6 statehouse issues on bankers’ radar

With a presidential election looming and trade issues top of mind, bankers could almost forget that a new year also means a host of local proposals that might help — or hurt — large swaths of the industry.

But national and state banking groups said they have a number of state-level issues in their sights: consumer data privacy protections, rent control and prize-linked savings to name a few.

In some cases, they’re eyeing measures aimed at improving access to financial services or affordable housing. In other cases, they may be concerned with proposals included in governors’ budgets. And in still other cases, they may be watching other states take their cues from California when it comes to data privacy or other consumer matters.

Here is a look at a half-dozen of the state-level issues bankers are watching this year.

Iowa state capitol

Pushing back on prize-linked savings in Iowa

On its face, it almost sounds counterintuitive: Iowa bankers are opposing a bill in the state legislature that would legalize prize-linked savings accounts.

A prize-linked savings account works by entering depositors into a lottery or raffle for a cash prize when they save money. The basic idea is to tap into the thrill some people get out of gambling, but for a more constructive end. Because prize-linked savings are often considered a type of gambling, states generally need to pass a law to allow financial institutions to offer them.

But the Iowa Bankers Association says it’s a bid by the state’s credit unions to capture wealthier depositors to the detriment of the underserved population they are supposed to cater to. Prize-linked savings accounts favor higher balances and therefore put low-income Iowans at a disadvantage, said Sharon Presnall, senior vice president of government relations for the bankers’ group.

Not so, said the Iowa Credit Union League.

Justin Hupfer, the group’s vice president for government affairs, countered that most popular prize-linked savings programs cap the number of monthly entries allowed and that the prizes are often $25 or $50 per month.

“Banks could do the same thing for their customers if they chose to, as well,” he said.

Much of the Iowa bankers’ objections boil down to that perennial complaint bankers make about credit unions.

“That’s going to be a prize for one person, not the whole membership,” Presnall said. “Is that what that tax exemption meant for?"
Gavin Newsom, California governor
Gavin Newsom, Democratic candidate for governor of California, speaks to attendees during the Global Climate Action Summit in San Francisco, California, U.S., on Thursday, Sept. 13, 2018. The Global Climate Action Summit brings together industry and political leaders working on improving the conditions and concerns facing climate in the world today. Photographer: David Paul Morris/Bloomberg

California charts a course on consumer protection

Bankers will also want to watch what happens in California, where first-term Gov. Gavin Newsom plans to revamp the state’s Department of Business Oversight and model it after the federal Consumer Financial Protection Bureau.

The effort is partly a response to regulatory rollback under the Trump administration and partly an effort to keep fintech firms from fleeing California. Like the CFPB, the California Department of Financial Protection and Innovation would be able to bring enforcement actions against financial services providers that engage in unfair, deceptive and abusive acts and practices.

Newsom’s proposal would also make it easier to form industrial banks in the state, a move that is aimed at enticing fintech firms to stay in California.

Beth Mills, a spokeswoman for the Western Bankers Association, said the organization is still parsing the details of Newsom’s plan but that it hopes the proposal will treat banks and nonbanks the same.

"We also hope the governor’s effort to encourage innovation will extend to traditional banks and not just new providers in this space," she said in an email.

The plan is part of Newsom’s budget proposal and stands a strong chance of passing, as his fellow Democrats have supermajorities in the state Assembly and state Senate.

And where California goes, other states tend to follow.

Richard Cordray, who served six years as director of the CFPB, said last month, “It is going to catapult California into the forefront of consumer protection around the country on the state level.”
NY Governor Andrew Cuomo arrives for meeting with President-elect Trump at Trump Tower
New York State Governor Andrew Cuomo is seen upon his arrival in in the lobby of Trump Tower in New York, NY, USA on January 18, 2017. Credit: Albin Lohr-Jones / Pool via Abaca

New York budget prioritizes financial inclusion

New York bankers are monitoring developments out of the statehouse in Albany, as Gov. Andrew Cuomo aims to make financial inclusion a hallmark of his administration.

The governor included several banking-related measures in his recent budget proposal and alluded to expanding mainstream banking services in poorer communities during his State of the State speech in January.

“Too often our most vulnerable New Yorkers are subject to predatory businesses, and they get shut out of the banking system that would enable upward mobility,” Cuomo said in prepared remarks. “I am tired of seeing check-cashing stores on almost every corner of our struggling communities.”

Among other things, Cuomo is proposing a safe-harbor provision for banks that intervene in suspected cases of financial abuse, $25 million in new funding for community development financial institutions and the creation of a new office of financial inclusion.

Mike Smith, president and CEO of the New York Bankers Association, said the group is supporting the proposal to shield banks and credit unions that intervene when they suspect financial abuse of a vulnerable adult. That proposal would also create a certification program to strengthen training in financial exploitation prevention.

The bankers’ group said it generally supports the state’s efforts to boost financial inclusion, particularly its popular banking development district program. Yet it also says it is waiting for more details before taking a firm stance on the creation of the new financial inclusion office.

California-style privacy bills are on the rise

Bankers will also want to watch the rollout of California’s consumer data privacy law this year as well as similar proposals in other states.

The California Consumer Privacy Act gives residents of that state the right to know what data companies collect about them and for what purpose, to refuse the sale of their personal information and to delete their data. It also includes an opt-in for children under 16 and makes it easier for consumers to sue after a data breach.

California often leads the way on issues like this, and this year several other states are entertaining their own similar legislation, including New Hampshire, New Jersey and New York.

The devil may be largely in the details, but bankers generally have argued that the state-level rules are onerous for organizations operating across several states or nationwide. Bankers’ groups have generally said that one federal standard would be easier to comply with than a patchwork of different state laws.

They also point out that the industry is already subject to strict privacy protections under the Gramm-Leach-Bliley Act of 1999.

California is still finalizing some of the details of its own law, and bankers may want to see what comes of that process as well. In a recent letter, the American Bankers Association urged California’s attorney general to exclude trade secrets from the law, among other suggestions.

Rent control stages a comeback in Massachusetts

Bankers in Massachusetts are eyeing local developments aimed at addressing the state’s affordable housing crisis, including a real estate transfer tax proposal and a possible return to rent control.

The transfer tax bill would allow cities and towns to charge a fee of between 0.5% and 2% on single-family home sales above the statewide median price, currently $430,000. Municipalities could also charge a second fee, up to 6%, when a house is flipped. The funds would go toward affordable housing development in the communities where the property is located.

The Massachusetts Bankers Association is concerned that the threshold could be set too low and could box out first-time homebuyers.

“We think it’s important to set the level at a threshold that’s not going to threaten to blow up deals on more traditional first-time homebuyer sales,” said Jon Skarin, executive vice president of the group. He said some members also worry about the compliance burden of having dozens of different transfer taxes throughout the entire state.

The group has not yet taken a position on the transfer tax or rent control, but said it is usually aligned with state real estate groups on these issues. Rent control could become problematic if it affects borrowers’ ability to repay their debts, he said.

Rent control faced stiff opposition from local bankers when it was introduced in New York City last year, particularly by multifamily lenders. Massachusetts voters repealed rent control in 1994 at a statewide ballot, though only Boston, Brookline and Cambridge had rent control at that time.
Betsy DeVos, secretary of education, speaks
Betsy DeVos, secretary of education, speaks during the Wall Street Journal CFO Network conference in Washington, D.C., U.S., on Tuesday, June 11, 2019. Panelists will discuss how rules governing financial reporting and corporate behavior will change and explore the mergers and acquisition landscape and corporate activism. Photographer: Alex Edelman/Bloomberg

States take up student lending rules

A number of states have taken up consumer protection measures for student borrowers, and some bankers say they intend to be on guard in 2020.

The efforts stem from criticism of the Trump administration as unhelpful, if not outright hostile, to student borrowers. U.S. Education Secretary Betsy DeVos recently fought loan-forgiveness programs for students defrauded by for-profit schools, for instance, adding to the perception that the administration is unfriendly to those with student loan debt.

In recent years, states like New Jersey and Massachusetts have passed their own student borrower protections, often dubbed a student borrowers’ bill of rights. Virginia is considering its own student borrower protection measure this year.

Those laws generally require loan servicers to register with state regulators, set standards for what constitutes abusive loan-servicing practices and impose penalties for violations.

The U.S. Education Department still makes about 90% of all student loans nationwide, but banks are increasingly eyeing a piece of the $1.4 trillion pie. The Consumer Bankers Association has prioritized federal student lending reform in recent years, often arguing that greater private sector participation would help rein in the rising cost of higher education.

The bankers group is generally concerned with state-level student borrower protections for much of the same reasons it might find fault with state-level data privacy laws: A patchwork of state-level regulations is tougher and more confusing to comply with than one federal standard.