Tennessee Bankers

This Week Newsletter

December 04, 2017 - Issue No. 1748

TN Attorney General: Legislation to Allow Public Deposits in CUs Would Be Unconstitutional

Tennessee Attorney General Herbert Slatery last week issued a favorable opinion stating that it would be unconstitutional for legislation to allow a county, city, or town to deposit funds in a credit union unless there was a requisite referendum as required under article II, section 29 of the Tennessee Constitution. 

This section specifically prohibits a city, county or town from becoming a “stockholder with others in any company, association, or corporation” except upon an “election to be first held by the qualified voters of such county city or town, and the assent of three-fourths of the votes cast at said election.” Read the AG Opinion.

In essence, the only way credit unions could accept public deposits is either (1) pass legislation to allow them to do so that also first requires the local government to hold a vote and receive three-fourths approval for it, or (2) amend the Tennessee Constitution, which would required a two-thirds vote of members of the General Assembly over two consecutive sessions as well as a public referendum. 

The complexity of either of these options likely ends the pursuit by credit unions to accept public deposits in Tennessee. CUNA and NCUA have been leading a national effort in the states to give credit unions the ability to accept public deposits. TBA will be working with the other state bankers associations to make them aware of this ruling in the case that their Constitution has similar language.

Additionally, the AG’s opinion also finds that public deposits would be safer in banks than credit unions for two reasons.  First, bank depositors are entitled to withdraw their funds on demand whereas credit union members may do so only after funds become available. Second, in the event of dissolution of a bank, creditors’ claims are superior to investors’ claims, but in the case of a credit union’s dissolution, payment of creditors’ claims would dissipate the funds available to shareholders/customers.

Judge Rejects Legal Challenge to Mulvaney Leading CFPB

A federal judge last Tuesday sided with the White House and CFPB Acting Director Mick Mulvaney in the legal conflict over the bureau’s interim leader. Judge Timothy Kelly declined to issue a temporary restraining order sought by CFPB Deputy Director Leandra English preventing Mulvaney from performing the duties of acting director. English said she will seek to appeal the ruling and continue seeking an injunction.

Mulvaney was appointed by President Trump following Richard Cordray’s abrupt resignation as director the prior week. Named deputy director shortly before Cordray’s resignation, English sued Mulvaney and Trump on the theory that the Dodd-Frank Act makes her the bureau’s acting director during a vacancy.

The White House took the position that the Federal Vacancies Reform Act applies, allowing the president to name an official, confirmed and currently serving the U.S. Senate, as acting director—a conclusion reached by both the Justice Department’s Office of Legal Counsel and the CFPB’s own general counsel.

Meanwhile, in his first day as acting director at the CFPB, Mulvaney imposed a 30-day freeze on new regulations, guidance, hiring, and civil money penalties at the consumer finance regulator.

Powell: Fed Will Continue Pursuing Opportunities for Tailored Regulation

During testimony before the Senate Banking Committee last Tuesday, Federal Reserve Chairman-Designate Jerome Powell expressed general support for the Senate’s bipartisan framework for regulatory reform, which he referred to as “workable” and “sensible.” The draft legislation is expected to receive a committee vote next week.

Powell added that the Fed will continue to seek opportunities to provide relief for banks through tailored regulation that takes into account an institution’s size and risk profile. He also noted that the financial system is significantly stronger today than it was at the time of financial crisis and told lawmakers that he does not believe that any banks today are “too big to fail.”

ICBA Sues Equifax over Massive Data Breach

ICBA filed a lawsuit on behalf of community banks against Equifax Inc. for its breach of 145.5 million consumer records and 209,000 payment cards. Bank of Zachary, La., and First State Bank in Barboursville, W.Va., joined ICBA in the suit.

ICBA’s lawsuit asks the U.S. District Court for the Northern District of Georgia to require Equifax to compensate all community banks harmed by the breach and to improve its security to avoid additional harm to consumers and local communities. Read ICBA's press release. Read ICBA's complaint.

DOL Finalizes 18-Month Extension for Fiduciary Rule Exemptions

As the Department of Labor continues its review of the Obama-era fiduciary rule, DOL last Monday finalized its plans to extend to July 1, 2019, the compliance date for certain exemptions to the rule. The extension would apply to the best interest contract exemption, principal transaction exemption and prohibited transaction exemption 84-24. DOL granted the extension to ensure it will have sufficient time to consider public comments submitted in response to an executive order by President Trump earlier this year, which ordered that the fiduciary rule be re-examined for possible repeal or revision.

In addition, DOL also extended temporary enforcement relief from field assistance bulletin 2017-02 until July 1, 2019. Prior to that date, the department will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary rule and applicable provisions of the exemptions. Read more.

Otting Sworn In as Comptroller

Joseph Otting was sworn in last Monday as Comptroller of the Currency. A former bank CEO in California, Otting replaces Keith Noreika, who served as acting comptroller for several months.

TBA Webinar Explores Deposit Sensitivities and Liquidity Levels in Changing Landscape

We are in the midst of a rising rate environment given the Fed hikes since year-end of 2015. While we may be out of practice (or even lack any real experience) in dealing with rising rates, we can rest assured that there is some shift of our deposit base—but when, how much, and what will ultimately cause it, remains uncertain.

In this Jan. 11 webinar, Joe Kennerson discusses the importance of utilizing quantitative and qualitative data to support the stability of your deposits and key pricing decisions and how your depositors impact how you manage your liquidity, and vice versa.

This webinar addresses:

  • Developing a deposit game plan to manage at-risk customers and promote effective pricing strategies
  • Determining the success of deposit product promotions
  • Implementing a more forward-looking liquidity management process
  • Finding the balance between retail and wholesale funding alternatives

TBA On the Road

  • Stacey Langford, SVP of Membership, visits members in West Tennessee.
  • The Financial Products and Services Inc board meets on Tuesday and Wednesday.

See where TBA goes while "on the road" by following @TNBankers.