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Volume 3, Issue 1, 2023
Welcome!
Welcome to the first issue of Promissory Notes for 2023. Promissory Notes is Banking & Finance Insights’ e-newsletter highlighting important news stories from the industry and explaining why they matter.
Thank you for reading. I look forward to working with you in 2023.
Plaintiffs Pursue Increasing Class Actions for Breach of Contract Claims Against Overdraft Fees and Fees to Customers
“Plaintiffs’ attorneys see the potential for significant settlements and judgments, and increased regulatory scrutiny should force financial institutions to review their overdraft practices.”
Why this matters: The CFPB and OCC, which have intensified over the past year, criticize banks’ overdraft practices and warn of increased oversight and enforcement scrutiny. Sensing an opportunity to lodge a complaint against a deep-pocketed defendant, and using rhetorical prey from regulators, law firms have sent litigation-threatening demand letters and filed lawsuits against banks and credit unions. is increasing. commission. Overdraft fees have been challenged in class action lawsuits based on several different theories. Initially, many plaintiffs argued that banks and credit unions used the customer’s available balance, rather than the current balance, to determine whether a transaction was subject to overdraft fees, and that the dominant The second popular theory is that financial institutions intentionally reordered pending transactions from largest to smallest to maximize overdraft and NSF fees. Thing. Additional charges include improper evaluation of debit card transactions by financial institutions. This may include posting to the account where the funds were previously held when the preapproval hold was placed, or using the Reg E form (which explains how financial institutions evaluate overdraft fees). You may. Complies with Reg E requirements.
Given the high-value rulings plaintiffs have won to date, consumer financial institutions have been advised by recent supervisory findings and their own policies, customer disclosures and account agreements, internal guidelines on overdrafts/insufficient charges, and these potential different effects should be checked. Charges may apply. It costs money for consumer financial institutions to respond aggressively. Therefore, financial institutions should review account agreements and overdraft disclosure materials to minimize risk and exposure. As plaintiffs’ attorneys continue to troll on behalf of plaintiffs in every state, financial institutions should consider including binding arbitration language with a class action waiver to their account agreements. Such language can be used to prevent these situations from becoming a class action lawsuit. — Bryce J. Hunter
Offering digital loans will be a cost-effective way for credit unions to court millennials
“However, as millennials make up an ever-larger share of open loan holders, credit unions are optimizing this digital-first generation by offering more streamlined tools at lower rates than credit unions can generally afford. You have a unique opportunity to take advantage of our 86% satisfaction rate to appeal to your offer.”
Why this matters: Customer loyalty is a hallmark of the credit union industry. A recent survey shows that credit union member satisfaction remains high at 86%, although a closer look shows that figure is slightly lower than last year’s survey. Customer loyalty incentives and services are extensive and each have their own costs to implement and deploy. Interestingly, this recent survey shows that millennials generally want digital tools more than rewards. Big competitors such as PNC and JG Wentworth are also taking notice. PNC previously announced a partnership with Blend, a cloud-based tool-focused software company looking to digitize the mortgage process. JG Wentworth seems to be going the acquisition route, looking to incorporate FinTech tools into its own system. Strategic third-party partnerships could offer budget-conscious credit unions the best of both worlds. Small and medium-sized credit unions meet the unique needs of millennials and other digital-first generations by choosing and partnering with third parties who already provide the digital tools and software consumers crave. We can provide the product. — Brian H. Richardson
Credit unions look for bank targets more strategically
“Credit unions announced 16 bank acquisitions in 2022, breaking the previous annual record of 13 announcements in 2019, excluding liquidations.”
Why this matters: Economic uncertainty and concerns over rising interest rates may have dampened bank M&A activity in 2022, but credit union activity maintained a strong pace. But despite the rise in bank credit union takeovers, these deals remain a minority of all U.S. bank M&A activity, with 16 announcements announced in 2022. Represents just under 10% of all 168 bank transactions.
The activity also broke other annual records for 2022. This includes the total assets of bank targets involved in credit union transactions. This was $5.7 billion across 16 targets, well above the previous record of $3.92 billion across 13 targets in 2019. The average assets of the 16 banks announced in 2022 were $356.5 million in sales to credit unions, surpassing the all-time high of $349.6 million across the 10 2021 targets. It also allows us to focus on the long-term strategic benefits of a deal and subsequent impact on cumulative other comprehensive income, rather than short-term factors such as accounting standards and deal calculations including unrealized securities losses. .
Commentators expect the number of M&A announcements in 2023 to continue in line with 2022 trends, although one of the barriers to credit union and bank deals could be state regulation or legislation. I have. For example, in 2022 Mississippi passed a law prohibiting state-licensed banks from selling to institutions not insured by her FDIC. Regulators in other states – Minnesota, Missouri, Nebraska and Tennessee – are trying to prevent these deals by not approving the deals announced in their respective states. Similar roadblocks are likely in 2023 as credit unions make acquisitions in other states. — Bryce J. Hunter
Cyber Tops Bank Risk List for 2023
“Chief risk officers say they see cybersecurity risks everywhere, according to new research.”
Why this matters: Cybersecurity risk has jumped to the forefront of a series of concerns weighing heavily on the minds of risk professionals. Historically, credit has presented the heaviest risk. Credit remains his No. 2 position, as volatile economic conditions and high inflation strongly indicate that credit risk is likely to return to top priority, but for now, both short-term and long-term strategies cyber security is a top priority. One of the major cybersecurity concerns for banks is that vulnerabilities are not entirely internal. The entire ecosystem has a complete chain that must remain strong and attackers will try to exploit its weaknesses. A bank’s vulnerabilities often depend on the security and data privacy practices of third parties and partners. It is important that each entity in the chain addresses potential threats, identifies risk factors and verifies compliance with obligations to ensure robust security is in place at all levels. must be considered. From a legal perspective, the review of accountability and reporting requirements between contracting parties should be a matter of periodic review. What was strong enough under the terms of the contract a few years ago may not offer the same level of protection given today’s advanced threats. Over the next few years, risk professionals focused on these issues will need to look back at past terminology and implementations to minimize future risks. — Brian H. Richardson
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