Insights

Our analysis of COVID-19 recommendations for financial institutions from FDIC and OCC

 

Our analysis of COVID-19 recommendations for financial institutions from FDIC and OCC

Mar 19, 2020

In FIL-17-2020 issued by the FDIC and Bulletin 2020-15 issued by the OCC on March 13, financial institutions were encouraged to work with customers and communities affected by COVID-19.

Both agencies recognize that such efforts would serve the long-term interests of communities and the financial system when conducted with appropriate management oversight and consistent with safe and sound banking practices and applicable laws, including consumer protection laws.

Following are the efforts highlighted by the agencies as well as our analysis of potential regulatory implications:

FDIC & OCC

Wipfli analysis

1. Waiving certain fees such as:

 

Automated teller machine (ATM) fees for customers and non-customers

Regulation E would not require any notification of a waiver of fees. If this was done informally with no real change in the institution’s fee schedule, then no notification would be required when the fee was reinstated after the duration of the waiver. As a business matter, a notification to customers of this voluntary waiver would allow customers to be aware of and benefit from the change. Although it does not appear to be required, it would be a matter of customer service to provide notification when the fee was reinstated.

If the change was made contractual and binding, through for example, a change in terms notice, a notification of the subsequent reinstatement of the fee would be required 21 days before the fees could be imposed.

Alternatively, financial institutions could make this a contractual change in terms with a finite termination date by sending out a change in terms notice describing the temporary fee waiver and the date it will expire.

Waiving for non-customers would require no notification but would require the removal of the ATM on screen fee notification and acceptance.

Overdraft fees

Regulation DD would not require any notification of a waiver of fees. If this was done informally with no real change in the institution’s fee schedule, then no notification would be required when the fee was reinstated after the duration of the waiver. As a business matter, a notification to customers of this voluntary waiver would allow customers to be aware of and benefit from the change. Although not specifically required, it would be a matter of customer service to provide notification when the fee was reinstated.

If the change was made contractual and binding, through for example, a change in terms notice, a notification of the subsequent reinstatement would be required 30 days before the fees could be reinstated.

Alternatively, financial institutions could make this a contractual change in terms with a finite termination date by sending out a change in terms notice describing the temporary fee waiver and the date it will expire.

Late payment fees on credit cards and other loans

Regulation Z would not require any notification of a waiver of fees if this was done informally with no real change in the institution’s fee schedule, and no notification would be required when the fee was reinstated after the duration of the waiver. As a business matter, a notification to customers of this voluntary waiver would allow customers to be aware of and benefit from the change. Although not specifically required, it would be a matter of customer service to provide notification when the fee was reinstated.

If the change was made contractual and binding, the notification of the increase would be required 45 days before the fees could be reinstated, and possibly 45 days before the fee is waived.

Alternatively, financial institutions could make this a contractual change in terms with a finite termination date and send out the disclosure describing the temporary fee waiver and the date it will expire.

Early withdrawal penalties on time deposits

Regulation DD would not require any notification of a waiver or reduction of the early withdrawal penalty. If this was done informally with no real change in the institution’s fee schedule, then no notification would be required when the penalty was reinstated after the duration of the waiver. As a business matter, a notification to customers of this voluntary waiver would allow customers to be aware of and benefit from the change. Although not specifically required, it would be a matter of customer service to provide notification when the fee was reinstated.

If the change was made contractual and binding, a notification of the reinstatement of the early withdrawal penalty would be required 30 days before the fees could be reinstated.

Alternatively, financial institutions could make this a contractual change in terms with a finite termination date and send out the disclosure describing the temporary fee waiver and the date it will expire.

Compliance with Regulation D would minimally limit the withdrawals to one every 7 days. If a customer needed to make a withdrawal within 7 days of the previous withdrawal the bank would need to refuse to honor the withdrawal or impose a penalty of at least seven days’ interest on amounts withdrawn.

Changing time deposits to transaction deposits to benefit from the temporarily eliminated reserve requirements does not seem a viable alternative.

2. Increasing ATM daily cash withdrawal limits

Regulation E would not require any notification of the increase. If this was done informally with no real change in the institution’s disclosures, then no notification would be required when the limit was decreased after the duration of the change. As a business matter, a notification to customers of this voluntary increase would allow customers to be aware of and benefit from the change. Although not specifically required, it would be a matter of customer service to provide notification when the limits were subsequently reduced.

If the change was made contractual and binding, the notification of the decrease would be required 21 days before the lower limit could be reimposed.

Alternatively, financial institutions could make this a contractual change in terms with a finite termination date and send out the disclosure describing the temporary increase and the date it will expire.

3. Easing restrictions on cashing out-of-state and non-customer checks

There is cashing of non-customer checks for customers - There would be no related consumer regulatory provisions here unless the institution would make funds available sooner than stated in the funds availability policy regarding holding other funds in a transaction account against cashed checks. In this case, Regulation CC would require a notice within 30 days after making this change.

Then there is cashing checks for non-customers - If the institution did not currently allow cashing of checks for non-customer checks per the Bank Secrecy Act policy, a Board resolution to approve the temporary change is recommended, and OFAC procedures should also be addressed.

There would appear to be no regulatory compliance issues related to cashing out-of-state checks.

4. Increasing credit card limits for creditworthy borrowers

Regulation Z allows credit card issuers to extend credit above the limits. As long as no charges are imposed, there is no additional disclosure required.

Credit limits themselves do not appear to be a disclosable item under Regulation Z but contractual changes would need to be compliant with state contract law.

If the line of credit is secured by improved real estate the increase of the limit would trigger the requirement for a current flood determination, and if the property is in a special flood hazard area additional disclosures would be required as well, and additional flood insurance may be needed.

If the line of credit is secured by the consumer’s principal residence, the increase in the credit line will trigger the right to rescind.

5. Offering payment accommodations, such as allowing borrowers to defer or skip some payments or extending the payment due date, which would avoid delinquencies and negative credit bureau reporting

Skip-a-payment plans may have short term benefits, but may only truly benefit the borrower in cases when the unpaid interest is deferred to the end of the loan. If unpaid interest remains currently due, borrowers will need to make multiple payments of interest to reach a point where they begin paying down principal again. This can result in the term of the loan going out much further than the one or two skipped payments. In the June 2019 Consumer Compliance Supervisory Highlights the FDIC published an article about potential UDAAP risks related to Skip-A-Payment programs and included examples of actions that could be taken to mitigate the risk of these programs. Lenders contemplating this program should consider the risk mitigation actions in the article. One lender promoting such a program was the subject of a CFPB enforcement action and settlement for failure to provide adequate information about the impact of the loan extension.

If the loan happened to be secured by improved real estate or an affixed manufactured home (manufactured home on a permanent foundation), the extension/modification would trigger flood determination procedures, and potentially flood notification procedures if the improvements are located in a special flood hazard area.

In addition, some states, such as Iowa, limit fees that can be imposed for skip-a-payment transactions.

 

Keep in mind that adverse action notices will be required in most circumstances when a customer requests modifications or increases in limits and you do not grant the request.

In conclusion, any changes contrary to written policy should be approved by the board.  The approval should include the starting and ending dates for the change.

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Author(s)

Tim Tedrick
Tim Tedrick, CRCM, CRP
Partner
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Enbom_Kathy
Kathy Enbom, CRCM
Partner, Compliance
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