Uber and Lyft in September after peaking at 23.6% in April Mufi Hannemann, president of the has declined sharply amid fears about the — and University of Hawaii economists fear Hawaii Lodging and Tourism Association, virus. it could remain in the double digits into called 2020 “horrific,” though he expressed One result has been unusually strong next year. hope that the state’s economy and labor demand for used cars, which has boosted Hotel occupancy on Oahu Island, home market will “slowly be able to reverse the vehicle prices and reduced the size of losses to Honolulu, was 20% in mid-August, trends that we’ve experienced for the past that lenders take when they repossess according to the American Hotel & Lodging several months.” vehicles. In mid-October, the used-car value Association. The rate was 89% a year earlier. Bank of Hawaii and First Hawaiian index from Manheim was 16.7% higher than The state’s banks have yet to report entered the downturn with robust capital it had been a year earlier. major issues in their loan portfolios. While levels, pristine credit quality and long runs Ally Financial, the Detroit-based auto prior prosperity has allowed borrowers and of strong profitability. Both posted solid lender, established a $3.25 billion allowance lenders time to build buffers to withstand profits in the second and third quarters, for credit losses at the end of March, up from the pandemic’s initial shock, bankers are and industry observers are confident that $1.26 billion just three months earlier. But warning that 2021 could be the tipping each can make it through a protracted since then its allowance has only grown by point when it comes to credit quality. coronavirus crisis. about $130 million. Charged-off loans at Ally Customers “really point to 2021 as a At Bank of Hawaii, nonperforming assets were down by more than 50% in the third restarting year for us” before returning to “a made up just 0.16% of total loans on Sept. quarter compared with the same period a meaningful level of activity” in 2022, Peter 30, a slight improvement from the end of year earlier. Ho, chairman and CEO of the $20 billion- 2019. Deferred loans fell to 9% on Oct. 23 For consumer lenders, the question now asset Bank of Hawaii, said during a recent from 16% on June 30. is how long the belated arrival of household call to discuss quarterly results. While those metrics are viewed financial woes can be forestalled. The hospitality industry, which positively, deferral rates remain well above “Until now, the performance has been accounted for a fifth of Hawaii’s pre- levels reported by many mainland banks. shockingly good,” said Brian Foran, an pandemic workforce, remains the biggest And criticized loans at Bank of Hawaii analyst at Autonomous. “It almost feels too area of concern. More than half of retail increased to 2.13% of total loans on Sept. 30 good to be true.” revenue in the state has been tied to from 1.69% a quarter earlier. tourism. First Hawaiian said about 6% of its “We anticipate property loans in [the borrowers continued to defer loans, and CREDIT QUALITY hospitality] space could experience nonperformers remain low. additional stress,” Robert Harrison, “We’re going to expect to see some chairman and CEO of the $23 billion- deterioration in asset quality metrics in the Hawaii banks asset First Hawaiian Bank, said during his portfolio,” Ralph Mesick, First Hawaiian’s company’s earnings call. chief risk officer, said during the company’s gird for Hawaii took steps to contain the virus, earnings call. “But if the provision can stay requiring visitors to quarantine to two relatively benign … maybe we could change weeks after arriving in the state, though the our outlook.” prolonged effort crippled the tourism industry. The “We agree with management’s outlook state considered lifting the rule in August, that we are in the early stages of the cycle tourism slump but kept it in force because of surges on the and are closely monitoring arrival data island and the mainland. to gauge the rebound in tourism,” Piper By Jim Dobbs Over the last two weeks of October, Sandler analyst Andrew Liesch said in a November 02, 2020 visitors arriving daily in Hawaii ranged report. The Hawaiian economy has so far from 5,000 to 8,000, up notably from 2,000 The $6.6 billion-asset Central Pacific withstood a harsh reversal of fortune tied to in previous months but far below the Financial in Honolulu, which has also the coronavirus pandemic. 30,000 daily arrivals before the pandemic, remained profitable, said about 6.5% of its The state’s economy had thrived for according to state data. loans were on deferral at Sept. 30, or roughly more than a decade, drawing visitors The state recently started a pre-testing half the level it reported a quarter earlier.

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But Central Pacific warned that more press release. challenges lie ahead. Loan downgrades — DIVERSITY AND EQUALITY One of Scharf’s key objectives is increasing an indication of potential stress — rose in the number of minorities in leadership the third quarter, and the company said any roles. About 6% of the bank’s senior leaders recovery depends on tourism numbers. Wells Fargo are Black and he is aiming to double that “We’re going to have to see, with the figure within five years. The company has opening of tourism, what the implications taps Capital also said that compensation decisions will will be to the economy,” Chairman and be determined in part by senior leaders’ CEO Paul Yonamine said during Central progress in improving diversity. Pacific’s earnings call. One executive Scharf announced plans for the new The housing market, another key to diversity and inclusion role in June, as many Hawaii’s economic success, is holding up to lead companies made changes in response well. Ultralow interest rates are fueling to Black Lives Matter protests, but he refinancing demand and moderating subsequently drew criticism over the manner homebuying costs. diversity in which he framed the effort internally. While First Hawaiian braced for issues “While it might sound like an excuse, the with consumer borrowers, “the return efforts unfortunate reality is that there is a very to pay has been fabulous,” Mesick said, limited pool of Black talent to recruit from,” though concern remains that asset quality By Kevin Wack Scharf wrote in a companywide memo in could deteriorate as government stimulus November 02, 2020 June. wears off and borrowers struggle anew to A Capital One executive will join Wells After that remark was reported by Reuters, cover their expenses. Fargo as the head of a newly created group Scharf issued a public apology, saying that The state’s rental market is flashing that will lead diversity and inclusion efforts the comment was insensitive and reflected warnings signs, said Philip Garboden, geared both toward the bank’s employees his own unconscious bias. a University of Hawaii professor and and its customers. part of the school’s Economic Research Kleber Santos, who was head of retail and Organization. The group regularly surveys direct banking at Capital One, will report to DIGITAL BANKING more than 270 landlords and property Wells Fargo CEO Charlie Scharf and serve managers, amassing data on 6,719 rental on the San Francisco company’s operating units in Hawaii. committee. He is scheduled to start at Wells Beam Before the epidemic, 95% of tenants on Nov. 9. would have paid their rent by midmonth The team that Santos leads will have Financial and fewer than 3% would have 30- or 60- responsibility not only for creating a more day delinquencies. On Aug. 15, the share diverse and inclusive workplace, but also for of tenants current on their rent fell to 85%, working with others in the company to deliver vanishing act while severe delinquencies topped 8%. products and services that are designed to “This trend is troubling,” Garboden meet the needs of diverse customer segments, a cautionary said. Unemployment figures “suggest that according to a Wells Fargo spokesperson. a substantial portion of those households An existing team at Wells Fargo, which has have experienced at least one job loss, been focusing on diversity and inclusion in tale for forcing them to sacrifice well-being to pay the company’s workforce, will become part of their rent.” the new group led by Santos. That team, led partners of Barring meaningful economic by Jimmie Walton Paschall, is currently part improvement — or more federal aid — of the firm’s human resources group. missed rent payments could mount. Santos, a native of Brazil who spent fintechs Property managers told Garboden’s group 15 years at Capital One, was involved in they estimate that 60% of tenants have numerous diversity efforts at the McLean Va.- By Penny Crosman endured financial setbacks. based company, according to Wells Fargo. November 02, 2020 “Landlords and property managers can’t He served as chair of Capital One’s diversity Beam Financial, which launched a know everything about what their tenants council for retail and direct banking. consumer banking app in September 2019, are going through, but their assessment “Kleber brings a unique set of leadership had a familiar pitch: It would give consumers of their tenants’ financial situation is and business skills that, combined with his a better deal than banks do. sobering,” Garboden said. experiences driving diversity and inclusion “Beam’s vision is to make high-interest outcomes, will enable us to drive meaningful bank accounts accessible to all Americans, changes throughout the organization and regardless of wealth status, account balance, better serve our diverse customer base and or whether they would be eligible for cross- underserved communities,” Scharf said in a selling of other financial products,” the

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San Francisco company said in a July 2020 company reached out to Beam and its It did not say what kind of fraud was petition to the Federal Trade Commission, financial institution partner, Huntington committed. which at the time was investigating consumer National Bank. As a result of that discussion, “We are actively liaising with our complaints about the fintech. Dwolla “suspected activity on the Beam intermediaries to release the hold on your On its website, Beam boasts that it provides application might harm consumers and deposit and withdrawal transactions so that up to 4% interest on federally insured savings immediately shut down services to Beam we can issue customer deposit balances (originally it offered 4% to 8%), whereas with the consumers’ best interest in mind,” back to our members,” the letter stated. “This traditional banks pay an average of 0.01% the company said. cannot happen fast enough, and we are on it.” a year. Customers can increase the interest In an email exchange with American The company said it expected all requested rate they receive by referring other people Banker, the spokeswoman said Dwolla was withdrawals to be made to customers’ linked to Beam. simply a vendor to Beam and had no direct bank accounts within the next two weeks. If it sounds too good to be true, that’s relationship with Huntington. The ongoing problems are not a good look because it may have been. She also said Dwolla’s termination of its for Beam’s partners. In a report CNBC published Thursday, service agreement with Beam on Oct. 1 did several Beam customers told of realizing the not cause Beam’s problems. Beam customers Red flags app was down and unsuccessfully trying to were unable to withdraw funds before Dwolla Stephen Greer, senior analyst at Celent, withdraw their money. The report jibes with made the decision to suspend services, she said he had looked into the company in 2018 the Better Business Bureau’s entry on Beam, said, and Dwolla did not and does not hold and was unsurprised when he heard recently which says the bureau has received “a pattern the funds collected by Beam. that Beam was having problems. of complaints” from customers about delays “Beam has, at this point, had several weeks “One of the big question marks for me in receiving funds when closing accounts and to find another ACH provider but that does two years ago was, what’s the business issues when contacting customer services. not prevent them from returning funds to model here?” he recalled. “How can they The Beam iOS App Store page contains their customers,” she said. make money off of collecting interest at dozens of complaints from users who Some customers told CNBC that Beam their partner bank and then paying out more couldn’t withdraw their funds. blamed Huntington for its problems interest to customers, unless they’re doing Beam’s founder, who goes by the names returning money to customers and said it was something really fancy and potentially risky Yinan Du and Aaron Du, did not respond to looking for new bank partners. with money behind the scenes that’s not emails and phone calls seeking comment. A But a spokeswoman for Huntington said in being communicated?” call to the main number at Beam yielded a an email to American Banker that the bank is The Angry Retail Banker blog in 2017 also recorded message, “We’re closed right now.” only a custody provider to Beam. raised questions about Beam’s business The company’s law firm, Hudson Cook in “We are not Beam’s partner and have model. The author interviewed Du (who was New York, also did not respond to emails and no relationship with Beam’s customers or calling himself Yinan Du at the time), and phone calls. knowledge of any underlying Beam customer asked him directly how Beam makes money. accounts,” she said. “Huntington stands ready “We make money by acting as a technology Pointing fingers to cooperate with the appropriate parties to service provider to financial institution In March, Beam told customers in the app resolve these questions.” partners (managing depository operations store that transaction delays were occurring Beam also works with the deposit network for them) and earning a service fee from “due to higher transaction volumes that our provider Reich & Tang, which recently doing so,” Du said. banking partners are handling (due to the rebranded itself R&T. The company did not The blog also said that Du previously ran a coronavirus).” grant an interview, but in a recent letter to its Groupon-like discount site in China, 24Quan, It made a similar statement to the Better bank partners R&T said Beam places deposits that went out of business and was accused by Business Bureau in September. “Settlements in R&T’s Demand Deposit Marketplace merchants and employees of theft. of withdrawal transactions have, in some Program through a custodian bank and that The FTC has had its eye on Beam for cases, been delayed because of a bank the balance related to Beam was $2.4 million a couple of years. The agency declined a partner,” according to a statement the bureau as of Oct. 22. The company said it would request for an interview, but pointed to posted on its website that was attributed to return funds to the custodian bank “as soon public documents on the matter. In July 2018, Beam. “We are both working with this partner as R&T receives the appropriate instructions.” the FTC began an investigation into whether and evaluating new bank partnerships to R&T’s letter also said that it would consumers were receiving the advertised prevent any delays in the future.” terminate its agreement with Beam on interest rates on their deposits. It asked But the complaints kept coming, and they Oct. 31. Beam for information and documents that began to affect its partners. It’s hard to say at this point whether Beam the company eventually provided, and the In September, Beam customers is a bad actor or a well-intentioned startup inquiry was closed. complained on Twitter about not being able overwhelmed with technical problems or In May 2020, the FTC opened an to withdraw money, and the complaints were other misfortune. investigation into “whether Beam has partly aimed at Dwolla, Beam’s automated In a letter Beam sent to customers last engaged in deceptive or unfair practices clearinghouse transaction software provider. week, it said a few customers had committed related to its financial products or services, A Dwolla spokeswoman said that the fraud through the automated clearinghouse. including the accessibility of consumer funds,

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY NOVEMBER 4, 2020 AMERICANBANKER.COM PAGE 8 the advertised rates of return and interest, shoes of the customer, by setting up test Mercantile. Its opening comes two weeks after and the functionality of the company’s accounts and periodically taking money out CEO Robert Kaminski said the mortgage team mobile apps.” This time, the company said of and closing those accounts.” was “knocking the cover off the ball” during it could not provide additional information There’s no guarantee any fintech partner the company’s quarterly earnings call. and documents because of the COVID-19 or other partner will succeed. For the first nine months of 2020, Mercantile pandemic. Beam petitioned for the demand “You can do all your due diligence. The reported mortgage banking income of $19.7 to be quashed. The FTC did not quash it messaging can be right,” Greer said. “You million tied to $646 million of originations. For but extended the deadline for the requested can say, this fintech looks good. Its values the same period in 2019, mortgage banking information to Oct. 30. align. The founder’s compelling, but there’s income totaled $5.3 million. still unforeseen risks down the road that you Mercantile has operated a mortgage Sizing up fintech partners might have to deal with.” company since October 2000, but the business Is one of the morals of this story that banks line wasn’t treated like a strategic initiative need to conduct stricter due diligence of until 2015, Setlock said. potential fintech partners? MORTGAGES The Mortgage Bankers Association is “There’s a certain amount of risk,” Greer forecasting mortgage originations of nearly said. “What happens when the organization $2.5 trillion in 2021. While that estimate is or the fintech you’re partnering with or taking Mercantile down from the $3.2 trillion of originations deposits for ends up doing something that’s projected for 2020, it would still be the second- not in the best interest of its customers. How in Michigan largest total in the last 15 years. Purchase does that reflect on the bank’s brand? Because originations are expected to hit a record $1.54 it can be pulled into the impropriety.” trillion in 2021. Consumers see a federal deposit insurance expands Mercantile plans to make mortgages for logo and assume they’re shielded from any purchases, refinancing and construction wrongdoing by the fintech, Greer pointed mortgage lending at its Cincinnati office. The company out. “is excited to extend our team with the “But they’re not, really,” he said. “That in entrance into this market, as we continue and of itself is a little worrisome. You could business to to strategically grow our mortgage lending have consumers that don’t quite know what operation,” Ray Reitsma, Mercantile Bank’s they’re exposed to.” Cincinnati president, said in Monday’s release. At a minimum, banks want to look at a company founder’s track record, Greer said. By John Reosti On the other hand, a company could be well November 03, 2020 ATMs capitalized and look great on paper, but still Mercantile Bank Corp. in Grand Rapids, have problems or fail. Mich., is riding the mortgage wave across the The banker who writes the Angry Retail state border into Ohio. ATM coating Banker blog (who agreed to an interview but The $4.4 billion-asset Mercantile said in not to the use of his real name), pointed out a Monday press release that it had opened targets that what look like red flags now could be a mortgage office in Cincinnati. Mercantile explained away. made the move after hiring a team of mortgage For instance, if partners entered into bankers, Scott Setlock, the company’s COVID-19 and relationships with Beam before the FTC executive vice president for mortgage and began its investigations, “Beam Financial consumer banking, said in an email. other ‘nasty might have been clean as a whistle,” he “Although we believe the Cincinnati ... said. “My due diligence just showed he had area is a terrific market, our decision to open a failed business venture. Savings account the new office was driven by the talented things apps were fairly new at the time. This might mortgage professionals who are joining our have been something Huntington saw as an team,” Setlock said. By Aaron Passman opportunity.” Additional expansion is possible if November 02, 2020 Ron Shevlin, managing director of fintech Mercantile can hire more lenders, Setlock A new feature on ATMs and interactive research at Cornerstone Advisors, also said added. teller machines is intended to help reduce the Huntington may have done all the due “Our recruitment efforts continue,” Setlock spread of the coronavirus. diligence it needed to before the partnership. said. “Any future mortgage expansion will NCR, a global firm that provides ATMs and “This sounds more like a case of fraud than be predicated on our ability to attract talent ITMs for banks and credit unions, recently technical issues,” Shevlin said. “If that’s true, that mirrors our culture, commitment to our unveiled an antimicrobial coating that can then there’s only so much a bank can do in clients, and overall drive towards excellence.” be applied to machines in hopes of killing the evaluation stage. The lesson here might The Cincinnati office is the first location COVID-19. The coating, which is wiped be that banks have to put themselves in the outside Michigan for the 23-year-old over the surface, is intended to mitigate

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY NOVEMBER 4, 2020 AMERICANBANKER.COM PAGE 9 transmission of any pathogen through touch. Reynolds added that while the technique Neil Harris, director of product marketing NCR uses is based on a formula developed SUCCESSION PLANNING at NCR, explained that the coating forms a in the 1970s, today’s products can’t be nanobed shield of spikes on top of the ATM compared against those of the past, in part surface which carry a positive charge and because they affect “a much broader range of Spencer attract negatively charged microbes such as microorganisms.” pathogens, viruses and bacteria. The coating Harris acknowledged that while scientists’ Savings in attracts those “nasty things,” as Harris called understanding of how the virus spreads has them, and pierces the cell of the membrane, changed since the spring, “anything out there causing it to die, reducing the likelihood that that provides a more hygienic experience is a N.J. taps the virus could be spread through surface good thing,” he said. contact. He added: “There is still a risk, albeit insider as The application takes about 30 minutes minimal. Most research now suggests [the and is said to provide up to six months of virus] is more airborne and actually the protection. Harris did not offer details on most effective way to combat COVID is next president pricing but noted that the coating does not personal hygiene, hand-washing, social require any retrofitting or hardware upgrades distancing and the wearing of masks. It By John Reosti for a financial institution’s machinery, and now appears transmission from physical November 02, 2020 can also be used on other kiosks, such as devices is secondary to that of person-to- Spencer Savings Bank in Elmwood Park, point-of-sale terminals. person airborne transmission. But it’s still N.J., is planning to promote an insider as its The formula for the coating is similar to important that we provide our customers with next president. silicon dioxide products developed the early a comprehensive set of solutions that allows The $3.2 billion-asset mutual said in a 1970s, said Harris. them to make any banking transaction safe press release Monday that Jane Allerman- “If you buy a bottle of bleach or toilet and hygienic.” Rey, its chief operating officer, will become cleaner and you look at the list of viruses [and] NCR representatives did not share how its president on Jan. 1. She will succeed Jose microbes [killed by the product], it’s very many U.S.-based banks or credit unions are Guerrero, who will remain chairman and CEO. similar in that regard,” he added. using the product, but FirstOntario Credit Allerman-Rey “has been an integral part of ATMs were proven to be filthy before the Union in Canada had the coating applied in the growth and success of Spencer Savings,” pandemic, but the coronavirus raised new late summer. Guerrero said in the release. concerns about cleanliness and whether “We hadn’t heard any reports back from Allerman-Rey, who joined Spencer COVID-19 could be transmitted through our membership that they were concerned Savings in 1993, said she plans to use her new surface contact. Many consumers wiped around ATMs or ITMs specifically, but it position to promote the mutual’s role as a down their groceries early in the current was one of those questions that came into neighborhood financial institution. crisis in order to protect against germs, and our pandemic planning: ‘What can we do “Now, with all the technological changes some libraries that have reopened continue to better protect the member at the digital in banking, community banks’ importance to quarantine items for short periods of time level for ATMs and ITMs?’ “ said Colin Grant, is even more critical because the personal before recirculating them. assistant vice president of infrastructure and contact and rapport with the customer can However, research in recent months has security at the $5.8 billion-asset FirstOntario. never be overlooked,” she said in the release. confirmed that surface transmission risks “Whether it was cleaning on a regular basis or Before joining Spencer Savings, Allerman- are minimal and instead, the virus can be when this opportunity came up from NCR, it Rey was a bank examiner with the Office of spread through the air, increasing the need just made sense from a simplicity and logistics Thrift Supervision and the Federal Home Loan for widespread mask usage. standpoint.” Bank of New York. That raises questions about how effective FirstOntario’s machines include signage Spencer, which has 20 branches in New the coating might be. provided by NCR that informs members about Jersey, reported net income of $7.8 million for Kelly Reynolds, an environmental the new protection, and an announcement the first half of 2020, according to the Federal microbiologist at the University of Arizona, was also included in the member newsletter. Deposit Insurance Corp. said scientists have studied these types of About 60 machines currently have the coating. The mutual has also been involved in a antimicrobial coatings and determined “they Grant added that the difference between lengthy battle with the activist investor Larry have some measurable, significant efficacy surface and airborne transmission wasn’t a Seidman, who has been seeking seats on … not just in preventing growth but in killing consideration for FirstOntario. Spencer Savings’ board for himself and a organisms in relatively rapid timeframes.” “It was just having that precautionary colleague. Similar coatings, she added, are already measure out there,” he said. “Some of the Spencer Savings’ board and management used in hospitals and other environments, studies … showed that there was definitely a team have fought to block Seidman, who and now that the Environmental Protection benefit to potentially kill the virus on contact. claims they are overpaid and haven’t acted in Agency has provided emergency approval for Whether that’s entirely true, I can’t say for the mutual’s best interests. Spencer Savings similar products, “I think you will start to see sure, but it was a precautionary measure we closed Seidman’s accounts and passed a more widespread use of them.” were willing to take.” bylaw requiring candidates not chosen by

For up to date and complete coverage go to AmericanBanker.com WEDNESDAY NOVEMBER 4, 2020 AMERICANBANKER.COM PAGE 10 the board’s nominating committee to obtain addition to continued pandemic relief. 2011 to 2013, with loss rates of under 5%. backing from 10% of the bank’s depositors to As this public health crisis continues, small The aftermath of the 2008 crisis then was vie for election. businesses absolutely need a new round of nothing compared to the one we’re facing Seidman has won a series of legal battles grants and forgivable loans, such as those today. But with the same problems emerging against Spencer Savings, including one last deployed in the Paycheck Protection Program in the lending landscape, these solutions can month when a New Jersey appeals court (PPP). Survey data from Alignable, a network work again — with a few adjustments for the affirmed an earlier court decision overturning of nearly 6 million small businesses, shows current environment. the nomination bylaw. that 42% of small-business owners anticipate One of those should be including fintech not having enough revenue to survive the and platform lenders in SBA lending. The fourth quarter this year. rollout of PPP proved that responsible BANKTHINK Across the board, their greatest concern nonbank lenders like Kabbage, Intuit and is retaining sufficient cash reserves to make Square have the reach and technological it to the end of the pandemic. Deploying the expertise to get the smallest-dollar loans to the Now is not remaining $134 billion of PPP funds and most vulnerable businesses. additional Small Business Administration In short, nonbanks and fintechs fill an the time to Economic Injury Disaster Loans is clearly an important gap in small-business lending, immediate imperative. making the small loans that banks find less But we need to look ahead and anticipate appealing. Keeping fintechs involved in future freeze small- the next challenge as well. If banks are not SBA lending efforts will help many more small lending, where will surviving small businesses businesses get access to the help they need to business get the cash they need to rehire employees, return to full strength. restock their shelves and drive the recovery as This is the worst small-business crisis I’ve public safety allows? seen in my lifetime, and I’ve seen quite a few. lending Right now, large businesses can get loans It’s time to act. at some of the lowest rates in decades. Small We couldn’t control the advent of the By Karen Gordon Mills businesses lack access to the cheap capital pandemic, but the tools needed to help small November 02, 2020 markets that are available to their larger businesses recover are right in front of us. A recent survey showed a glimmer of light: counterparts. Without decisive action from The SBA needs to step up, raise its guarantee 83% of small businesses had an optimistic the government, the impending credit crunch rates and follow its mandate: providing credit view of 2021. will lead to a slower, more painful economic support to the many small businesses who As we enter the dark days of winter with the recovery for small businesses and, as a result, fall through the cracks of traditional lending coronavirus pandemic surging to new highs the entire nation. markets. across the country, the resilience and courage However, there is already a playbook for There’s little risk involved, knowing that of small-business owners cannot be denied. getting capital flowing to small businesses these strategies have worked well in the past. Yet looking ahead to the recovery, a again. Nearly half of the people who work in worrisome trend has emerged. Bank lending In 2009, when I was sworn in as the head of the United States own or work for a small to small businesses, outside of the emergency the SBA, lending had frozen — for very different business, according to a SBA 2020 report. By government aid programs, has slowed to a reasons. The cause then was damage to banks’ taking quick and decisive action in pandemic trickle and may soon completely freeze. balance sheets from bad mortgages, arguably a relief and recovery support, we can ensure Banks’ retreat from small-business situation largely of their own making. that small businesses gain access to the capital lending reflects the impact that public health Nonetheless, it was small businesses who they need to recover, and keep communities measures like stay-at-home orders and social faced the consequences as the credit spigot healthy and vibrant. distancing have had on otherwise thriving shut off, and small-business employment enterprises. These measures remain essential slumped. In the first quarter of 2009, the Karen Gordon Mills is a Senior Fellow to the health and safety of owners, employees nation lost 1.8 million small-business jobs. at Harvard Business School and a leading and customers, and could continue to affect The SBA took immediate action, and it authority on U.S. competitiveness, sales and profits well into next year. worked. We temporarily raised the guarantee entrepreneurship and innovation. She was a But the resulting performance profiles and on the SBA’s flagship 7(a) loans from 75% to member of President Barack Obama’s Cabinet, risks can turn a formerly appealing small- 90%, and reduced or eliminated the borrower serving as the Administrator of the U.S. Small business bank customer into an underwriting fees for both the 7(a) and 504 loan programs. Business Administration from 2009 to 2013. nightmare. The results were dramatic. From Feb. 17, Mills is the author of the book, “Fintech, Small How bad is the problem? A survey from the 2009, to Sept. 30, 2010, weekly SBA loan dollar Business & the American Dream,” as well as Federal Reserve shows that the percentage of volumes rose more than 90%, and the changes several papers on small-business lending and senior loan officers reporting tightening credit brought more than 1,000 banks back to SBA supply chains. q standards has risen to levels not seen since the lending. These actions contributed to record 2008 financial crisis. This situation requires years in SBA lending, supporting about $30 © 2020 Arizent and American Banker. immediate attention in Washington — in billion in total loans in each fiscal year from All rights reserved.

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