May 05, 2023

5 things to know this week

ColumnNAFCU's widely read NAFCU Today is credit union leaders' go-to source for the latest on issues impacting the credit union industry. For those short on time, here's a roundup of this week's top need-to-know updates and resources.

Yellen: June 1 is worst case scenario for debt default 

Treasury Secretary Janet Yellen announced the government could hit its debt limit much sooner – June 1 – than previously anticipated. The Republican-controlled House last week passed its bill to increase the limit, while cutting funding and creating restrictions for various programs, but Democrats and the Biden Administration called it a non-starter. President Joe Biden is expected to meet with majority and minority leaders of the House and Senate May 9 to discuss a possible solution.

In Yellen’s letter to congressional leaders, she noted that “[i]t is impossible to predict with certainty the exact date when Treasury will be unable to pay the government’s bills, and I will continue to update Congress in the coming weeks as more information becomes available. Given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments.” 

In addition to next week’s meeting, the Senate is expected to turn its attention to the issue.

House Appropriations Chair Kay Granger, R-Texas, sent a letter to committee members indicating they will begin a month-long process to markup government funding bills the week of May 15, aiming for House floor votes in mid-June. 

Another bank failure; Senate Banking sets hearings 

There was another bank failure early this week, with the FDIC seizing First Republic and selling it to JPMorgan Chase. Safety and soundness concerns at First Republic’s were evident at the same time as Silicon Valley Bank (SVB) and Signature Bank’s failures, but the bank survived a little longer after a group of big banks deposited $30 billion to fight off a crisis. All three banks had significant levels of uninsured deposits, but unlike the earlier two failures, the government did not provide special backing of First Republic’s. The FDIC’s deposit insurance is expected to take a $13 billion hit from the failed banks, which will be recouped through bank fees. 

The Senate Banking Committee announced former executives from SVB and Signature will testify May 16, and leaders from the federal regulators will testify May 18 on the collapses. 

Following the release of investigation reports by the Fed and FDIC, the FDIC also released a report on deposit insurance reform that outlined three main options: 

1.       maintaining the current system of limited coverage, though potentially increasing the $250,000 threshold; 

2.       providing unlimited coverage and fully insuring all deposits; and 

3.       offering targeted coverage, such as substantially increasing coverage to business payment accounts to ensure businesses could still meet expenses such as payroll, without significantly changing the coverage limit for other deposits.

NAFCU will continue to tout the benefits of the safe, secure, and reliable credit union industry. 

CFPB proposes PACE financing rule for residential properties 

The CFPB issued a proposed rule related to residential Property Assessed Clean Energy (PACE) financing that would prescribe ability-to-repay rules for PACE loans and apply the civil liability provisions of the Truth in Lending Act for violations. It would also provide new model forms for the Loan Estimate and Closing Disclosure, specifically designed for PACE transactions. 

PACE financing covers the cost of home improvements that results in a tax assessment on the real property of the consumer. 

In response to the bureau’s advance notice of proposed rulemaking on the issue in 2019, NAFCU noted credit unions avoided loan originations with PACE liens due to the high costs and sought alternative loans for green and energy-efficient improvements. NAFCU called for more transparency and consumer protections for PACE loans. Additionally, the NCUA in 2010 highlighted potential risks of PACE loans.

NAFCU will provide comments to the bureau on the proposed rule ahead of the comment deadline. 

Senators review NFIP 

The Senate Banking Committee held a hearing Tuesday on the National Flood Insurance Program (NFIP). NAFCU has supported the long-term reauthorization and continued modernization of the NFIP, which received bipartisan agreement throughout the hearing.  

During the hearing, lawmakers discussed climate change, outdated flood maps, and other challenges to the program. Many also noted the importance of supporting small towns and rural communities impacted by flood risk.  

A House Financial Services subcommittee held a similar hearing in March; lawmakers will continue to discuss the issue. 

McHenry eyes June for stablecoin bills 

House Financial Services Committee Chairman Patrick McHenry, R-N.C., told attendees of the Milken Institute Global Conference that he intends to advance stablecoin legislation out of the committee by the end of June. 

The Subcommittee on Digital Assets, Financial Technology and Inclusion has held several hearings focused on regulatory needs for stablecoins and other digital assets, one of which focused on draft stablecoin legislation from McHenry. A revised draft of his bill would provide state regulators more authority to charter and create rules for stablecoin issuers within their jurisdiction, though issuers could still be subject to Fed enforcement actions. 

The House Agriculture Committee has also discussed digital assets issues; McHenry at Monday’s event indicated legislation would be collaborated on with House Agriculture Chair G.T. Thompson, R-Pa. 

NAFCU will continue to advocate for a clear regulatory framework for cryptocurrency and other financial technologies to support innovation and adoption while reducing risks.