FRIDAY3pt AUGUST stroke, 100% 20, 2021 size f VOL.or top 186of newspaper No. 160 = 8.9931 inches AMERICANBANKER.COM Follow us on Twitter @AmerBanker Lenders are quick to 5 adopt SBA’s faster PPP forgiveness option Losing ground The agency’s new platform can reach a Citigroup’s volume of new municipal bond issuances in Texas has decision on Paycheck Protection Program declined2.5pt stroke sharply = 6.75 in inches a year when the state passed a controversial gun reimbursement in minutes and has handled law. Much of the business appears to be going to competitors. hundreds of thousands of applications since its Aug. 4 debut. The original process required See story on page 4 a lengthy form. Page 5 2020 2021 Small , credit unions 6 push back against Fed 2pt stroke = 5.75 inches debit-routing proposal $5B The central wants financial institutions

$4B to enable additional routing options for $4.1B online purchases, a change industry $3B advocates say would strain the resources of 1.5pt stroke$3.1B = 4.6667$3.0B inches smaller card issuers. Page 6 $2B $2.8B $2.9B $2.8B $2.4B $2.5B $2.1B $1B $1.9B $1.8B $1.9B Nasdaq’s board-diversity plan 7 challenged in court as ‘unfair’ $0 An opponent of affirmative action is 1ptJPM strokeorgan = 3 inchesBofA RBC Capital Morgan Raymond Ciǎgroup challenging the U.S. Securities and Exchange Securiǎes Securiǎes Markets Stanley James Commission’s approval of a rule to get more women and minorities on the boards of Source: Refinitiv, an LSEG business (data for both years through Aug. 17) companies trading on Nasdaq. Page 7

Green challenger bank 8 Aspiration going public dailybriefing Citi’s muni bond business via a SPAC 3 shrinks in Texas after gun In combining with the special-purpose law’s passage acquisition company InterPrivate III Democratic majority on The measure bans banks that discriminate Financial Partners, the fintech says it will 1 FDIC board spells trouble against gunmakers from entering into have more than $400 million to pour into for ILC hopefuls government contracts. Citigroup, which marketing campaigns and invest in new The agency signaled during the Trump supporters of the law were targeting, has lost technology. Page 8 administration that it would approve more market share while Bank of America and industrial loan companies following an JPMorgan Chase have gained ground. PNC pledges $20B over five extended freeze in new charters due to (See chart above.) Page 4 9 years for sustainable finance policy disputes. But the thaw will likely prove The Pittsburgh bank’s commitment covers temporary now that the board’s makeup has New York Community boss areas that include renewable energy, clean changed. Page 2 4 makes another bold move transportation and green buildings. Page 8 with Figure deal Wells Fargo abandons CEO Thomas Cangemi is pushing to Go beyond rent payment 2 plan to shut down personal modernize a bank that for decades was 10 history to promote credit lines focused largely on multifamily lending. homeownership The bank’s earlier decision to stop accepting The company has already agreed to buy Fannie Mae should be applauded for applications for the consumer loan product the mortgage lender Flagstar Bancorp and allowing lenders to take rent payments into had sparked a backlash among customers its partnership with Figure Technologies, account when underwriting home . But and lawmakers. Page 3 a blockchain-focused fintech, has the lenders will need to embrace other credit potential to make that acquisition more scoring models if they hope to turn more productive. Page 4 renters into buyers. Page 9 FRIDAY AUGUST 20, 2021 AMERICANBANKER.COM PAGE 2

regulators they have.” was formerly a senior official at the Federal LICENSES AND CHARTERS The FDIC is led by Chair Jelena McWilliams, Reserve, which historically opposed the a Trump appointee, whose term is set to ILC charter because it skirted bank holding expire in mid-2023. But the agency’s five- company supervision. Democratic member board — which must vote to approve “Michael Hsu is a dyed-in-the-wool Fed any new industrial bank application — is guy, and the industrial loan loophole was majority on now stacked with three Democrat-appointed intended to undermine the Fed’s authority votes: Michael Hsu, acting comptroller of under the Bank Act,” said the currency; Dave Uejio, acting director of Todd H. Baker, senior fellow at the Richman FDIC board the Consumer Financial Protection Bureau; Center for Business, Law and Public Policy and Martin Gruenberg, an FDIC director at Columbia University. “So the Fed as an spells trouble and former agency chair. (The fifth seat is institution has never felt positive towards the unfilled.) ILC charter.” McWilliams had signaled the board might But others say that it would be a mistake for for ILC be more open to ILCs during the Trump fintechs to rule out the ILC as a charter option administration. In March 2020, the agency this early into the Biden administration. hopefuls approved charters for the payments firm “It’s always been hard to get an ILC; that Square and Nelnet, a student loan servicer, itself is not news,” said Michele Alt, a partner By Brendan Pedersen the first ILC approvals since 2008. at Klaros Group and a former lawyer at the August 18, 2021 But the current makeup — even with two OCC. WASHINGTON — When the Federal acting officials serving on the board — could “So what’s the impact of the Biden Deposit Insurance Corp. broke a decadelong mean the thaw is short-lived. Gruenberg administration?” Alt said. “I would say we freeze in March 2020 in approving new notably opposed Square’s application, and don’t know. It’s not at all clear to me that industrial loan companies, fintech advocates no firm was able to open a new industrial the current state of play has anything to do celebrated what they hoped would be an bank when he led the FDIC between 2011 with the administration’s views on bank enduring thaw. and 2018. regulation, or specifically ILCs, because the But a year and a half later, the political The ILC charter has long been Biden administration hasn’t said anything.” environment is not in ILCs’ favor. Democratic controversial. Bankers and other critics say Yet the signs point to Biden administration appointees hold a 3-1 majority on the FDIC it gives nontraditional bank owners a legal officials being more cautious, in general, board, giving them enough votes to reject any loophole from the Bank Holding Company about approving bank charters for fintech application that they oppose. Act, subjecting them to lighter regulation firms. Hsu has said the OCC is conducting a “I expect the Democrats on the board to than more mainstream financial institutions review of fintech chartering decisions made take a hard look at any charter application that and allowing commercial firms to enter the by Trump-era comptrollers. He has stressed attempts to mix banking and commerce,” said banking system. the need to balance competing policy Todd Phillips, director of Some observers say the addition of priorities when it comes to allowing new at the Center for American Progress and a Hsu, who took the helm of the Office of the entrants into the banking system. former FDIC attorney. Comptroller of the Currency in May, to the In written testimony submitted to The ILC, also known as the industrial FDIC board is particularly noteworthy. He Congress in May, Hsu acknowledged that bank, remains a controversial charter option. Fintech firms see it as a promising avenue to access the banking system without the full Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 brunt of regulatory scrutiny, and it is one of Phone 212-803-8200 AmericanBanker.com the few charters still available to nonfinancial 3pt stroke, 100% size for top of newspaper = 8.9931 inches firms. Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440

While the prudential regulators appointed 2.5pt stroke = 6.75 inches by the Trump administration were generally Managing Editor Dean Anason 770.621.9935 Reporters/Producers eager to open their charters to fintechs, the 2pt stroke = 5.75 inches Biden administration has signaled a more Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 cautious approach. Miriam Cross 571.403.3834 1.5ptWashington stroke = 4.6667 inches Bureau Chief Joe Adler 571.403.3832 “It’s been clear that there are many people Jim Dobbs 605.310.7780 in the industry, academia and policymaking 1ptExecutive stroke = 3 inches Editor, Technology circles for some time that have raised Penny Crosman 212.803.8673 John Heltman 571.403.3847, Allissa Kline 716.243.2679 very significant concerns about ILCs and Hannah Lang 571.403.3855 industrial banks,” said Dennis Kelleher, Community Banking Editor Paul Davis 336.852.9496 John Reosti 571.403.3864, Gary Siegel 212.803.1560 president and CEO of Better Markets. Contributing Editor Daniel Wolfe 212.803.8397 He added those concerns “are shared by Kevin Wack 626.486.2341 the Biden administration and the professional

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“some are concerned that providing charters “This could be a good time to do a lot of Bloomberg. “The terms of your account are to fintechs will convey the benefits of banking the heavy lifting that goes into assembling a not changing.” without its responsibilities.” But he also noted business plan and an application in order to Wells Fargo’s announcement last year that that “others are concerned that refusing to be poised to file when those clouds lift,” said it had stopped accepting applications for charter fintechs will encourage growth of Alt. personal credit lines went unnoticed in an another outside the Baker agreed, noting that the era in which the vast majority of consumers reach of regulators. administration could nominate a permanent have come to favor other options — such as “I share both of these concerns,” Hsu head of the OCC who is more favorable to credit cards and personal loans — for rainy- concluded. ILCs. day financing and big-ticket purchases. But Still, Hsu and other Democrats have also “The smart players who have a long-term when the bank tagged the remainder of that focused on promoting financial inclusion, view are spending money prudently now so business for closure and began notifying which some analysts say provides an opening that if the logjam breaks, they’ll be in the best clients, borrowers took their complaints for a financial technology firm to responsibly position to get a charter issued should the public last month, triggering fresh scorn from serve those populations. And Gruenberg’s confirmed comptroller, whoever he or she Capitol Hill. opposition to ILCs has not been monolithic; may be, be in favor of the ILC,” Baker said. One reason: Reducing a customer’s he did not object to Nelnet’s industrial bank “If you’ve got a long-term view and you’re available financing can hurt their credit score. charter. willing to take some risk, building up your “Not a single @WellsFargo customer “If you look at the most recent statements structure so you’re in the best position is should see their credit score suffer just made by the acting comptroller in probably a smart thing.” because their bank is restructuring after years congressional hearings, one of the things he of scams and incompetence,” Sen. Elizabeth talked about was really reducing inequality in Warren, D-Mass., wrote on Twitter at the banking,” said Peter Dugas, executive director CONSUMER LENDING time. “Sending out a warning notice simply at Capco. isn’t good enough — Wells Fargo needs to “One of the things we’ve seen Democrats make this right.” discuss quite extensively is fintechWells Fargo The bank is giving inactive credit-line companies and fintech providers being able customers until the end of November to to serve as a mechanism in which they can abandons either use their accounts or tell the lender address low-income populations where the that they want to keep them open, according banking system may not be able to get access to a copy of a letter seen by Bloomberg. The to provide the services which would address plan to firm is still in the process of notifying some any equality in the banking system,” Dugas account holders. said. shut down Personal lines of credit — known as PLOCs Any additional slowdown in rulings on ILC in the industry — have become something of applications will likely cause legal headaches a throwback in recent decades. for any fintech in the process of seeking an personal The unsecured revolvers were offered industrial bank. mostly to borrowers with strong track There are currently five pending credit lines records. But those people now have applications for an ILC charter: Thrivent, numerous other options, including credit Rakuten Bank America, Edward Jones, By Bloomberg News cards with competitive rewards programs, an General Motors Financial Co. and Great August 18, 2021 army of online lending platforms, personal America Bank. A sixth applicant, Brex, Weeks after Wells Fargo set off a public and home equity loans, and financing for withdrew its application earlier this month. outcry over its plan to discontinue personal larger purchases that retailers and dealers “Everyone’s in this deeply unfair situation lines of credit, the bank is reversing course. sometimes provide at 0% interest rates. where they’re spending millions of dollars In recent days, the San Francisco-based Under CEO Charlie Scharf, Wells Fargo has based on legal advice that says they lender began informing customers who been exiting businesses deemed inessential should be able to get some charter, and yet have been using their personal credit lines with the goal of simplifying operations and administratively, because of the Michael that the financing channels will remain improving profitability after years of scandals. Hsu situation and a lack of guidance from available. People who haven’t used their That discipline has helped send the bank’s Congress, there’s no assurance that they will accounts since October also will be given the shares up 59% this year. be able to get one,” said Baker. option of keeping them open, according to But, as it turned out, the personal credit The OCC and FDIC declined to comment notifications seen by Bloomberg. lines remained a favored source of financing for this story. An OCC spokesperson said “Based on feedback from our customers for some longtime customers. that “as an FDIC board member, it would (thank you if you provided feedback!) we are be inappropriate to comment on potential adjusting our approach,” John Rasmussen, board deliberations or decisions.” an executive vice president who oversees But analysts emphasize that all is not lost Wells Fargo’s personal lending business, for ILC aspirants. wrote to active customers in an email seen by

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Citigroup, which announced new restrictions “have come down significantly and are pretty BONDS on financing for gun companies following limited.” the 2018 mass shooting at Marjory Stoneman And when JPMorgan CEO Jamie Dimon was Douglas High School in Parkland, Florida. questioned about the bank’s gun finance policy Citi’s muni Citi accounted for more than 10% of the during a May 27 appearance before the House $58.4 billion in municipal bond issuances in Committee, he indicated bond business Texas last year, the highest percentage of any that changes the bank made were not dissimilar bank, according to data from Refiniv, which from the moves by Citi and BofA. tracks the industry. “I don’t think it’s that different to tell you shrinks in So far this year, Citi’s market share in Texas the truth,” Dimon said at the hearing. “We do has dropped to about 6%, which is sixth in not finance the manufacturing of military-style Texas after the industry, totaling nearly $1.9 billion of weapons for civilian use, though we do finance municipal bond business in about seven and a that for military use because we obviously half months, according to the data. support and love the American military.” gun law’s After Abbott signed the bill, Citi’s head During the legislative debate over the Texas of global public affairs, Ed Skyler, defended bill, banks with policies that impose limitations passage the megabank’s 2018 policy change but also on doing business with gunmakers had indicated that the new Texas law should not put scrambled to defeat it. Other opponents of the By Jon Prior a dent in its business. proposal said that cutting off major banks from August 18, 2021 “We have determined that the legislation the municipal bond business would lead to less A Texas law aimed at punishing banks for doesn’t prevent us from serving our clients competition and potentially higher costs for discriminating against gunmakers is set to in Texas, as our policy does not restrict us taxpayers. take effect, and Citigroup, which was targeted from working with retailers because they sell The Independent Bankers Association by the measure’s supporters, has already lost firearms,” Skyler wrote in a blog post. of Texas, which represents smaller banks, substantial market share. “It simply requires our clients to use best remained neutral on the legislation. If large Banks and other companies that have practices when selling firearms,” he wrote. “We banks do ultimately lose business as a result contracts with Texas municipalities will have have continued to serve retail sector clients that of the law, smaller community banks could be to certify beginning on Sept. 1 that they do not sell firearms, including those in Texas, who use beneficiaries. have policies discriminating against firearm these responsible practices.” or ammunition businesses. So far, industry Bank of America, which announced in 2018 UPDATE officials are not betraying much concern about that it would halt financing for companies This story has been updated to add the measure’s impact. that manufactured military-style weapons for comments that JPMorgan Chase CEO Jamie “To date, we have no knowledge of civilians, also appeared to be a target of the law. Dimon made during congressional testimony terminated contracts, nor have we received But through mid-August of this year, BofA in May. information about municipalities providing handled more than $3 billion in municipal any notices related to their compliance,” a bond issuances in Texas, or slightly more than spokesperson for the Texas Bankers Association the $2.8 billion that it handled by the same time BLOCKCHAIN said Tuesday. in 2020. The spokesperson also said that the law has A spokesperson for the Charlotte, North not even been a “notable discussion point” in Carolina, bank declined to comment on any New York the trade group’s regular conversations with fallout from the law. banks. JPMorgan Chase has fared even better this Community The law, signed by Republican Gov. Greg year in Texas. Abbott on June 14, has been seen as a threat The nation’s largest bank by assets handled to certain big banks that are involved in the $3.07 billion in new municipal bond issuances boss makes lucrative municipal bond issuance business in through mid-August, which translated into the Lone Star State. 9.8% market share in Texas, the most of any another bold The law’s effects will likely take more time to company. At the same time last year, JPMorgan play out, and banking industry representatives had handled $2.4 billion in municipal bond are still wary of possible side effects. Once the issuances, which amounted to a 6.8% share move with certification requirements go into effect next of the Texas market, according to the Refinitiv month, it seems possible that municipalities data. Figure deal will become more skittish about signing new JPMorgan has not drawn as much criticism contracts with certain big banks. from gun-rights advocates as its two rivals. But By Allissa Kline “We have and will continue to monitor,” the in 2018, then-Chief Financial Officer Marianne August 18, 2021 Texas Bankers Association spokesperson said. Lake said following an earnings report that the New York Community Bancorp Chairman One of the major targets of the law was bank’s relationships with firearms companies and CEO Thomas Cangemi dropped plenty of

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 20, 2021 AMERICANBANKER.COM PAGE 5 hints last month that his quest to expand the for 16% of the company’s loan book at June spokesman who said he could not give details company’s digital banking capabilities would 30, while commercial and industrial loans about cost-cutting plans because those details involve a deal with a fintech. comprised 9%. Those percentages were largely are proprietary to Figure’s mortgage servicing Less than three weeks later, Cangemi unchanged from the start of the year. operations. Figure announced this month and New York Community announced a The Flagstar deal should help on both that it will merge with Homebridge Financial partnership with San Francisco-based Figure sides of the balance sheet, Cangemi has said. Services, a nonbank mortgage lender, and Technologies. The two companies will work The acquisition includes Flagstar’s mortgage work with Sagent, a fintech software company together on a series of blockchain-related warehouse business, which is the second that will provide core servicing and default initiatives. largest in the country. New York Community servicing platforms. The partnership — which includes an wants to tap into cross-selling opportunities by Overall, the relationship with Figure undisclosed financial investment in Figure by encouraging Flagstar’s mortgage warehouse will help New York Community catch up New York Community — is the latest example customers both to take out commercial loans in an industry where technology is rapidly of Cangemi shaking things up since ascending and to keep lower-cost deposits at the bank. accelerating the course of business, according to the chief executive job in late December. At the same time, New York Community to Chris Marinac, an analyst at Janney During 2021, the $57.5 billion-asset is seeking to build out its digital banking Montgomery Scott. company has announced a deal for Flagstar capabilities. During the company’s second- The company is “forcing itself to change” Bancorp in Troy, Michigan, which, pending quarter earnings call in July, Cangemi under new leadership, Marinac said. regulatory approval, will be New York told analysts that the bank is “reallocating “I think they’ve got a really interesting Community’s first bank acquisition in resources to building out a digital platform” situation, and this fintech partnership is a more than a decade; created a chief digital that will help it get “caught up to the industry.” log on the fire for what I think is very positive banking officer job; and started the process of The changes include the addition of a chief steam starting to come out of the factory,” transforming from a niche lender into a full- digital officer who will report to Cangemi. Marinac said. fledged . New York Community also plans to pursue so- While it is unclear how the partnership The deal with Figure “speaks to a bank called banking-as-a-service opportunities that with Figure will affect the bank’s earnings, that has been for a long time in a place would be available by forming relationships what is certain is that the deal “reinforces that with a stagnated strategy,” Bank of America with fintech companies. with Tom as CEO, the company is going in a Securities analyst Ebrahim Poonawala said in With Figure’s help, New York Community different direction,” Winter said. an interview this week. hopes to use digital ledger infrastructure to “I think this is just the tip of the iceberg,” he “When Tom took over, his message to the expand financial inclusion in banking and said. “We fully expect there will be additional Street was: ‘We’re going to transform the credit, cut costs in the mortgage business and announcements on fintech partnerships, hires business model,’ and Flagstar was part of create a quicker, less expensive payments to expand and build out digital banking and that,” Poonawala said. “Now, to partner with system, the company said in a press release hopefully a little more about the opportunities someone like Figure, this speaks to this being Monday. with Figure. It’s kind of like, ‘Stay tuned.’ ” a very different New York Community than It plans to use the Provenance Blockchain, anything we’ve seen over the last 20 or 30 an open source distributed ledger for the years.” financial services industry that Figure PAYCHECK PROTECTION “This is a guy who understands that the established to trade consumer loans and sell PROGRAM business model needs to be transformed, and securities. he’s on it,” he added. Cangemi was not available this week to New York Community’s revamp under talk about the relationship with Figure, the Lenders are Cangemi — who took the reins after the company founded in 2018 by Mike Cagney, abrupt retirement of Joseph Ficalora, who was who also helped start Social Finance. In the quick to CEO for 27 years — is multipronged. press release, Cangemi said the agreement The Hicksville, New York-based company, is part of the bank’s “strategic focus on the which has long been a leader in multifamily operational and cost benefits that blockchain adopt SBA’s lending and has relied heavily on higher- technology can bring to bear across many cost certificates of deposit to fund its loans, areas of banking.” faster PPP now wants to do more commercial lending. The blockchain initiative figures to yield It also plans to tap into its multifamily and benefits in connection with the Flagstar merger, commercial borrowers to generate more analyst Peter Winter of Wedbush Securities forgiveness lower-cost core deposit growth. said. Through blockchain technology, New The bank has made headway on the liability York Community could reduce the costs of option side of its balance sheet. At the end of June, mortgage origination and servicing as well as CDs made up 26% of its deposit base, down securitization, which should increase gain on By John Reosti from 32% at the end of December. sale margins, Winter said. August 19, 2021 Progress on the asset side has been slower. That does not mean reductions in staffing, The Small Business Administration Commercial real estate loans accounted according to a New York Community appears to have made significant headway

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 20, 2021 AMERICANBANKER.COM PAGE 6 streamlining its process for Paycheck approximately 325,00 PPP loans for $9.5 Protection Program loan forgiveness, which billion, had its own forgiveness portal, but it DEBIT CARDS drew complaints through last year and early decided quickly to funnel its remaining 2021 2021. PPP loans to the SBA’s portal for forgiveness. Previously, the process worked best for “A government portal gives borrowers a lot Small banks, large PPP lenders with the resources to of comfort,” Sam Sidhu, president and CEO create in-house portals. However, as many of Customers Bank, said in an interview. “I credit unions as 1,500 small lenders had made little or think that there’s going to be a momentum no investment in a technology platform to play here that kind of accelerates things. And support forgiveness, the SBA estimates. For I think there’s really a chance — we have high push back them, loan forgiveness risked becoming hopes — that we can put as much of PPP “a national paperwork exercise,” that a behind us as possible this year.” against Fed new SBA portal, launched Aug. 4, aimed to If Sidhu is correct, Customers would be a resolve, Patrick Kelley, the SBA’s associate huge beneficiary as more and more PPP loan administrator for the Office of Capital Access, payouts are redeposited into its coffers. debit-routing said in an interview. “Our capital ratios will skyrocket,” Sidhu In just two weeks, the direct borrower said. “Then we’ll have an ability to redeploy proposal forgiveness portal has received more than that capital into higher-yielding assets.” 340,000 submissions, and about half of those Fountainhead Commercial Capital in By Kate Fitzgerald have already been fully forgiven and paid out, Lake Mary, Florida, another high-volume August 18, 2021 Kelley said. PPP lender, was another early adopter of the Small banks and credit unions are fighting “We’re averaging five days between the portal. Fountainhead had submitted more the ’s proposed changes to time the application is submitted, the lender than 31,000 applications, according to CEO routing rules, which are designed to decides, and we take out the note,” Kelley said. Chris Hurn. make it easier for online merchants to choose Throughout 2020, PPP lenders and Like Customers, Fountainhead is using the a low-cost debit network but would make borrowers lobbied the agency and Congress SBA portal to process its 2021 PPP loans. financial institutions largely responsible for to streamline the forgiveness process, “We think we can reach 65% to 70% implementation. complaining that the initial application forms forgiveness by year end if we continue at Merchants claim that because an increasing were cumbersome and time-consuming. this pace,” Hurn said. “That would please us proportion of consumer debit card transactions The success of the new portal — which is greatly.” are flowing through online and mobile restricted to loans of $150,000 or less — has The $4.2 billion-asset channels, since last year they’ve paid $2 billion contributed to a substantial uptick in the pace in Fishers, Indiana, opted not to use the SBA to $3 billion in excess fees that are not covered of PPP forgiveness. Between July 31 and Aug. portal, but only because it’s come close to by existing card rules, which are focused on the 15, the SBA reported receiving more than achieving forgiveness on the approximately point of sale. 555,000 applications. Over the same span, the 450 PPP loans it originated on its own. First But card issuers say the Fed’s proposal — dollar volume of forgiven loans increased by Internet expects to complete forgiveness for making banks and credit unions implement $26.6 billion, to $471.1 billion. its 2020 PPP loans by October, while more new debit-routing options for online From a forgiveness standpoint, the 10 than a third of its 2021 loans have started the transactions — will add costs and erode business days since the direct portal was process, said Phil Kryder, vice president of interchange revenue. launched have been the busiest since SBA special projects. Provisions within the Durbin amendment began accepting applications in August 2020, Kryder, however, called SBA’s portal “an to the 2010 Dodd-Frank Act require card Kelley said. impressive achievement … I think it’s going issuers to give merchants the choice of at least “From Administrator [Isabella Casillas] to help small businesses, especially if they’ve two unaffiliated debit networks for routing Guzman’s perspective, allowing lenders to got a lender that doesn’t have SBA expertise or transactions, enabling them to lower card focus on the capital needs of their borrowers an automated portal and might try to do this acceptance costs. is a higher priority,” Kelley added. manually.” Those rules were devised when most debit According to the SBA, it takes borrowers A total of 5,467 lenders participated in the transactions occurred in stores. The pandemic about six minutes to complete the application Paycheck Protection Program, and about drove a higher proportion of debit card using the direct portal. Approximately 60% 1,200 are using the SBA’s forgiveness portal. transactions online, where merchants typically of the applications it has received have come The agency is eager to see that number grow. do not have much choice in routing options. from a mobile phone, “which demonstrates Kelley wants lenders to sign on even if they The Fed in May unveiled proposed how accessible [the portal] is, that you can just already have an in-house portal. clarifications to Regulation II under the Durbin click through the application on your phone,” “It’s great to look at your shiny technology amendment that would ensure merchants said Nicola Montagna, special advisor at the and say we spent some money on this, but get the same debit network routing choices SBA. ultimately why don’t you do yourself a solid for online transactions as they do for in-store The $19.6 billion-asset Customers Bancorp and let the government take it from here,” purchases. in West Reading, Pennsylvania, which made Kelley said. According to the ’s own data,

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 20, 2021 AMERICANBANKER.COM PAGE 7 the steady growth of e-commerce and mobile according to Sarah Grotta, head of debit “The NRF is concerned that unless the transactions in recent years — on top of advisory at Mercator Advisory Group. Board’s clarification of the scope of Reg II is various technology changes affecting payment “E-commerce merchants need the ironclad and not subject to ambiguity, much of processing — means that about 94% of online authorization to be separate from the posting its work may prove to have been for naught in debit transactions currently flow directly message because they cannot charge a future years because Visa and Mastercard are through Visa and Mastercard. consumer’s account until goods are shipped, likely to take advantage of any loopholes they Hundreds of financial institutions and so they need a dual-message transaction — like may read into the new language,” the NRF said their constituents have filed comments, and Visa and Mastercard’s so-called signature debit in a recent press release. many claim that the proposed changes would networks,” Grotta said. punish smaller card issuers and community Although the Durbin amendment exempts banks, potentially costing them billions in financial institutions with assets of less than DIVERSITY AND EQUALITY lost transaction fee revenue while increasing $10 billion from its caps on debit interchange expenses and fraud risk. rates, the surrounding costs of ensuring that all The American Bankers Association and five merchants are enabled with two unaffiliated Nasdaq’s other financial trade groups urged the Fed to debit networks for online transactions could be make key changes to its proposal or withdraw higher, while their debit card interchange will board-diver- it altogether. likely drop, she said. “The proposed ‘enablement’ requirement “It will be smaller issuers, plus neobanks and would force issuers to redirect funds and fintechs that rely on smaller banks with less sity plan chal- personnel from critical projects, and this than $10 billion in assets — that do not already would have a disproportionate impact on small issue debit cards with PIN-less capabilities — lenged in court issuers and community banks,” the ABA said in that will bear the brunt of the Fed’s proposed a 17-page comment to the Fed. clarification,” Grotta said. In its present form, the proposed rule would Smaller issuers that don’t already as ‘unfair’ cost issuers $27 billion in revenue over the next automatically offer a dual-message transaction decade, with the biggest impact on smaller path for merchants will need to reissue cards By Bloomberg News card issuers, according to the ABA. Large with the new format to customers, and retool August 18, 2021 retailers would capture the lion’s share of the their back-office settlement, fraud detection An opponent of affirmative action is interchange windfall, the ABA contended. and chargeback processes to match these challenging the U.S. Securities and Exchange At a minimum, the trade groups urge the Fed changes, she said. Commission’s approval of a rule to get more to consider changing some of the proposal’s “These smaller issuers who don’t already women and minorities on the boards of language and its implementation timeline. The have PINless debit cards will also experience companies trading on Nasdaq. trade groups also urged the Fed to remove the a drop in their interchange as more activity The Alliance for Fair Board Recruitment, proposed wording requiring issuers to “enable” moves online and through these lower-cost which has also taken legal action against multiple card networks on their cards, which debit networks. Large banks will have to comply California over its requirement for corporate would be a costly and difficult technical hurdle, too, but their interchange is regulated [by the board diversity, filed a petition for a review of according to the bank lobbying groups. Durbin amendment] so the impact to their the SEC’s decision to a federal appeals court Instead, the ABA proposes the Fed retain interchange will not be that great; they will just last week. the rule’s current language requiring issuers see a transaction shift away from Mastercard Under the rule, which was approved earlier to only “allow” multiple networks to process and Visa,” she said. this month, companies listed on Nasdaq must transactions on their cards. The trade groups In addition to expanding merchants’ options have at least one self-identified female board recommend pushing out the effective date of for online debit transactions, the Fed proposes member and at least one who identifies as a any new debit-routing rule to four years. that debit-card issuers for the first time would member of an underrepresented minority or The other banking trade groups signing be responsible for ensuring that at least two LGBTQ — or explain why there isn’t. the ABA’s letter were the Consumer Bankers unaffiliated networks have been enabled, “The race, sex and sexual identity board Association, the National versus merely making options like Pulse, quotas required by Nasdaq are unfair and Association, the Mid-size Bank Coalition of Shazam and NYCE available. illegal,” Edward Blum, president of the alliance, America, the National Association of Federally- Among more than 850 comments filed this said in a press release Wednesday. “This rule Insured Credit Unions and the National month in response to the Federal Reserve violates our nation’s civil rights laws and Bankers Association. Board’s move, many are from merchants that Constitution and should be struck down by the The crux of the issue is the complexity of generally support the Fed’s proposed rule courts without delay.” digital commerce. Unlike payment terminals, change. The court action is latest in a series of the card-not-present shopping environment The Merchants Payments Coalition and the lawsuits Blum has brought challenging diversity doesn’t easily support the use of independent National Retail Federation, each representing measures. He has sued against affirmative debit networks online. This causes many thousands of U.S. merchants, favor the Fed’s action policies at the University of Texas and transactions to automatically flow over Visa proposed changes and urge swift action to has pushed courts to block Harvard University or Mastercard’s signature debit networks, finalize the rules. from considering race in admissions.

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A representative for Nasdaq declined to impact into their everyday financial and sustainable projects, including financing for comment and the SEC didn’t immediately commercial transactions,” Ahmed Fattouh, renewable energy, green buildings and clean respond to an emailed request for comment. chairman and CEO of InterPrivate III, said in transportation. In its decision, the SEC said the rule wouldn’t a press release in referencing environmental, The Pittsburgh-based bank said that impose “any burden on competition that is not social and governance goals. the environmental funding is meant to necessary or appropriate.” Aspiration offers a , a complement an $88 billion community The case is Alliance for Fair Board debit card and investment accounts and benefits pledge announced earlier this year Recruitment v. Securities and Exchange says customers’ money won’t be used to in connection with PNC’s acquisition of the Commission, 21-60626, U.S. Court of Appeals fund fossil-fuels projects. The debit cards are U.S. banking operations of BBVA. for the Fifth Circuit (New Orleans). issued by Coastal Community Bank in Everett, “PNC recognizes that environmental Washington, and its deposits are held in one issues, including climate change, are or more banks insured by the Federal Deposit impacting our business, our clients and the IPOs Insurance Corp., the company says. communities in which we operate,” Chief Aspiration, which has more than 5 million Corporate Responsibility Officer Richard customers, provides cash back when they Bynum said Wednesday in a press release. Green buy from companies that operate ethically. It “We acknowledge that the transition to recently launched a Plant Your Change program a low-carbon economy presents both risks challenger that lets customers round each purchase and opportunities, and we are committed made with its debit card to the nearest whole to balancing financial priorities, responsible dollar to put toward new trees. Its individual risk management and environmental bank retirement account invests with sustainable considerations in ways that benefit our varied companies, and its encourages stakeholders,” Bynum said. Aspiration users to go carbon-neutral. Another arm of the The $554 billion-asset company joins a company partners with businesses to be more handful of other large and regional banks environmentally conscious. making or expanding their commitments to going public The company is expected to have more environmental finance. Earlier this year, Bank than $400 million to pour into marketing of America updated its own environmental via a SPAC campaigns and invest in product innovation financing goal, pledging to spend $1 trillion and technology. by 2030, up from a goal of $300 billion set two By Miriam Cross “Aspiration is in the business of fighting the years ago. August 18, 2021 climate crisis,” Andrei Cherny, CEO and co- PNC established a sustainable finance Aspiration Partners, one of the first founder of Aspiration, said in the release. “We practice in 2020. That business, headed by challenger banks to focus on the environment, help people and businesses build sustainable Kristi Eberhardt, has largely been dedicated is going public, the company said Wednesday. impact into what they do every day by making to transition finance, or the practice of helping Los Angeles-based Aspiration is merging it easy, automated, and powerful.” business clients to finance their own climate with InterPrivate III Financial Partners Inc., transition strategies. An example might be a special-purpose acquisition company, in a working with a transportation company to deal valued at $2.3 billion. The transaction is COMMERCIAL BANKING upgrade its fleet with more energy-efficient expected to close in the fourth quarter, after vehicles. which the company will be named Aspiration The projects financed as part of Inc. and trade on the New York Exchange PNC pledges Wednesday’s pledge will have to fit certain under the ticker symbol ASP. parameters. Green buildings, for example, Fintechs, including other challenger banks $20B over must meet certain third-party standards such as BankMobile and MoneyLion, have or certifications, such as LEED or ENERGY been popular targets for SPACs this year. STAR, and sustainability-linked bonds must At the same time, Aspiration’s environmental five years for follow the Green Bond Principles, to which focus is part of a broader effort by financial PNC is a signatory. companies — including some traditional sustainable The company also recently published banks — to decarbonize their portfolios, help its first Task Force for Climate-Related investors identify sustainable options, create Financial Disclosures report, an accounting deposit products that fund sustainable projects finance of the company’s strategy for addressing and partner with fintechs to support green climate risk within its portfolio and its own loans. By Laura Alix operations. “Through its merger with InterPrivate, August 18, 2021 In the 21-page report, PNC outlined board- Aspiration will become the first ESG-driven PNC Financial Services Group is and management-level oversight for certain fintech, a unique platform enabling individuals committing $20 billion over the next climate issues, risk management processes, and enterprises to integrate and automate five years in support of environmentally and a rundown of the carbon footprint

For up to date and complete coverage go to AmericanBanker.com FRIDAY AUGUST 20, 2021 AMERICANBANKER.COM PAGE 9 generated by the bank’s business operations. consider more advanced credit models that Climate risk disclosures are not yet are more predictive and can help drive more CORPORATE GOVERNANCE required of any U.S. bank, although the financial inclusion. Securities and Exchange Commission is In 2017, Congress passed the Credit Score considering a measure to require that public Competition Act, which required Fannie Mae TD names companies disclose those risks. and Freddie Mac to start looking at newer PNC joins a small but growing number of credit models. retail and banks, including the four largest Wall Street Recent reports suggest that the companies banks and Regions Financial in Birmingham, have since validated those models. What we Alabama, that have made the disclosures need to see now is a renewed commitment finance exec voluntarily. to continued evolution and modernization, with the goal of greater accuracy and Mary Winston inclusion. This starts with rethinking their BANKTHINK approach to credit scores and leveraging these newer models, instead of holding on to U.S. board to a quarter-century-old measuring standard Go beyond as the foundation of their lending decisions. By Laura Alix Think how much the world has changed in August 19, 2021 rent payment the last two decades — especially in how we Retail and financial executive Mary apply for and close mortgage loans. But we Winston has been elected to TD Bank’s U.S. haven’t given the potential homeowners who board of directors. history to pro- need help the most access to advances in Winston, currently the president and technology that are being used successfully CEO of the board consulting firm WinsCo mote home- every day in different areas of the economy. Enterprises in Charlotte, North Carolina, Alternative credit models are helping is the fourth woman and second African lenders across the economy to make lending American to serve on TD’s nine-member U.S. ownership decisions about more potential customers board. than ever before. Data science does not just “We expect to leverage her diverse By Francis Creighton simply stop innovating. Older models such business experience, financial expertise and August 18, 2021 as FICO-Classic weren’t designed to take strategic insights as we continue to execute Last week, Fannie Mae announced that in rent payments into account (the data weren’t our U.S. growth strategy and strive to be the September it would begin allowing lenders even available back then). Newer models do, better bank,” Greg Braca, president and CEO to take rent payment history into account and those models are being used successfully of the Toronto company’s U.S. bank, said in a when underwriting mortgages for first-time across the financial services market, except press release. homebuyers. This is a critical step forward in for mortgage lending. Winston has previously held roles as the the fight for financial inclusion. Why does this matter? The older scoring interim CEO of Bed, Bath & Beyond and Many people who have thin credit files models were based on the information as chief financial officer at Family Dollar are faithfully paying monthly rent bills, and data that were available at the time. Stores, Giant Eagle and Scholastic. A certified demonstrating consistency and ability to pay They don’t take into account advances that public accountant, she currently serves on by allowing access to their data. have become available over the last several the boards of several public companies, By taking rent into account and allowing it to decades. So, while other parts of the financial including Bed, Bath & Beyond and Chipotle factor into the underwriting process, Fannie services industry are successfully serving Mexican Grill. q Mae is creating and expanding opportunity consumers who were previously excluded, for many people who were previously mortgage originators have been stuck serving © 2021 Arizent and American Banker. overlooked even as they kept meeting their the same limited population they served in All rights reserved. financial obligations. Fannie Mae is a key the 1990s. stakeholder in the industry and advocate Now is the time to embrace change and for affordable, accessible housing and its innovation to serve the cause of financial example should inspire collective action inclusion and stop using a credit model from others across the industry. that was developed when most people were While this bold decision is a strong watching “Seinfeld” on Thursday nights. start, we can’t stop at just including rental payments in the underwriting process — Francis Creighton is president and CEO of there’s real promise in other kinds of data the Consumer Data Industry Association. for credit invisibles. Far too many mortgage companies continue to leverage older credit scoring models. The industry needs to

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