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Business Journals
a day ago
- Business
- Business Journals
Uneven ground: Why state-chartered banks bear the brunt of proposed legislation
The United States has one of the most diverse and robust banking sectors in the world and is represented by banks of all sizes that serve every segment of the American economy. The nation's approximately 4,500 banks include community banks, midsize banks, regional banks, and large banks. Banks of every size add unique value and are critically important to our financial system and our economy. While banks may have different business models and strengths, institutions succeed when they meet the needs of their communities. Part of what makes the U.S. banking system special is the dual banking system which provides bankers with a choice of operating under a national charter or a state charter. Unfortunately, the California state charter is under attack and its value proposition is diminishing. Just this year, several California legislative measures target state-chartered banks or will be preempted limiting the measure's application. One such measure allows the commissioner of the Department of Financial Protection and Innovation to enforce violations of the federal Dodd-Frank Act (DFA) through unfair, deceptive, abusive acts or practices claims. Proponents claim that this measure is necessary because the Consumer Financial Protection Bureau (CFPB) under President Donald Trump's administration will not enforce DFA. The reality is that the commissioner already possesses this authority; however, to deploy it, the commissioner must provide notice to the CFPB, which may become a party to the action and/or can seek to remove the action to federal court. The rationale behind this potential intervention is to avoid duplicative and uncoordinated enforcement actions. Large big box retailers are pushing a measure to limit the charging of an interchange fee by prohibiting the fee being assessed against sales tax. These retailers need to remember the convenience and certainty credit card payments have provided them, and that the underlying infrastructure that facilitates these transactions has a cost. Additionally, interchange fees support low and no-cost bank accounts and credit card reward points programs that customers appreciate. The bill will be preempted for federally chartered banks, leaving its application to state-chartered banks. Another measure establishes a state-level Community Reinvestment Act (CRA) applicable to certain state-licensed entities, including California-chartered banks. This effort is duplicative and potentially contradictory to the federal CRA, which all banks are subject to. Rather than layering on top of state banks, the measure should be amended to apply solely to California-chartered credit unions, which do not have a federal CRA requirement, though they are depository institutions and may operate similarly to banks. As we have fiercely advocated for our member banks, we commonly hear legislators express appreciation for community banks. But with measures advancing like those described above, we are increasingly convinced that those are just words and that their actions prove otherwise. Banks are highly regulated entities and miraculously excel at finding a path to compliance on what seems to be a never-ending list of new laws and regulations. But there is a breaking point. Consolidation within the industry has been driven, in part, by over-regulation. Smaller community banks, just like small businesses, are struggling to keep up with overregulation and are finding that they must get to scale to survive the regulatory avalanche. We are gravely concerned that new laws and regulations will accelerate consolidation and may leave communities who need access to banking services in financial deserts. This unfortunate result could push the door more widely open to the less-regulated shadow banking industry where there is often less consumer protection. And because of the dual-banking system, banks can exercise their choice and operate under a national charter, which leaves the state with less oversight. If policymakers really care about the important role of community banks, as they have suggested, it's time they put a stop to efforts that could make the state charter less valuable.
Yahoo
4 days ago
- Business
- Yahoo
Baltimore drops lawsuit challenging efforts to defund CFPB
The city of Baltimore on Thursday voluntarily dismissed its lawsuit challenging the Trump administration's efforts to defund the Consumer Financial Protection Bureau (CFPB). The city, which is represented by the left-leaning legal organization Democracy Forward, cited the government's position in court that it won't transfer money from its reserve fund to dismantle the independent agency as reason for dropping the case. 'Defendants have repeatedly represented that there is no mechanism by which Defendant Consumer Financial Protection Bureau can transfer away money from, or otherwise relinquish control over the money in, the Bureau Fund,' lawyer Mark Samburg wrote in the filing, provided first to The Hill. Samburg said the city and Economic Action Maryland Fund, the other plaintiff in the lawsuit, would 'undertake further actions as appropriate' if the administration later contradicts its position. Since February, the government has acknowledged in court filings that returning CFPB's funds to the Federal Reserve would not be possible. Both CFPB Chief Financial Officer Ngagne Jafnar Gueye and Chief Operating Officer Adam Martinez said in declarations that they were not aware of any mechanism that would make such a transfer possible. Martinez said in his March declaration that Gueye looked into the matter and concluded that 'there is indeed no authority or mechanism to transfer excess funds back to the Federal Reserve, to transfer excess funds to the Federal Reserve's control, or to transfer excess funds to the control of any other entity.' 'The agency has therefore not attempted to do so,' the COO said. U.S. District Judge Matthew Maddox, who is overseeing the case, previously denied Baltimore's request for a temporary restraining order after finding that the challengers failed to prove the administration took a 'final agency action' to defund the consumer watchdog, which is mandatory for relief in claims brought under the Administrative Procedure Act (APA). The Trump administration filed a motion to dismiss the case earlier this month. Skye Perryman, president and CEO of Democracy Forward, called the case a 'big win for consumers.' 'Our case derailed Russ Vought's plan to defund the CFPB — an agency that has been a critical defender of American consumers,' Skye Perryman said. Baltimore and Economic Action Maryland Fund sued the CFPB and Russell Vought, its acting director, earlier this year, claiming that by seeking to return its reserve funds to the Federal Reserve or Treasury Department they effectively sought to defund and defang the agency. The CFPB was an early target of the Trump administration and the Department of Government Efficiency (DOGE). In a separate lawsuit, a federal judge enjoined the administration from dismantling the CFPB. A federal appeals court then issued an order that was construed as greenlighting major cuts at the agency, but it later partially lifted that decision and has not yet ruled on the merits. 'While the administration continues its efforts to dismantle the CFPB and weaken regulations that protect people from fraud and debt traps, we are delighted that the government concedes it cannot defund the bureau by transferring money from its reserve fund,' Marceline White, executive director of Economic Action Maryland Fund, said in a statement. 'This is a win for ordinary folks and we were proud to work with Democracy Forward and the City of Baltimore to stop this effort.' Updated at 1:28 p.m. EDT Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
The Hill
4 days ago
- Business
- The Hill
Baltimore drops lawsuit challenging efforts to defund CFPB
The city of Baltimore on Thursday voluntarily dismissed its lawsuit challenging the Trump administration's efforts to defund the Consumer Financial Protection Bureau (CFPB). The city, which is represented by the left-leaning legal organization Democracy Forward, cited the government's position in court that it won't transfer money from its reserve fund to dismantle the independent agency as reason for dropping the case. 'Defendants have repeatedly represented that there is no mechanism by which Defendant Consumer Financial Protection Bureau can transfer away money from, or otherwise relinquish control over the money in, the Bureau Fund,' lawyer Mark Samburg wrote in the filing, provided first to The Hill. Thank you for signing up! Subscribe to more newsletters here Samburg said the city and Economic Action Maryland Fund, the other plaintiff in the lawsuit, would 'undertake further actions as appropriate' if the administration later contradicts its position. 'Our case derailed Russ Vought's plan to defund the CFPB – an agency that has been a critical defender of American consumers,' said Skye Perryman, president and CEO of Democracy Forward, referring to President Trump's top budget official. Perryman called it a 'big win for consumers.' Baltimore and Economic Action Maryland Fund sued the CFPB and Vought, its acting director, earlier this year, claiming that by seeking to return its reserve funds to the Federal Reserve or Treasury Department they effectively sought to defund and defang the agency. DEVELOPING
Yahoo
5 days ago
- Business
- Yahoo
DOJ, CFPB seek to end Trustmark redlining consent order early
This story was originally published on Banking Dive. To receive daily news and insights, subscribe to our free daily Banking Dive newsletter. The Justice Department and the Consumer Financial Protection Bureau filed a motion last week to terminate a consent order against Trustmark Bank over allegations the Jackson, Mississippi-based lender engaged in redlining between 2014 and 2018. The 2021 consent order marked the launch of a concerted effort by the DOJ, CFPB and Office of the Comptroller of the Currency during the Biden administration to root out racial discrimination in mortgage lending. Throughout three years, the agencies agreed to 15 settlements that brought $150 million in relief, the DOJ said last October. Trustmark has paid a $5 million penalty in connection with the order and disbursed $3.85 million into a loan subsidy program meant to increase the bank's lending presence in majority-Black and majority-Hispanic neighborhoods in the Memphis, Tennessee, area, and took steps to implement improved fair lending procedures, the DOJ and CFPB argued last week. Trustmark's consent order was to remain in effect for five years. Terminating the order now would free the bank 17 months early. The DOJ and CFPB seek to have it dismissed with prejudice, too, so future iterations of the agencies can't file claims later on the same allegations. 'Trustmark has demonstrated a commitment to remediation, and … [the bank] is substantially in compliance with the other monetary and injunctive terms of the Consent Order,' the agencies wrote in paperwork filed in the U.S. District Court for the Western District of Tennessee. The bank likewise referenced its 'commitment to remediation' and 'substantial compliance' with the consent order in a filing Wednesday with the Securities and Exchange Commission disclosing the matter. The CFPB alleged in 2021 that Trustmark failed to adequately market, offer or originate home loans to consumers in majority-Black and Hispanic neighborhoods in and around Memphis. Specifically, just four of the bank's 25 Memphis-area branches were in majority-nonwhite neighborhoods at the time, and none of the four had an assigned mortgage loan officer, the bureau said at the time. Further, Trustmark did not establish internal committees to oversee fair lending until August 2018, after the OCC launched an exam of the bank's fair-lending practices. 'The federal government will be working to rid the market of racist business practices, including those by discriminatory algorithms,' the CFPB's then-director, Rohit Chopra, said, noting the launch of the anti-redlining effort. Despite being used as a benchmark, the Trustmark settlement was hardly the first of the Biden era. The DOJ had reached an $8.5 million settlement with Cadence Bank just two months earlier over allegations the lender engaged in redlining in Houston from 2013 to 2017. But the Trustmark order signaled a lock-step among regulators. Observers might argue Trump administration regulators are aligning in a similar lock-step now, with different priorities. The CFPB, for example, dismissed 18 lawsuits and three civil investigative demands against various firms between February and early May, American Banker reported. So last week's Trustmark motion is in character. The DOJ and CFPB noted in their motion that 'modifications' to the 2021 consent order 'may be made upon approval of the Court, by motion by any Party, and that the Parties will work cooperatively to propose modifications if there are changes in material factual circumstances.' Trustmark's $5 million penalty was far from the highest from the cooperative anti-redlining effort. That distinction belongs to Royal Bank of Canada subsidiary City National Bank, which was ordered to pay $31 million in 2023. Recommended Reading Shared zeal for CRA reform leads OCC chief, entrepreneur to rare rapport
Yahoo
5 days ago
- Business
- Yahoo
CFPB to yank ‘unlawful' open banking rule
This story was originally published on Payments Dive. To receive daily news and insights, subscribe to our free daily Payments Dive newsletter. The Consumer Financial Protection Bureau has determined that a 2024 rule authorizing open banking is 'unlawful' and should be scrapped, 15 years after Congress enacted legislation to make it easier for consumers to switch financial institutions, the agency told a federal court. The bureau plans to vacate the rule as part of a lawsuit in Kentucky, the CFPB's chief legal officer, Mark Paoletta, wrote in a federal court filing Friday. 'After reviewing the Rule and considering the issues that this case presents, Bureau leadership has determined that the Rule is unlawful and should be set aside,' the agency wrote in a status report filing. The Bank Policy Institute, which represents most of the large U.S. banks, said Friday in a press release that the bureau had acknowledged the rule's 'clear legal deficiencies.' But Financial Technology Association CEO Penny Lee in a statement Friday called the CFPB decision 'a handout to Wall Street banks, who are trying to limit competition and debank Americans from digital financial services.' The CFPB passed its final rule in October, drawing an immediate lawsuit from the Bank Policy Institute, the Kentucky Bankers Association and Kentucky-based Forcht Bank. The banking groups argued that the rule, under Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, imposed heavy compliance costs and did not address liability issues around fraud and misuse of consumers' financial data. The plaintiffs also said the bureau had exceeded its authority under the act in formulating the rule. In late March, U.S. District Court Judge Danny Reeves had stayed the lawsuit for 60 days to allow the bureau – under the leadership of acting director Russell Vought – to review its position on the matter. The agency's move to vacate the rule means 'years of wasted work from banks and fintechs that could have been saved by amending rather than abandoning the rule,' Todd Baker, a senior fellow at the Richman Center for Business, Law & Public Policy at Columbia University, wrote Saturday on LinkedIn. FTA members and other fintechs had hoped that the bureau would choose to revise the rule, addressing areas of contention, rather than vacate it entirely. On May 14, Reeves ruled that the FTA can intervene to defend the lawsuit, finding that its members' interests were not adequately protected by either party in the litigation. The CFPB's move to vacate the rule could make the intervention moot, however. The agency has sought to reduce about 90% of its pre-Trump staff of around 2,000 employees and Vought has requested that Congress slash the bureau's budget as part of a budget bill House Republicans passed last week. The staff cuts remain mired in federal litigation. The bureau said it intends to file for summary judgment in the case by Friday, the same date as the plaintiffs' motion for summary judgment is due. An FTA spokeswoman said Monday the association will then respond to the motions and that the rule remains in effect until Reeves issues a decision. Last week, the Financial Data & Technology Association, which represents about three dozen fintechs, wrote to Vought urging that the CFPB not dismantle the rule. 'Vacating the existing rule and starting from scratch risks prolonging regulatory uncertainty that could stall market development, stifling innovation in critical digital financial technologies, and emboldening incumbents to entrench their positions and legacy technologies rather than compete,' FDATA North America Executive Director Steve Boms wrote. FDATA and some of its members also convened a conference call on May 19 with reporters to discuss the various problems they anticipate if the agency vacates the rule. One primary issue several speakers cited is the CFPB's ability to craft a new rule – as mandated in the Dodd-Frank law – with a minimal staff under Vought's management. The current open banking rule took the bureau five years to enact, beginning in the first Trump administration. Bloomberg Law reported May 8 that the bureau would seek to vacate the rule, citing multiple sources familiar with the strategy. Recommended Reading CFPB issues final rule on open banking Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
