PUB 21 ISSUE 2 PUBLISHED BY NEW MEXICO BANKERS ASSOCIATION, FOUNDED IN 1906 PHOTO BY: JIM RENFROW New Mexico Has Become My Home By Mark Horn Page 4 Industry Insights By John W. Anderson Page 6 The Supreme Court’s Radical Reshaping of America By Mark Anderson Page 15
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OVER A CENTURY: BUILDING BETTER BANKS — HELPING NEW MEXICO REALIZE DREAMS The mission of the New Mexico Bankers Association (NMBA) is to serve member bank needs by acting as New Mexico banking’s representative to government, the public and the industry; providing resources, education and information to enhance the opportunities for success in banking; promoting unity within the industry on common issues; and seeking to improve the regulatory climate to the end that banks can profitably compete in the providing of financial and related products and services. ©2024 The New Mexico Bankers Association (NMBA) | The newsLINK Group LLC. All rights reserved. The New Mexico Bankers Digest is published four times each year by The newsLINK Group LLC for NMBA and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the NMBA, its board of directors or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. The New Mexico Bankers Digest is a collective work, and as such, some articles are submitted by authors who are independent of NMBA. While the New Mexico Bankers Digest encourages a first-print policy, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at (855) 747-4003. PRESIDENT’S MESSAGE 4 NEW MEXICO HAS BECOME MY HOME By Mark Horn, President, New Mexico Bankers Association EXECUTIVE VICE PRESIDENT’S MESSAGE 6 INDUSTRY INSIGHTS By John W. Anderson, Executive Vice President, New Mexico Bankers Association WASHINGTON UPDATE 8 THE “OTHER” CRA: A LESSER-KNOWN TOOL IN THE POLICY TOOLBOX By Rob Nichols, President and CEO, American Bankers Association 12 NEW MEXICO MORTGAGE FINANCE AUTHORITY’S SEVERAL HOME REHABILITATION PROGRAMS Keeping Homes Affordable and Boosting Communities By Kristie Garcia, New Mexico Mortgage Finance Authority 15 THE SUPREME COURT’S RADICAL RESHAPING OF AMERICA By Mark Anderson, Legal and Legislative Analyst, New Mexico Bankers Association 18 WHEN IS A CARD A CARD? By Roger Morris Jr., JD, CIPP, Associate General Counsel, Compliance Alliance 19 NMBA 112TH ANNUAL CONVENTION 20 UNLOCK MORE PROFITABLE CUSTOMER RELATIONSHIPS By Jay Kenney, SVP & Southwest Regional Manager, PCBB 22 THREE STAGES TO UNLOCK A PEOPLE-FIRST WORK CULTURE By Katie Barnes, Chief People Officer, BHG Financial 25 BANK NEWS 26 IN MEMORIAM Our Mission CONTENTS President Mark Horn Pinnacle Bank 107 E. Aztec Ave. Gallup, NM 87301 President-Elect Kyle Beasley Bank of Albuquerque 100 Sun Ave., NE, Ste. 500 Albuquerque, NM 87109 Secretary Treasurer Elizabeth Earls U.S. Bank, NA 1900 Jefferson, NE Albuquerque, NM 87109 Immediate Past President David Hockmuth Wells Fargo Bank, NA 200 Lomas, NW Albuquerque, NM 87102 TERMS EXPIRING 2024 Paul Mondragon Bank of America, NA 4401 Central Ave., NE Albuquerque, NM 87108 Jay Jenkins CNB Bank PO Box 1359 Carlsbad, NM 88220 Jason Wyatt Western Commerce Bank 212 North Canal St. Carlsbad, NM 88220 TERMS EXPIRING 2025 Scott Czarniak First National 1870 7300 Jefferson St., NE Albuquerque, NM 87109 Aaron Emmert Pioneer Bank 3000 N. Main St. Roswell, NM 88201 Howie Herbert U.S. Bank 7900 Jefferson St. NE Albuquerque, NM 87109 TERMS EXPIRING 2026 Renanah Taylor Bank of Montreal 303 Roma St. NW, Ste. 100 Albuquerque, NM 87102 J. Chesley Steel Southwest Capital Bank 1410 Central Ave., SW Albuquerque, NM 87104 Max Myers Century Bank 100 South Federal Pl. Santa Fe, NM 87501 2023-2024 NMBA Board of Directors 3
PRESIDENT’S MESSAGE MARK HORN President New Mexico Bankers Association NEW MEXICO HAS BECOME MY HOME New Mexico, although not my birthplace, has become my home. The past year has introduced me to new places, new people and new experiences. The opportunity to serve as the New Mexico Bankers Association president is one that I will miss, and it has been an honor to lead this great organization this past year. It is with my last article as president that I would like to highlight what I have learned about what it is that defines the New Mexico Bankers Association. I feel the easiest way to do this is to break down our name. New Mexico is truly enchanting. Traveling the state has shown me the beauty of this land, the diversity of its economy and the character of its people. There are national parks, natural wilderness and modern amenities for all to enjoy. Each area of the state has economies that are specific to their region, ranging from natural resources to tourism to government. Also, we are one of the youngest states admitted to this great nation, however, we have some of the longest-standing communities and cultures to be found in America. Bankers are more than community members at the bank in your town. In many instances they are the city council member, the youth baseball coach, the chamber board member or parade marshal. Bankers are some of the most committed individuals devoted to the success of businesses, farms, youth and community you will find. In most instances, they are also the most humble yet proud participants you will meet. Bankers know communities benefit through mutual success. Association is defined as a group of people organized for a joint purpose. This is very much true in the case of our organization. The willingness of competing bankers to join together furthers the abilities of our industry to promote the success of our communities, eventually raising the quality of life in our state. I hold my head high knowing that I am striving to fulfill this purpose each day. The New Mexico Bankers Association is more than just a name. It’s a representation of a wonderful place, full of driven professionals and bound by common goals of good. I’m proud of New Mexico. I’m proud to be a banker, and I’m encouraged by our achievements and our determination to succeed together now and into the future. I want to thank my fellow board members both past and present for their support not only of me but of our association. Our great staff of John, Debbie and Mark provide great leadership and support for all we do. Finally, I wish to thank all the special people in this special place we call New Mexico; it’s our great association that makes this our home! 4
The New Mexico Mortgage Finance Authority (MFA) developed the Restoring Our Communities (ROC) program to help meet New Mexico’s need for affordable housing units, while assisting communities in reducing vacant and abandoned houses that decrease property values. The program objectives are to: SCAN TO LEARN MORE! Restoring Our Communities, One Home at a Time Provide funding for acquisition and rehabilitation of vacant or abandoned properties to increase affordable housing units in New Mexico, and Create and preserve affordable housing and provide housing opportunities for low-moderate- and middleincome homebuyers. The Notice of Funding Availability opened on September 1, 2023, and will remain open as long as funds are available. There is an initial allocation of $4 million to provide funding for approved projects. 1 2 MFA seeks developers/contractors to take on these restorative projects. AFTER BEFORE
EXECUTIVE VICE PRESIDENT’S MESSAGE INDUSTRY INSIGHTS JOHN W. ANDERSON Executive Vice President New Mexico Bankers Association Corporate Transparency Act The Corporate Transparency Act (signed into law on January 1, 2021) expanded anti-money laundering laws and created new reporting requirements for certain companies doing business in the United States. Beginning in 2024, many small businesses are required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) in an effort to create a national database for use by national security and law enforcement agencies to prevent the use of shell companies for criminal activity. Both domestic and foreign reporting companies are required to file reports. A company is considered a reporting company if a document was filed with the Secretary of State (SOS) or similar office to create or register the entity. Corporations, (including S corporations), LLCs and other entities formed through the SOS are subject to the reporting requirements. But, because sole proprietorships, trusts and general partnerships do not require the filing of a formal document with the SOS, they generally are not considered a reporting company and will not have a filing requirement. Foreign companies are required to file reports if they are registered with the SOS or similar office under state law. Some companies are exempt from reporting, but many of the exempted companies are already registered to report ownership information to a government authority. Beneficial ownership information (BOI) must be reported for the reporting company’s beneficial owners and (for entities formed or registered after 2023) company applicants. BOI includes an individual’s full legal name, date of birth, street address and a unique ID number. The unique ID number can be from a non-expired U.S. passport, state driver’s license or other government-issued ID card. If the individual does not have any of those documents, then a non-expired foreign passport can be used. An image of the document showing the unique ID number must also be included with the report. Two groups of individuals are considered beneficial owners of a reporting company: (1) any individual who directly or indirectly owns or controls at least 25% of the ownership interests of the reporting company; or (2) any individual who exercises substantial control over the reporting company. Individuals with substantial control are those with substantial influence over important decisions about a reporting company’s business, finances and structure. Senior officers (president, CFO, general counsel, CEO, CCO and any other officer who performs a similar function) are automatically deemed to have substantial control, as are individuals with the authority to appoint or remove senior officers and board members. There is no requirement that these individuals have actual ownership in the company to be considered a beneficial owner for reporting purposes. 6
For existing reporting companies created or registered before 2024, the initial report is due by January 1, 2025. For reporting companies created or registered in 2024, the initial report is due 90 days after the entity’s creation or registration. For reporting companies created or registered after 2024, the initial report is due 30 days after the entity’s creation or registration. The 112th Annual NMBA Convention The NMBA Annual Convention is scheduled for September 12-13 at Santa Ana Star Casino Hotel. Our theme this year is “New Mexico is Where History is Made — Oppenheimer.” We thought it important to stress the importance of Los Alamos and the film “Oppenheimer” to the state. We have put together a terrific program. John Asbury, chair-elect of the American Bankers Association, will keynote our general session. He will discuss what is the national environment for our industry and the regulatory conditions we are experiencing. Incidentally, John was the former president and CEO for the First National Bank of Santa Fe and a member of the NMBA Board of Directors. Ryan Miller, Senior Counsel of Innovation Policy at the ABA, will discuss understanding AI as part of banks’ risk management frameworks. The session will cover the types of AI, some possible uses, the risks presented and the internal controls you need to innovate responsibly. Lenwood Brooks, V, Legislative Counsel for the FHLB Dallas, will provide a comprehensive overview of the upcoming November election and a regulatory update focusing on the elections impact on the banking industry. The timing on this subject matter could not be better. Our final guest speaker during our dinner will be Liz Martineau, executive of the Los Alamos Commerce & Development Corporation. Her speech, “Project Oppenheimer: Leveraging History for Impact,” will include her personal experiences in Los Alamos and the role the Los Alamos Historical Society played in the production of “Oppenheimer.” She will discuss working with director Christopher Nolan and Universal Studios to protect historical properties and advocate for historical accuracy before and during filming. Finally, she will discuss leadership, economic impact and tourism, as well as other important factors in the “Oppenheimer” experience. We would encourage you to attend our 112th Annual Convention. Our state has so much to be proud of and so much history to share! 7
However the elections shake out in November, ABA’s focus will remain unchanged: supporting a policy environment that supports America’s banks in their mission to supply credit to their customers, clients and communities. ROB NICHOLS President and CEO American Bankers Association WASHINGTON UPDATE THE “OTHER” CRA: A LESSER-KNOWN TOOL IN THE POLICY TOOLBOX 8
The banking agencies are tasked with writing and implementing regulations for the laws enacted by Congress, but they do not have free reign. In creating these rules, regulators must act within the boundaries of their statutory authority or run the risk of legal challenge — and ABA has not been afraid to hold them accountable in court when they get it wrong. But Congress can also hold agencies accountable when there are policy disagreements by simply overriding final rules. In ABA’s view, regulators have exceeded their authority in several recent regulatory actions, including the 1071 final rule, the credit card late fee final rule, the new Community Reinvestment Act final rule and the expansion of UDAAP authority via an update to an examination manual. When I addressed bankers at the 2024 ABA Washington Summit earlier this year, I assured them that ABA would use every tool in our toolbox to push back against the “regulatory tsunami” that regulators have unleashed upon the banking industry. Litigation is obviously a tool that we’ve been forced to use now several times — as evidenced by our four current legal challenges against bank regulators — but it isn’t the only option. Among the other tools available is a lesser-known mechanism called the Congressional Review Act — which we sometimes refer to as “the other CRA.” The Congressional Review Act was enacted in 1996 to provide Congress with an avenue for overturning certain federal regulatory actions, but inexperience with the new law and divided government meant it was only used once in its first 21 years. During the Trump administration, however, when Congress and the White House were controlled by the same party, the CRA was used successfully 16 times. Highlights included ABA-backed resolutions to overturn the CFPB’s rule effectively banning the use of mandatory arbitration for financial products — a rule that ABA strongly opposed — and a resolution to nullify the bureau’s 2013 indirect auto lending guidance after the Government Accountability Office issued a formal decision in 2017 that the guidance constituted a rule. Congress passed CRA resolutions three more times during the Biden administration, and lawmakers continue to introduce them. Recently, ABA supported a CRA challenge to the CFPB’s 1071 final rule. That CRA challenge was passed by a bipartisan majority in both the House and Senate — and though President Biden ultimately vetoed the measure, it sent a strong and clear signal that Congress disagreed with the bureau’s rule. In addition, a resolution of disapproval under the CRA was also passed in May to invalidate the Securities and Exchange Commission’s Staff Accounting Bulletin 121, which changed the way that banks and other publicly traded entities are expected to account for digital assets held in custody. ABA is also supporting a CRA challenge to the CFPB’s recently finalized credit card late fee rule. The House Financial Services Committee favorably reported that resolution of disapproval in April. 9
YOUR FAMILY COMES FIRST. HTRUST.COM ∙ 575.758.7700 ∙ NEW MEXICO Offices in Taos, Santa Fe & Albuquerque We are a state-chartered, locally-owned, independent trust company, devoted to families & their advisors. The Congressional Review Act is so powerful because resolutions can move to the Senate floor quickly through an expedited “fast track” procedure and that, once on the floor, a resolution requires only a simple majority vote to pass — not 60 votes, like most legislation. This fast-track process stipulates a specific timeframe during which rules issued in this Congress can be invalidated by the next Congress: The rule must be issued during a window of 60 session or legislative days prior to Congress’ adjournment at the end of the year in order for the next Congress to have an opportunity to invalidate the rule. We are now nearing the window where any final rules that are issued by the agencies could be challenged under the CRA in the next Congress — yet another reason why electoral outcomes matter. However the elections shake out in November, ABA’s focus will remain unchanged: supporting a policy environment that supports America’s banks in their mission to supply credit to their customers, clients and communities. And we’ll continue to use every tool in the toolbox to ensure that our broad and diverse banking sector can continue to thrive. Email Rob at nichols@aba.com. 10
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NEW MEXICO MORTGAGE FINANCE AUTHORITY’S SEVERAL HOME REHABILITATION PROGRAMS KEEPING HOMES AFFORDABLE AND BOOSTING COMMUNITIES By Kristie Garcia, New Mexico Mortgage Finance Authority When the New Mexico Mortgage Finance Authority (MFA) was created by the state legislature in 1975, its mission was to provide affordable mortgage loans to low-income New Mexico families. Fast forward to nearly 50 years later — MFA offers much more than mortgages, including various home rehabilitation programs to help New Mexicans stay in safe, affordable homes. MFA partners with service providers around the state to deliver rehabilitation services. For an opportunity to be selected, service providers may submit a proposal through MFA’s notice of funding availability or request for proposals process. HOME Rehabilitation Program The U.S. Department of Housing and Urban Development’s HOME Investment Partnerships Program (HOME) is the largest federal block grant to state and local governments designed exclusively to create affordable housing for low-income households. One of the activities this program funds is rehabilitation. Many New Mexicans have benefited from MFA’s HOME Rehabilitation Program, which provides home repairs to bring the home up to code or accessibility modifications to homeowners who lack the resources to do so. Services include but are not limited to: • Hazard reduction measures, such as the installation of ramps or rails in bathrooms for elderly or disabled individuals who are at risk of falling. • Accessibility modifications for individuals with disabilities that include the installation of handrails and ramps or widening doors. • Repair or replacement of major housing systems such as furnaces, ducting or water heaters. • General and essential property improvements that are non-luxury in nature, including roof replacement and mobile home replacement. • Measures needed to bring a home up to code or into compliance. • Energy-saving measures that help improve the efficiency of the heating and cooling of the home and reduce utility bills. Veterans Home Rehabilitation and Modification Program MFA’s Veterans Home Rehabilitation and Modification Program is similar to the HOME Rehabilitation Program in that it provides home rehabilitation for health and safety issues, fall reduction items, accessibility and code compliance upgrades at no cost to eligible veterans. Services for this program also include physical modifications to allow a veteran’s emergency caregiver to live with the veteran. Home Improvement Program The most recently added rehabilitation program is MFA’s Home Improvement Program, which was launched in February 2024. Through this program, home rehabilitation services are offered directly from MFA in eight counties 12
that currently do not have a service provider for the HOME Rehabilitation Program. MFA’s Home Improvement Program offers the same services as the HOME Rehabilitation Program. Restoring Our Communities MFA launched the Restoring Our Communities (ROC) program in September 2023 to help meet New Mexico’s need for affordable housing units while assisting communities in reducing vacant and abandoned houses that decrease property values and increase risks to public health and welfare. Homeowners within close proximity to abandoned homes can pay higher insurance premiums as well. The ROC program provides funding to approved service providers for the acquisition, rehabilitation and resale of single-family homes, with the goal of increasing homeownership opportunities for low- to moderate-income working households. The program objectives are to: 1. Provide funding for the acquisition and rehabilitation of vacant or abandoned houses to increase affordable housing units in New Mexico. 2. Create and preserve affordable housing and provide affordable housing opportunities for low- to moderate- to middle-income homebuyers. While individual homebuyers are not eligible to apply for ROC program funding, MFA will work with eligible agencies to administer the program under applicable program guidelines. MFA allocated $4 million in funding from the New Mexico Housing Trust Fund to the ROC program. Funds are awarded to qualified service providers on a first-come, first-serve basis for qualifying projects. The notice of funding availability will remain open as long as there are available funds. Individual homebuyers who purchase the ROC rehabilitated homes would likely qualify for MFA’s mortgage and down payment assistance programs. New Mexico Preservation Loan Fund Also created in 2023, MFA’s New Mexico Preservation Loan Fund is a flexible funding source for multifamily properties at risk of exiting the affordable housing stock, providing opportunities for the preservation of affordable housing in the state. This loan fund is available to owners, developers and other partners seeking funding for preservation-related needs, including: • Rehabilitation funding for owners struggling with physical upkeep as their multifamily property ages. • Acquisition financing for prospective owners seeking to acquire multifamily affordable projects and maintain their affordability over time. • Predevelopment funding for existing Low-Income Housing Tax Credit properties pursuing resyndication. 13
Preservation-related initiatives are being phased in, and MFA has implemented the rehabilitation initiative. The acquisition initiative will be implemented during the next phase, followed by the other predevelopment uses. The New Mexico Preservation Loan Fund is unique in that it is the only MFA rehabilitation program aimed at addressing the preservation needs of multifamily developments. With this fund, MFA strives to provide interest rates and loan terms that are more flexible than those offered by traditional financial institutions. “By implementing these much-needed programs, our goal is to help New Mexicans get into — and stay in — safe, affordable and energy-efficient homes,” said MFA Executive Director/ CEO Isidoro Hernandez. “Through these programs, MFA will improve and strengthen communities, whether it’s rehabilitating, restoring or preserving existing homes. We encourage eligible applicants for these programs to visit our website and apply for funding.” To explore all of MFA’s programs, visit housingnm.org. A Silver City woman received a new home thanks to the New Mexico Mortgage Finance Authority (MFA) and Southwestern Regional Housing and Community Development Corporation, which is a service provider for MFA’s HOME Rehabilitation Program. (Photos courtesy New Mexico Mortgage Finance Authority and Southwestern Regional Housing and Community Development Corporation.) A Deming veteran’s home received upgrades through New Mexico Mortgage Finance Authority’s Veterans Home Rehabilitation and Modification Program. Southwestern Regional Housing and Community Development Corporation, which is a service provider for the program, provided the rehabilitation services, including the installation of rails in the shower. (Photo courtesy New Mexico Mortgage Finance Authority.) New Mexico Mortgage Finance Authority’s (MFA) Restoring Our Communities program (ROC) helps meet New Mexico’s need for affordable housing units while assisting communities in reducing vacant and abandoned houses that decrease property values. MFA allocated $4 million in funding from the New Mexico Housing Trust Fund to the ROC program. This before-and-after photo is an example of a previous home restoration project made possible by MFA. (Photos courtesy Homewise and Google Earth.) MFA partners with service providers around the state to deliver rehabilitation services. 14
THE SUPREME COURT’S RADICAL RESHAPING OF AMERICA By Mark Anderson, Legal and Legislative Analyst, New Mexico Bankers Association In any society, there are certain myths that are regularly enforced and impressed upon the public, both in order to maintain institutional legitimacy and to quell a restless public. America is no different as we have a litany of myths that most Americans don’t contemplate that often, but, when pressed, often fall back on the default option of, “That’s how it’s always been, so it must work fine.” One of the most enduring myths in America has been the wisdom, impartiality, eminence and sterling reputation of the Supreme Court. However, in recent years, the Supreme Court has become a lightning rod for controversy, as it’s essentially become a haven of judicial supremacy and political activism from the bench. Any pretense of impartiality, eminent judicial wisdom and impenetrable institutional legitimacy is long gone, and all we’re left with is a completely unaccountable group of unelected officials with absolute power and total impunity. No matter what side of the political spectrum one falls on, most rational people can agree it’s wildly undemocratic to have completely unaccountable, unelected officials making massive, sweeping changes to our laws and system without any dissent, debate or even public discussion. In early July, the Supreme Court wrapped up its term and left a group of historic rulings in its wake that could radically reshape the government. According to Georgetown Law Professor Cliff Sloan, who has argued several cases before the Supreme Court, these rulings are not to be taken lightly. “This is a court that is in a hurry to drastically reshape the law. It’s in a hurry to throw our precedents and upset settled law and make profound and fundamental changes in our law,” said Sloan. “In that sense, it’s one of the most extreme and radical Supreme Courts we’ve ever had. And this term really shows that.” Perhaps the ruling that will affect the everyday lives of Americans the most is that in the case Loper Bright Enterprises v. Raimondo. The 6-3 ruling, overturning a 40-year-old precedent, limits the ability of federal agencies 15
There is a broad sense right now that, no matter what side of the political spectrum one falls on, the government isn’t remotely responsive to the desires of the American populace in any way. to regulate the environment and public health, among other issues. Federal agencies will face a multitude of challenges in court. “It affects the authority of the agencies that protect our water and air, our food safety, our nuclear safety, the economy-tremendously important government institutions. And the Supreme Court has just gutted the structure that we’ve been operating under for decades,” Sloan says. “It basically has shrunk the power of the government agencies and the experts, and it has dramatically increased the power of federal judges who have absolutely no expertise in these very important and complicated areas.” George Washington University Law School Professor Paul Schiff Berman went even further than Sloan in his criticism of the Supreme Court, saying it is waging a sustained “assault on democracy” this term while expanding the court’s role as “the principal arbiter of American life.” “The court made it more difficult to protect voting rights of racial minorities, more difficult for administrative agencies to fulfill their congressionally mandated role and far more difficult for anyone to hold the president accountable — even if that president acts to overthrow democracy itself,” Berman said. “The result will be a continued disconnect between the court and the wishes of the American people, with grave consequences for the rule of law and the court itself.” Perhaps the most high-profile ruling the Supreme Court issued was in Donald Trump v. United States, which weighed whether and to what extent a former president enjoys presidential immunity from criminal prosecution for conduct alleged to involve official acts during his tenure in office. The case related to presidential immunity as it relates to Trump’s role in the January 6, 2021, attack on the Capitol. The court ruled 6-3 that presidents are entitled to immunity from prosecution for official acts taken in connection with the exercise of their core constitutional responsibilities and a presumptive immunity with regard to other official acts. But they decided that presidents are not entitled to immunity for unofficial acts. The justices sent the case back to a lower court to decide which of Trump’s actions were official and which were unofficial. It is expected, based on the opinion of the majority written by Chief Justice John Roberts, that the lower court will take an extremely generous interpretation of “official Presidential acts.” Roberts and other justices are believers in the “unitary executive theory,” which grants the president extremely broad powers and very few checks on the president’s authority. Justice Sonia Sotomayor, joined by Justice Elena Kagan and Justice Ketanji Brown Jackson in one of two dissenting opinions, wrote that the majority’s ruling, “makes a mockery of the principle, foundational to our Constitution and system of government, that no man is above the law. The president of the United States is the most powerful person in the country, and possibly the world. When he uses his official powers in any way, under the majority’s reasoning, he will now be insulated from criminal prosecution. Orders the Navy’s Seal Team 6 to assassinate a political rival? Immune. Organizes a military coup to hold onto power? Immune. Takes a bribe in exchange for a pardon? Immune. Immune, immune, immune.” The ruling is shockingly undemocratic, but it’s what the American public has come to expect from this Supreme Court. These are unelected officials completely reshaping our government, piling one wildly authoritarian and undemocratic ruling on top of another. 16
In a third ruling recently issued by the Supreme Court, it essentially legalized bribery. In the case Snyder v. United States, the court ruled 6-3 that “gratuities,” i.e. post-facto gifts and payments, are not technically bribes, and is, therefore, not illegal. The majority’s interpretation held that bribes are only issued before the desired official act, and their meaning is therefore more explicit. The majority deemed that the concept of gratuities, often expressed in gifts and payments of great value, is issued in a more nebulous grey area, and, therefore, not illegal. The case concerns James Snyder, who, in 2013, was serving as the mayor of the town of Portage, Indiana. In late 2013, the city of Portage awarded a contract to trucking company Great Lakes Peterbilt and bought five tow trucks from them. A few weeks later, Snyder asked for and accepted a check for $13,000 from the company. Snyder was found guilty of corruption and sentenced to 21 months in federal prison. Snyder argued that the kickback was not illegal because it came after he awarded a contract to the company that ultimately paid him off, not before. Ridiculously, the Supreme Court agreed with Snyder, classifying such payments as tokens of appreciation and claiming they are not illegal when they are not the product of an explicit agreement meant to influence official acts in exchange for money. The court has taken an absurdly narrow interpretation of corruption, one in which only explicit, openly stated deals count as “corruption,” and all other forms of influence-peddling are something far more above board. In the majority opinion, Justice Brett Kavanaugh writes that in order to be an illegal bribe, a gift or payment must be accompanied by a “corrupt state of mind” on behalf of the official or benefactor. Obviously, it is practically impossible to prove a “corrupt state of mind,” so the majority ruling gives corruption an absurdly wide berth. As Justice Ketanji Brown Jackson wrote in her dissent, “The bribery versus gratuity distinction allows officials to accept rewards for official acts in ways that are functionally indistinguishable from taking a bribe.” The mythology around the Supreme Court has been shattered, and a majority of Americans understand that it is a political entity, set on implementing a radical, unpopular political agenda through a series of unprecedented rulings. The justices aren’t all high-minded custodians of the law but highly influenced political actors in many cases. These unelected judges are issuing rulings that will further the disconnect between the desires of the American people and what comes out of Washington, D.C. There is a broad sense right now that, no matter what side of the political spectrum one falls on, the government isn’t remotely responsive to the desires of the American populace in any way. With these latest series of rulings, not all of which were discussed above, they have doubled down on the disconnect. They have decided that any semblance of democracy in America should be done away with. The Supreme Court’s recent actions should make Americans question how such an institution, subject to no accountability or even the slightest public input, has come to arguably become the most powerful governing entity in the country. Congress essentially doesn’t act anymore except in its own interests, handing an incredible amount of power to the courts. This should be alarming to any American who wants to hang on to any semblance of democracy. 17
WHEN IS A CARD A CARD? By Roger Morris Jr., JD, CIPP, Associate General Counsel, Compliance Alliance A card is either a credit card or a debit card. What about a home equity line of credit (HELOC) access card? Is that a credit card or a debit card? Or something in between? If it’s in between, does Regulation E apply? Regulation Z? It is easy to talk yourself in circles, but let’s make sense of it once and for all. To begin, why is this a conversation worth having in the first place? You may know the answer to this question and think this was a compliance officer’s version of child’s play. A card’s definition as a debit or credit card has worthwhile implications. It would dictate what disclosures are necessary. In the vast alphabet soup of regulations, each has its onerous disclosure requirements, and Regulations E and Z (the two that apply in these areas) have plenty of requirements. Furthermore, it dictates how errors are resolved. Regulation E’s error dispute rules are highly consumer-favorable; not that Regulation Z’s aren’t, but Regulation E has a more formal investigation requirement. These formalities would apply if Regulation E applied to the HELOC’s access card transaction. We could go on and on about what each regulation independently entails, but let’s get back to cards. Debit and credit cards look similar, but, as anyone reading this would know, there are fundamental differences. A debit card takes funds out of your bank account, while a credit card is linked to a credit line that you pay back later. A HELOC access card blurs the lines. With a HELOC, you may have an account with funds that seem identical to any other asset account. You have to pay those funds back at a later date. So, what exactly is a HELOC access card? To decipher this mystery, let’s look at the regulation. For the regulatory definition of a credit card, we turn to Regulation Z: • “(i) Credit card means any card, plate or other single credit device that may be used occasionally to obtain credit.” This includes HELOC access cards, which may be used to obtain credit from a line of credit. Regulation commentary further supports this point: • “i. Examples of credit cards include … A card that guarantees checks or similar instruments, if the asset account is also tied to an overdraft line or if the instrument directly accesses a line of credit.” So, an access card is a credit card under Regulation Z. Regulation Z applies. But this still leaves the question of whether Regulation E also applies. Regulation E applies to “access devices.” These are cards, codes or other means of access to a consumer’s account that may be used to initiate electronic funds transfers. A HELOC access card does initiate electronic funds transfers from a consumer’s HELOC account so they are seemingly an access device. However, “account” is a specific term in the context of Regulation E and a crucial part of the definition of an access device: “‛Account’ means a demand deposit (checking), savings or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family or household purposes.” A HELOC can undoubtedly be for personal, family or household purposes, but let me draw your attention to the words “asset account” (see the previously bolded). A loan account is not an asset account. A checking account is an asset account because you wholly own the funds in the account. They add to your net worth. A loan account is a liability. You will have to pay those funds back later, so the withdrawal of those funds subtracts from your net worth. We could call loans a liability account, but that makes them less marketable. So generally, a HELOC is not an account under Regulation E, even if it can make electronic transfers because it’s a loan account and not an asset account. So, this cannot meet the Regulation E definition of a “debit card” or “access device,” and, in turn, Regulation E is not applicable. An access device initiates transfers from an “account,” and a HELOC is not an “account” for Regulation E purposes. Therefore, the bank wouldn’t be required to give Regulation E disclosures with a HELOC access device, but that doesn’t mean it could not be done. If you’re looking to provide customers with the rights disclosed in Regulation E disclosures, you could but it would be an internal policy decision. It is also worth noting that this is the typical way HELOCs are set up, but there can be other structures that may change the analysis above. As always, if you have any specific fact scenarios you would like to discuss, members are always free to reach out to us on the Compliance Hub Hotline. Roger Morris serves C/A as an Associate General Counsel. Roger brings a combination of unique experiences to C/A that he uses to provide guidance on a wide variety of regulatory and compliance issues. 18
PRESENTS THE ii2th Annual Convention September i2-i3, 2024 NEW MEXICO BANKERS ASSOCIATION New Mexico Is Where History Is Made SANTA ANA STAR CASINO HOTEL
UNLOCK MORE PROFITABLE CUSTOMER RELATIONSHIPS By Jay Kenney, SVP & Southwest Regional Manager, PCBB Finding the right price for a customer’s deposits or loans can be a difficult balance. Relationship pricing involves looking at your customer’s entire relationship of loans, deposits, fee income and other products to determine the customer’s overall profitability and using this information to make strategic decisions on pricing for renewals or new products. This pricing strategy can have a significant effect on both customer relationships and your bank’s overall profitability. Analyzing customer relationship profitability and using those insights for pricing decisions has become a major component of many banks’ plans to increase their profitability by attracting new customers and holding onto the most profitable of their existing ones. As community banks face rising competition from non-traditional banks, such as fintechs and neobanks, which don’t have the same overhead and are able to offer higher interest rates to customers across the board, the importance of getting pricing right is higher than ever. The Benefits of Relationship Pricing Relationship pricing essentially gives financial institutions a tool to determine the potential profitability of customers by providing more attractive loan pricing and deposit rates to the individuals and small businesses that they believe will be most profitable to their bank over the long term. This approach can be beneficial because it ensures the financial institution is balancing its own profits with the customer’s needs. Competitive pricing also makes it easier for financial institutions to attract new customers and enhances the likelihood of being able to cross-sell additional products and services to customers and make their accounts with your bank stickier. At a time when a rising number of customers are gravitating to fintechs and online bank offerings, analyzing the profitability of the full customer relationship and customizing pricing for your most important relationships is a critical component of financial institutions’ abilities to remain competitive. Loan Pricing When structuring loans for customers, it’s important to consider how the components of a loan — such as term, interest rate, fees, prepay penalties and other similar factors — impact your institution, and how they can be adjusted to make the most profitable deal for your bank, while also pleasing your customers. A comprehensive profitability tool can help you strategize ways to offset the cost of originating and maintaining the loan with the potential profit from the loan. You’ll want to consider the risks associated with the loan as well, such as credit risk and interest rate risk. The pricing may also take into account the deposits a customer 20
The Impact of Discovering Your Most (and Least) Profitable Relationships Community banks interested in utilizing full customer relationship profitability need to do so intentionally. Along with this, you might find that your most profitable customers aren’t who you might have assumed. For instance, a customer who has many deposit accounts and comes to the branch often may seem to be an active customer. However, that doesn’t mean that they’re your most profitable customer. The customer who brings in the most profit for your institution could just as well be a customer who has minimal deposits but also has a single well-priced loan that generates a lot of interest income. A robust profitability tool can uncover insights to help your team understand the importance of each customer relationship. Your team can then use this data to find opportunities to increase the profitability of each customer by offering them other products they might need and pricing those products to maintain your relationship with your most profitable customers. It is equally important to measure the success of any such efforts on a regular, ongoing basis to gain learnings for increasing profitability in the future. For community banks considering relationship pricing as a way of attracting new customers and holding onto their most profitable existing customers, a comprehensive profitability tool can be a game changer. Relationship pricing is a crucial part of determining how to price loans and deposits to maximize the profitability of your current customer base, while also helping you determine the best price to attract new customers that also works for your bank. To continue this discussion, or for more information, please contact Jay Kenney at jkenney@pcbb.com. Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes cash management services such as Settlement and Liquidity for the FedNow Service, international services, lending solutions and risk management advisory services. has with your bank, or the potential deposits the customer may bring to your institution, along with their loan relationship. Deposit Pricing A profitability tool can allow your bank to preview different scenarios of how the potential profitability for a customer relationship can change as interest rates fluctuate. The value of deposits, even with today’s higher rates, can still bring profit to each customer relationship and the institution overall. A solid profitability system helps your team understand the value of the deposit for your customer relationship. Profitability tools can also provide a breakdown of how migration between non-interest-bearing deposit accounts to interest-bearing deposit accounts, such as from a checking account to a certificate of deposit (CD) or a money market, can impact the customer’s relationship profitability. 21
THREE STAGES TO UNLOCK A PEOPLE-FIRST WORK CULTURE By Katie Barnes, Chief People Officer, BHG Financial We all know how hard it is to attract and retain top talent in the competitive community bank market. As a chief people officer, I have seen the value of creating and maintaining an agile, people-first work culture. Its daily contribution to operational effectiveness is enormous, serving as a stabilizing and steady force even in the face of external obstacles. In this article, we will share industry best practices and discuss specific ways that banks can build an agile, people-first culture that gives their organization a competitive edge. The High Cost of Employee Dissatisfaction The cost of overlooking employee engagement and turnover can be significant. According to Gallup, the cost of replacing a disengaged individual employee can range from one-half to two times the employee’s annual salary.1 Meanwhile, companies with the most engaged employees were 22% more profitable than those with the least.2 Signs of “disengagement” are as you might expect. They can include a slow working tempo, lack of interest in work, being easily distracted and minimal output. Additionally, disengaged employees often possess negative attitudes about their work and organization, which can hurt the productivity and morale of your other employees — not to mention your bottom line. Three Stages of Culture Development To avoid the cost and hassle of recruiting new talent while maintaining an excellent relationship with your current employees, consider these three key points to create an agile, people-first company culture: Know Your Purpose, Know Your People and Build Your Culture. 22
Know Your Purpose Define your bank’s culture so that it becomes your “North Star.” Start by establishing new core values or refreshing existing ones. Conduct a thorough analysis to identify what values you want your employees to demonstrate within the context of what is most important to your bank and to your community. This approach can provide your team with a specific direction in which to anchor expectations and an actionable roadmap for employee behaviors. It is also important to recognize and acknowledge appropriate behaviors. It will help reinforce and speed up the adoption of the culture you hope to build. Establishing a system of core values also helps serve as a guideline for the type of individual you want to hire and who you want to promote. Know Your People The needs of employees constantly evolve, especially during major macroeconomic events such as a recession or the recent pandemic. There are easy ways to regularly gauge your employees’ moods and attitudes. For example, a comprehensive semiannual employee survey can provide feedback about what is working, what is not and what can be done better. This information can help ensure your culture is embraced and allows you to quickly address any unfavorable trends that may emerge. Taking the time to build relationships with your employees and getting to know them on a personal level can also yield beneficial cultural impacts. Authentic connections between individual contributors and their senior leaders can forge a powerful “in it together” perspective that fuels employee satisfaction and spirit. Employees who feel respected, heard and seen can become personal ambassadors of your bank’s culture within your institution and community. Build Your Culture Culture can grow organically, but it requires action to blossom. Offering programs, perks and experiences that matter to your employees is an essential component of successful engagement. There is no shortage of options, even if your budget and resources are limited. All it takes is a bit of research, a little creativity and some thoughtful planning. To help demonstrate specific examples of “taking action,” here are several recent programs and initiatives that BHG Financial has introduced to enhance its work culture. These examples are just for illustration and to spark your own imagination. However, it is worth noting that the development of these programs was informed in many cases by our employees’ feedback in surveys and other engagements — reinforcing the value of “knowing your people.” Recent BHG Financial programs include: • Transitioned to a permanent hybrid workforce with employees across the country. • Launched BHG Pulse, a program focused on the physical, emotional, social, financial and occupational well-being of our employees. 23
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