Iowa Bankers Insurance & Services, Inc. Iowa Bankers Mortgage Corporation
Iowa Bankers Association
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Johnston, IA 50131
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COVID-19 Regulatory FAQs

Archived Industry News:COVID-19 Regulatory FAQs

Last Updated: 5/26/2020 1:43 PM

Stimulus Payment
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STIMULUS PAYMENT (ECONOMIC IMPACT PAYMENTS)

GENERAL QUESTIONS

Question:  How will the COVID-19 Economic Impact Payments be distributed?

Answer:  Most payments will be distributed via ACH using account information that taxpayers provided to the IRS for Direct Deposit of refunds for the 2018 or 2019 tax filing system or for social security benefit payments. If no account information is on file, the IRS indicates they will set up a secure portal in which the recipient can enter their account number.  All others will be mailed a check.

Question:  Are these Economic Impact Payments subject to reclamation from the Treasury?

Answer:  The Treasury indicates these Federal non-benefit payments are not subject to reclamation. The bank should not take on the responsibility for determining eligibility of the payment.

Question:  If the account for which the economic impact payment is received is overdrawn, can the funds be used to offset that overdraft?

Answer: The Federal Reserve has indicated that there is nothing that would prohibit the bank from offsetting the overdraft, however they recommend the bank speak with their own legal counsel before doing so.

Question: Are economic impact payments protected under the federal garnishment rule?

Answer: No. These payments are considered “tax credits”, not benefit payments. Thus, they are not considered protected funds under the federal garnishment rule.

Question: Our bank currently has a loan that is past due with a customer receiving an economic impact payment. Can we use these funds to satisfy the past due loan payment?

Answer: The answer to this question will depend upon many factors, including mutual ownership of the debt and asset account, if the past due payments been cured, whether the cure period ended, etc. The IBA cannot provide legal advice and the fact pattern for every situation is unique. Once the payment has posted to the consumer’s account, the bank’s common law offset rights would apply so the bank should consult with its legal counsel as to its offset rights.

Question: Can a person’s Economic Impact Payment be offset by a debt owed to a state or the federal government? (updated 5/6/20)

Answer: Per FAQs on the IRS website, EIPs will not be reduced due to federal or state debts with one exception.  The payment may be offset only by past-due child support.  The offset will occur prior to the payment being issued, thereby reducing the amount of the taxpayer’s check. The Bureau of the Fiscal Service will send the taxpayer a notice if an offset occurs.

 

EIP ACH PAYMENTS

Question: In light of the new IRS FAQs that indicates EIPs received after the payee has died should be returned to the IRS, does the bank have a responsibility to return ACH entries that have already been posted?

Answer: Neither the IRS nor Treasury have indicated that it is the bank’s responsibility to return the funds. The IRS FAQ #41 provides instructions for the accountholder of a direct deposit that included funds for the decedent to submit a personal check, money order, etc. immediately to the appropriate IRS location following the instructions in that FAQ. Therefore, it appears to be the responsibility of the surviving account owner or a representative of the decedent to return the funds.

Question: Will payments received by ACH have an identifier indicating the payment is an economic impact payment?

Answer: No. The ACH file will look like a standard tax refund payment and will not indicate it is an economic impact payment. Payments received via check will have an indication in the memo line of the check.

Question: How will the bank know if it is an Economic Impact Payment if received via ACH?

Answer:  The payments will look exactly like a Federal tax refund payment with “IRS TREAS 310” in the Company Name and “_TAX REF” in the Company Entry Description. The Treasury will also use one of the following RTNs:

  • 111036170
  • 111736946
  • 111736959
  • 111736043
  • 111736056
  • 111736069
  • 111736072
  • 111736085
  • 111736098
  • 111736108

Question: Is the bank required to validate the name on the account matches the ACH recipient?

Answer: No, the bank is not required to verify the name on the account matches the payee, only the account number. If an economic impact payment is received for a person not authorized to transact on the account, only the account owner or authorized signer can access those funds.

Question: If the account is closed prior to receiving the ACH economic impact payment, what process should be followed?

Answer: The bank should return the ACH item as account closed the same as they would for any other ACH deposit using return code R02.

Question: We received an ACH payment into a joint account in the name of the husband and wife.  The husband died prior to receipt of the ACH payment.  Should the bank return the ACH payment? (updated 5/6/20)

Answer: On 5/6/20, the IRS added FAQs which states payment made to someone who died before receipt of the payment should be returned to the IRS.  This FAQ indicates the entire payment should be returned if payable only to the decedent.  However, if payment was made to joint filers and one spouse has not died before receipt of the payment, the surviving payee need only return the portion of the payment made on account of the decedent ($1,200 unless AGI exceeded $150,000).  Since returning the funds is the responsibility of the surviving payee, the bank should continue to post such payments if the account is open.

Question: We received an ACH payment into a single ownership account which is still open and the account owner passed away last month.  Should the bank return the ACH payment? (updated 5/6/20)

Answer: The FAQs issued 5/6/20 indicates someone who died prior to receipt of the EIP does not qualify for the payment and therefore the payment should be returned.  However, there is no indication that this is the responsibility of the bank to perform this return.  Per Nacha rules, if the account is still open and the account number matches the account listed in the ACH file, the payment can be posted.  However, should the executor request the bank return the payment, the bank may honor this request using return code R15 (Beneficiary Account Holder Deceased).  Although the R15 return code under Nacha typically requires a two-day return timeframe, since these are federal payments, these payments are not subject to this rule.

Question: The bank received an ACH payment into a checking account that was recently closed because the accountholder was a victim of fraud. The bank opened a new account for the account holder. Can the bank transfer the ACH payment to the new account?

Answer: This is a risk-based decision based on the customer relationship, the reason the account was closed, etc. The IBA cannot provide guidance in this area. Nacha states you can return the ACH as account closed using ACH return code R02 and then the taxpayer would be able to contact the IRS with their new account number. 

Question: Our bank received ACH files containing Economic Impact Payments. The IRS has indicated that the consumers will receive these payments as of Monday April 13, 2020 but the effective date on the ACH file is April 15th. Should the bank post this early?

Answer: This is a risk-based decision. The bank would be using their own money to fund these payments until they receive funds from the Treasury on Wednesday. The bank must make these funds available no later than 9:00 a.m. on Wednesday, April 15th.

Question: The bank received an ACH EIP payment into an account for $2,400. The husband and wife have divorced and the account listed is in the ex-wife’s name. Should the bank return this payment?

Answer: No. The bank is under no obligation to examine the payment to ensure that the name(s) on the ACH record matches the name of the account owner(s). The IRS is using the account number used for tax filing purposes. The two taxpayers will have to work this out between them. The bank should not get involved.

Question: The bank hates to delay receipt of the stimulus payment. If the ACH transaction posts against a closed account, can we just reopen it?

Answer: No. The bank does not have the authority to reopen a closed account. The account terms and conditions ended when the account was closed so the bank would not have a deposit contract governing the newly re-opened account. The ACH payment should be returned “account closed”. The treasury will then issue them a check instead to the address on record unless changed by the previous account holder.

EIP CHECKS

Question: In light of the new IRS FAQs that indicates EIPs received after the payee has died should be returned to the IRS, should the bank place a hold on the EIP checks already deposited on behalf of the decedent and/or debit the account and return the funds to the IRS?

Answer: The IRS FAQ indicates if the paper check was cashed or deposited, the surviving payee should submit a personal check, money order, etc. immediately to the appropriate IRS location and follow the instructions in the FAQ. As such, it is not the bank’s responsibility to return the funds on behalf of the surviving payee.

Question: Does the bank have responsibility for notifying its customers of the IRS FAQs especially in regard to the FAQ indicating the decedent is not eligible for the EIP?

Answer: No. The bank may choose to provide information relating to the IRS FAQs return instructions when it is deemed relevant but has no responsibility for notifying the payees of this guidance.

Question: If a customer brings in an Economic Impact Payment (i.e. stimulus check) to deposit or cash, how will the bank know if the check is legitimate?

Answer: The Bank can review the Treasury Check Security features as the check stock will be the standard tax refund check stock and will contain the same features. The stimulus payment will also include language in the “memo” section indicating that this is an economic impact payment. The Treasury website indicates not all U.S. Treasury checks will contain the unique secure seal. Therefore lack of this seal does not imply the check is counterfeit. The bank can also check the Treasury Check Information System to determine if the check has already been paid, is still outstanding, or has possibly been altered.

Question: Where can the bank find the Treasury Check Information System to determine if an Economic Impact Payment is valid?

Answer: The bank should go to tcva.fiscal.treasury.gov. On this website, the bank will enter the bank’s routing number, the check number shown on the item presented including leading zeros, and the check amount. The bank will receive one of four possible answers:

  • US Treasury check issued for date and amount entered
  • US Treasury check has been paid
  • Amount does not match the check number entered
  • No match


 
This website is only updated daily and is not in real time.

Question: If a customer is to receive their economic impact payment via check, how will they know if it has been mailed?

Answer:  Per the IRS, the IRS plans to mail a letter about the economic impact payment to the taxpayer’s last known address within 15 days after the payment is disbursed. The letter will provide information on how the payment was made and how to report any failure to receive the payment. Taxpayers can compare the letter to the information on IRS.gov to protect against scam artists. Click here for more information.

Question: If an accountholder receives an EIP check listing both the husband and wife’s name and the husband has passed away, should the bank accept this item for deposit? (updated 5/6/20)

Answer: On 5/6/20, the IRS added FAQs indicating that someone who died before receipt of the EIP does not qualify for the payment.  The bank may accept the item for deposit if the item is endorsed in accordance with state law. 

  • If the check is payable to John or Jane Doe and John has passed away, Jane can negotiate the check as it takes only one signature endorsement to negotiate this item.
  • If the check is payable to John (deceased) and Jane Doe, C/O Jane Doe, the bank can allow Jane Doe to endorse the check to negotiate the item.
  • If the check is payable to John Doe and Jane Doe, and John has passed away, the bank may allow the executor of John’s estate to provide an endorsement along with Jane’s endorsement to negotiate the check.

In all cases, the IRS indicates the surviving joint filer should return the portion of the payment made on account of the decedent. The return instructions state if the payment was made by paper check and the item has been cashed or directly deposited, the surviving joint filer is to submit a personal check, money order, etc. immediately to the IRS. The issuer should make the check/money order payable to the U.S Treasury and write 2020EIP and the taxpayer identification number of the recipient on the check. The surviving joint filer should include a brief explanation of the reason for returning the EIP. The payment should be mailed to Atlanta Internal Revenue Service, 4800 Buford Hwy, Chamblee, GA 30341.

Question (added 3/30/20): The CARES Act was signed into law March 27, 2020. One of the provisions in the Act includes providing stimulus checks for some Americans in varying amounts. If a non-customer asks our bank to cash these checks, are we required to do so?

Answer: No you are not required to cash a check for a non-customer. In fact, your bank’s policy may prohibit you from doing so unless your bank has chosen to temporarily suspend this policy due to the COVID-19 crisis. Remember, if you have a board approved check cashing policy, a change in this policy would require Board approval. Although these are Treasury checks issued by the federal government, posing little risk of non-payment, the U.S government has up to one year to inspect and return unauthorized items. It should also be noted the government has issued warnings related to scams in which fraudsters create fraudulent Federal and State treasury checks using high-end color printers.

 

OPERATIONS

BANK OPERATIONS

Question: In an effort to protect employees and customers, can a financial institution limit access to branch offices and require customers to use the drive-up window?

Answer (FDIC FAQ ): Yes. Financial institutions can consider alternative service options to provide access to financial services. Financial institutions may want to remind customers of the various ways they can access banking services without physically coming to a facility, such as managing their accounts online, performing transactions at an automated teller machine (ATM), using telephone banking, or accessing a mobile banking application. Financial institutions could also provide information about how to use electronic payments, bill pay, and mobile remote deposit capture services.

Question: Is moving to “drive up only” a best practice?

Answer: This is a risk-based decision and will be dependent on any mandates in your local area. Based on the current environment, this may be considered a best practice. As an alternative, the bank may consider opening the lobby only certain hours or by appointment. Bank may also consider “golden hours” for those that are more exposed (i.e. the elderly, those with underlying health issues, pregnant women, etc.). Management should document the reason(s) why the bank made that decision (e.g. schools are closing, governor statements/mandates). Management should also consider how or if the bank will allow access to safe deposit boxes during normal business hours. 

Question: What should the bank do if they need to close a branch due to employee sickness and what is bank’s responsibility for notification?

Answer: Regulators issued an interagency statement that addressed the temporary closure of a facility due to staffing challenges or to take precautionary measures. The regulators encourage banks to reduce disruptions to customers by providing alternative service options when practical and reopen when it is safe to do so. Banks are encouraged to notify their federal or state regulator and their customers as soon as practical. Telephone notice to the regulator will suffice to start the process. Other considerations may include:

  1. Talking with local authorities and public health on requirements to notify customers.
  2. Determining branch cleaning timeframes. Talk with public health authority for their guidelines. Also consider OSHA guidance. If one has been detected and another becomes infected, it is an OSHA covered incident.

Question (added 3/26/20): Can a national bank close a branch or temporarily reduce access due to COVID-19?

Answer (OCC): Yes, in the absence of a Comptroller proclamation or in the case of any emergency or event, bank management has discretion to act prudently and responsibly to ensure the safety of human life and to safeguard banking assets (tangible and intangible). The OCC understands that banks may need to temporarily close branches or otherwise reduce access to a facility because of staffing challenges or to take precautionary measures. The OCC encourages banks to reduce disruptions to their customers, provide alternative service options when practical, reopen affected facilities when safe to do so, and notify customers of such disruptions and alternative services.
In the event a state or local official designates a legal holiday for emergency reasons, banks may choose to close or remain open.

Question: If we need to close a branch, what should we consider from an operational perspective?

Answer: The bank should:

  1. Have a process for closing and re-opening branches. Consider employee implications.
  2. Consider increasing limits on remote deposit to allow customers to continue to bank with you during the branch closure period.
  3. Consider if it will offer alternatives such as video calls or Interactive ATMs.
  4. Communicate to customers that the bank is sound and why the branch is closing temporarily. Let them know where they can get services. Minimize rumors by clearly communicating through various channels (twitters, social media, website)
  5. Consider regulatory requirements. The FDIC does not require an application to temporarily close a facility due to staffing challenges or to take precautionary measures. For example, some institutions may wish to limit foot traffic within a branch and provide services only through the drive-through lanes. The FDIC supports flexible approaches and encourages financial institutions to maintain safety of their employees, reduce disruptions to their customers, provide alternative service options when practical, and reopen affected facilities when it is safe to do so. However, financial institutions should check with their state regulator to determine whether state laws and regulations require applications to be filed. While no official application is required by the FDIC, affected financial institutions are encouraged to notify their primary federal and state regulator and their customers of temporary closure of an institution’s facilities and the availability of any alternative service options as soon as practical.

CASH HANDLING

Question: Can the bank limit the amount of cash they will provide a customer in one day?

Answer: The bank should contact their state and federal regulator prior to making this decision. It would also be advantageous to have counsel review the banking statutes and deposit agreements. Before making this decision:

  1. Educate the customer that there is no lack of availability for cash. Fed has adequate reserves and is ready to ship when requested. Couriers are considered an essential service and can continue to function even with a federal mandate to cease operation.
  2. Consider cash on hand.
  3. Consider capacity of the vault.
  4. Modify the limit based on progression of event, if applicable.
  5. Consider customer complaints/fears versus the costs of carrying more cash.
  6. Consider safety for customers leaving with large sums of money.
  7. Consider if customer chooses to store in safe deposit box that these funds are not FDIC insured.  Customers may also have limited access to their SDB if the lobby/branch is closed.
  8. Consider if limit proposed will create a possible “structuring situation” under BSA (e.g. bank chooses to limit cash to $9,000 per day causing customer to return on multiple days to fulfill cash needs).
  9. FDIC states may want to remind customers about the safety of their money in a financial institution that is FDIC-insured and discuss deposit insurance coverage of the customer’s accounts. Closely monitoring deposits, withdrawals, and the availability of cash can ensure financial institutions are prepared to meet customers’ cash needs.

(Added 3/26/20) Per the OCC FAQs released March 26, 2020, national banks should consider their applicable account agreements; Reg. E, Reg. CC and Reg. DD; applicable state laws; and safe and sound banking practices when setting or changing any cash withdrawal limits. Banks are not required to submit an OCC notice or obtain approval prior to changing cash withdrawal limits. Banks are encouraged to discuss any significant cash supply issues or general liquidity with the appropriate supervisor office.

Question: Should the bank increase the daily ATM withdrawal limits or decrease them?

Answer:  Banks should consider ATM volume and trends. If ATM volume and cash withdrawal amounts are increasing, the bank could increase the ATM daily limit. In this case, for ATMs owned by the bank, it would want to ensure ATMs are serviced frequently. If the bank provides both 20’s and 5’s, it could consider switching to all 20’s to meet higher demand. The bank should also ensure other delivery services can handle increased volume (e.g. mobile payment platforms, online banking).

Question (added 3/26/20): What if our national bank experiences a disruption to our cash supply?

Answer: The OCC encourages national banks to contact the appropriate Federal Reserve Bank or Branch or work with the other depository institutions to manage cash supplies. Banks should be in contact with their third-party courier services to ensure timely delivery of cash and develop contingency plans to limit potential disruptions.

Question: Can the virus be transmitted via cash? How can we assure customers that the cash is safe?

Answer: Yes, but consider risk of transmittal before implementing drastic measures. If the bank is not in a high risk area (e.g. current hot spot), virus transmittal is probably lower risk. WHO has indicated the virus may last on surfaces for up to 2 days depending on environmental conditions and other considerations. As a preventative measure, banks should consider having those that handle currency wear gloves. Gloves must be changed often and employees should still be careful not to touch their face. Banks should remind staff to wash hands often.

Question: Is use of UV lighting an effective way to kill the virus?

Answer: There is no scientific analysis on if it will and what the protocol should be (e.g. proper wattage, length of time, etc.)

Question: Is there a best practice for handling cash in light of the COVID-19 virus?

Answer: Not at this time. However, if the bank is located in a designated hotspot, it could consider isolating cash for up to 2 weeks in the vault before putting it back into circulation. Overall, the bank should establish safe practices for handling cash and documents, such as using gloves, washing hands frequently, etc. The bank could consider restricting staff with these functions (e.g. require cash payments to be made at the teller line, etc.).

Question (added 3/30/20): The federal regulators are encouraging banks to assist consumers during the COVID-19 crisis. One suggestion is to consider cashing checks for non-customers. How should we evaluate the risk posed by doing so?

Answer: If the person presenting a check for payment is not a depository customer of your bank, you have no contractual relationship with that customer – meaning you aren’t required to negotiate any check for a non-customer even if issued by the U.S. Treasury. If you choose to, the bank needs to understand UCC Article 4 representations and warranties will apply to these items.  It the bank cashes the check for a thief who stole the check, the bank may be liable to the true check owner. Therefore the bank would need strong identification processes in place ensuring the person presenting the check for payment is the true and legal payee of the item. Since some consumers are under a quarantine, consider whether the bank will cash a check if the legal payee is not present. The bank would also want to review the item carefully for signs of alterations, forgery and to ensure the item is authentic. Should the bank negotiate a forged Treasury check, its only recourse for recovery would be the forger, if s/he can be found.

The bank would also need to review its check cashing, if applicable, and BSA policy regarding allowable transactions with non-customers and make modifications as desired. The bank should consider setting check limits and determine how funds will be verified. Also the bank should determine who has the authority to review and approve the negotiation of these items. If previously board-approved, the board must approve these policy changes. The bank should also determine if it will charge a “check cashing” fee and if so, how much will be charged. Consistency in applying the fee is important. Lastly, consider if there is an opportunity to gain a customer (i.e. open a new transaction account). If the bank chooses to not offer non-customer check cashing and this consumer does not want to open an account at the bank, the bank should direct the payee to their own financial institution for payment.


REGULATORY

Question: Do financial institutions with reduced staff have to meet the timeframes for processing reports related to Bank Secrecy Act?

Answer (FDIC FAQ): On March 16, 2020, the Financial Crimes Enforcement Network (FinCEN) issued a press release encouraging financial institutions affected by COVID-19 to contact FinCEN and their functional regulators as soon as practicable if there were concerns about any potential delays in their ability to file required BSA reports. FinCEN’s Regulatory Support Section will continue to be available to support financial institutions for the duration of the COVID-19 pandemic. Financial institutions supervised by the FDIC should contact their Regional Office to discuss any concerns with filing BSA reports.

Question (added 3/30/20): Due to limited staffing related to the COVID-19 pandemic, our bank is experiencing challenges in filing our BSA reports timely. What should our bank do in this situation?

Answer: On March 29, 2020, FinCEN released an update indicating that banks that anticipate potential delays in its ability to file BSA reports should contact FinCEN and their functional regulator as soon as practicable. Banks can contact FinCEN by calling FinCEN’s Regulatory Support Section (RSS) at 1-800-949-2732 and select option 6 or email at FRC@fincenlgov.  FinCEN’s RSS will continue to be available to support banks for the duration of the COVID-19 pandemic. Banks are encouraged to keep FinCEN and their functional regulators informed as their circumstances change.

Question: As part of the emergency declaration for the state of Iowa, the governor extended the validity of driver’s licenses that expired after Jan. 17, until the end of the emergency.  Does this mean that banks can now accept these expired licenses for CIP and CTR purposes?

Answer: Per FinCEN (3/22/20), FinCEN has not addressed this matter specific to the current circumstances regarding the COVID-19 pandemic. They remind banks the BSA covers the non-documentary procedure to of institutions subject to CIP for verifying the identity of customers when the customer is unable to provide unexpired-government ID.

(B) Verification through non-documentary methods. For a bank relying on non-documentary methods, the CIP must contain procedures that describe the non-documentary methods the bank will use.
(1) These methods may include contacting a customer; independently verifying the customer's identity through the comparison of information provided by the customer with information obtained from a consumer reporting agency, public database, or other source; checking references with other financial institutions; and obtaining a financial statement.
(2) The bank's non-documentary procedures must address situations where an individual is unable to present an unexpired government-issued identification document that bears a photograph or similar safeguard; the bank is not familiar with the documents presented; the account is opened without obtaining documents; the customer opens the account without appearing in person at the bank; and where the bank is otherwise presented with circumstances that increase the risk that the bank will be unable to verify the true identity of a customer through documents.
(C) Additional verification for certain customers. The CIP must address situations where, based on the bank's risk assessment of a new account opened by a customer that is not an individual, the bank will obtain information about individuals with authority or control over such account, including signatories, in order to verify the customer's identity. This verification method applies only when the bank cannot verify the customer's true identity using the verification methods described in paragraphs (a)(2)(ii)(A) and (B) of this section.

Question:  Since bank or branch services may be limited, is the bank still required to monitor for violations of Reg. D on preauthorized transfers?

Answer (Updated 4/24/20): Prior to April 23, 2020 the answer would have been yes. Although the Federal Reserve Board reduced the reserve requirements to zero percent effective March 26, 2020, the federal law was not changed until the Interim Final Rule was released on April 24, 2020 amending Reg. D. The Interim Final Rule amended the definition of savings accounts removing the six preauthorized transfer limitations. As such, banks are no longer required to monitor savings accounts for excessive withdrawals. View the Interim Final Rule for additional FAQs regarding this regulatory change. 

Question: The IRS issued notice 2020-18 providing relief from tax deadlines to Americans adversely affected by COVID-19. This included extending the return and payment deadline for Federal income tax returns until July 15, 2020. Does this also extend the contribution timeline for IRAs?

Answer: (Updated). On March 24, 2020, the IRS released a set of FAQs which included this question. These FAQs state contributions can be made to an IRA, for a particular year, at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, the deadline for making contributions to your IRA for 2019 is also extended to July 15, 2020. For more details on IRA contributions, see Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).  This same answer applies to Health Savings Accounts and Archer MSAs.

Question (added 3/26/20): Can a bank receive CRA consideration for banking services performed in response to customers affected by COVID-19?

Answer (OCC): Pursuant to the Community Reinvestment Act (CRA), the OCC will favorably consider retail banking services and retail lending activities that are responsive to the needs of low- and moderate-income individuals, small businesses, and small farms affected by COVID-19; and that are in a financial institution’s assessment areas and consistent with safe and sound banking practices. OCC examiners will give CRA consideration and will not criticize prudent efforts to modify or ease the terms on new or existing loans for affected low- and moderate-income customers, small businesses, and small farms. Such practices may help customers to recover or maintain their financial capacity and enhance their ability to service their debt. For additional information, please refer to OCC Bulletin 2020-19, “Pandemic Planning: Joint Statement on Community Reinvestment Act Consideration for Activities in Response to COVID-19.”

Question (added 3/26/20): Can a bank receive CRA consideration for community development activities in response to COVID-19?

Answer (OCC): Considering the declaration of a national emergency, banks will receive CRA consideration for community development activities as outlined in the bulletin. The pandemic has had a significant economic impact that may extend beyond banks’ assessment areas. Therefore, the agencies are reminding institutions that favorable consideration will be given to community development activities that 1) are located in a broader statewide or regional area that includes a bank’s CRA assessment area and 2) help to stabilize communities affected by COVID-19, provided that such institutions are responsive to the community development needs and opportunities that exist in their own assessment area(s). CRA consideration for community development activities will be effective through a six-month period after the national emergency declaration is lifted, unless extended by the agencies. For additional information, please refer to OCC Bulletin 2020-19, “Pandemic Planning: Joint Statement on Community Reinvestment Act Consideration for Activities in Response to COVID-19.”

Question (added 3/26/20): Has the CFPB released any information on relief measures for large national banks?

Answer: Yes, on March 26, 2020, the CFPB released bulletin detailing the following flexibility during the COVID-19 pandemic:

  • HMDA – The Bureau will not expect quarterly information reporting by certain mortgage lenders as required under the Home Mortgage Disclosure Act (HMDA) and Reg. C.  Entities should continue collecting and recording HMDA data in anticipation of making annual submissions. The Bureau will provide information on when and how institutions will be expected to commence what would have been new quarterly HMDA data submissions.
  • Credit Card and Prepaid Account reporting - The Bureau will not expect the reporting of certain information related to credit card and prepaid accounts under the Truth in Lending Act, Regulation Z, and Regulation E. This includes the annual submissions concerning agreements between credit card issuers and institutions of higher education; quarterly submission of consumer credit card agreements; collection of certain credit card price and availability information; and submission of prepaid account agreements and related information.
  • Data Collection - Additionally, the following data collections are being postponed:
    • a survey of financial institutions that seeks information on the cost of compliance in connection with pending rulemaking on Section 1071 of the Dodd-Frank Act; and
    • a survey of firms providing Property Assessed Clean Energy financing to consumers for the purposes of implementing Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act.


SECURITY

Question: Should we allow customers to walk in with masks on for security reasons?

Answer: This is a risk-based decision. Based on current risk factors, the bank should determine if the customer is trying to hide his/her face or are wearing the mask for protection. If bank is not in a hotspot, the risk may be higher. As an alternative, the bank may ask those wearing masks to use the drive-up. The FDIC encourages financial institutions to provide appropriate training to staff and to take appropriate measures to maintain the security of their staff as well as their customers. Local law enforcement should be contacted whenever staff are concerned about individuals on bank premises.

 

COMMUNICATION

Question: What should banks put on their webpages?

Answer: The bank should consider duplicating what is posted on local public health webpage and include CDC guidance when possible. Also disclose what the bank is doing to prevent the spread of the virus.

Question (added 3/26/20): What type of communication is recommended to inform customers of a national bank’s response to COVID-19?

Answer (OCC): Banks are encouraged to communicate with their customers and employees and provide services during this extraordinary situation. Using a variety of communication methods such as email, text messages, automated calls, and website postings may ensure key messages are received by the bank’s customers and employees. Proactive engagement with customers to notify them of when and where bank services are available can assist customers in dealing with this situation.

Question (added 3/26/20): For national banks, what is the recommendation on signage being posted in branches for customers regarding changes in branch hours and safety precautions?

Answer (OCC): If a bank needs to temporarily close or otherwise reduce access to a facility, the OCC encourages the bank to communicate changes to normal operations to their customers using a variety of communication methods such as physical signage at branches, email, text messages, automated calls, and website postings.

Question (added 3/26/20): If we need to close a branch because of an infected employee, what is the bank's responsibility in reporting this to customers?

Answer: Banks are encouraged to notify their customers as soon as practical of the need to close a branch, the expected duration of the closing, and locations of the closest alternative branches. Provide customers the ability to contact the bank and seek additional information. The CDC has developed guidance for businesses and employers related to COVID-19. They have also developed a risk matrix to assess risk and recommend mitigating measures. Please refer to these two pieces of guidance for additional information.

Interim Guidance for Businesses and Employers to Plan and Respond to COVID-19Interim US Guidance for Risk Assessment and Public Health Management of Persons with Potential COVID-19 Exposures: Geographic Risk and Contacts of Laboratory-confirmed Case

 

LENDING

Question: Should we reconsider lending to industries most heavily affected by mandates to limit access, hours or to close (e.g. hotels, airlines, restaurants, etc.)?

Answer: This is a risk-based decision based on specific facts and circumstances. Regulators have indicated FIs should work constructively with customers in affected communities. However, all lending practices should still be safe and sound. Consider discussing this with your federal regulator. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200309a.htm; https://www.fdic.gov/news/news/financial/2020/fil20017a.pdf; https://www.occ.gov/news-issuances/bulletins/2020/bulletin-2020-15.html

Questions: What loan options should we consider to help customers through these trying times? 

Answer: Consider offering:

  1. Small dollar loans
  2. Unsecured personal lines of credit to small businesses
  3. Skip a payment either across the board (consider risk for credit quality, etc.), as an opt-in or by request. Understand what industries you serve and how the community is faring through the crisis. Consider regulatory guidance on Skip-a-pay program: https://www.fdic.gov/regulations/examinations/consumercomplsupervisoryhighlights.pdf    
  4. Loan modifications – consider guidance: https://www.fdic.gov/regulations/examinations/consumercomplsupervisoryhighlights.pdf   
  5. Waiving overdraft fees:
    • Determine what the goals are for this program? How the bank plans to measure success? What are key milestones to show it is working? When the bank is going to stop the waiver program? The bank should assess the risks of such programs for the long term. Determine if there are proper controls in place to address risk.
  6. FDIC FAQ: The FDIC encourages financial institutions to provide borrowers affected in a variety of ways by the COVID-19 outbreak with payment accommodations that facilitate their ability to work through the immediate impact of the virus. Such assistance provided in a prudent manner to borrowers facing short-term setbacks could help the borrower and a community to recover. The FDIC understands that effective loan accommodation programs may involve protracted resolutions, but all should be ultimately targeted toward loan repayment. Financial institutions may want to consider addressing any deferred or skipped payments by either extending the original maturity date or by making those payments due in a balloon payment at the maturity date of the loan. When deferring or skipping payments, providing borrowers with accurate disclosures that are consistent with federal and state consumer protection laws will help to avoid any misunderstandings relative to the changes in the terms. Financial institutions can call their FDIC Regional Office, which can assist them by discussing key considerations and regulations on payment accommodations and disclosures.
  7. OCC Response (added 3/26/20): On March 13, 2020, the OCC encouraged banks to take steps to meet the financial services needs of customers adversely affected by COVID-19-related issues. Efforts to support customers may include:
  • waiving certain fees, such as
    • automated teller machine (ATM) fees for customers and non-customers.
    • overdraft fees.
    • late payment fees on credit cards and other loans.
    • early withdrawal penalties on time deposits.
    • increasing ATM daily cash withdrawal limits.
  • easing restrictions on cashing out-of-state and non-customer checks.
  • increasing credit card limits for creditworthy borrowers.
  • 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 caused by COVID-19-related disruptions.

An Interagency Statement issued on March 22, 2020, provided additional guidance on loan modifications and reporting. Loan modification programs can help mitigate adverse financial effects of COVID-19 on borrowers. The OCC will not criticize banks for working with borrowers in a safe and sound manner and will not direct banks to automatically categorize all COVID-19-related loan modifications as troubled debt restructurings (TDR). The joint statement also provides supervisory views on past-due and nonaccrual regulatory reporting of loan modification programs.

Question: We know the federal financial institution regulatory agencies and state banking agencies encourage banks to work constructively with borrowers affected by COVID-19.  Would all loan modifications now be considered Troubled Debt Restructures?

Answer: Per the Interagency Statement issued March 22, 2020, the agencies state they will not criticize banks working with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19 and will not direct institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (TDRs). According to U.S. GAP, to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies have confirmed with staff of the Financial Accounting Standards Board (FASB) that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.2 Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.  Click here to read more.

(FDIC FAQ): Financial institutions should determine whether loans with payment accommodations made to borrowers affected by COVID-19 should separately be reported as TDRs in separate memoranda items for such loans in regulatory reports. A TDR is a loan restructuring in which an institution, for economic or legal reasons related to a borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider. However, a loan deferred, extended, or renewed at a stated interest rate equal to the current interest rate for new debt with similar risk is not reported as a TDR. Financial institutions may refer to Financial Accounting Standards Board (FASB) Statement No. 15 for additional guidance on determining whether a loan with renegotiated terms should be accounted for as a TDR. FASB Statement No. 114 also provides guidance on accounting for impairment losses on TDRs.

Question: Do loans that receive payment accommodations have to be reported as delinquent or non-performing?

Answer (FDIC FAQ): Borrowers who were current prior to becoming affected by COVID-19 and then receive payment accommodations as a result of the effects of COVID-19 generally would not be reported as past due. Each financial institution should consider the specific facts and circumstances regarding its payment accommodations for borrowers affected by COVID-19 in determining the appropriate reporting treatment in accordance with generally accepted accounting principles (GAAP) and regulatory reporting instructions. Past due reporting status in regulatory reports should be determined in accordance with the contractual terms of a loan, as its terms have been revised under a payment accommodation or similar program provided to an individual customer or across-the-board to all affected customers. Accordingly, if all payments are current in accordance with the revised terms of the loan, the loan would not be reported as past due. For loans subject to a payment deferral program on which payments were past due prior to the borrower being affected by COVID-19, it is the FDIC’s position that the delinquency status of the loan may be adjusted back to the status that existed at the date of the borrower becoming affected, essentially being frozen for the duration of the payment deferral period. For example, if a consumer loan subject to a payment deferral program was 60 days past due on the date of the borrower being affected by COVID-19, an institution would continue to report the loan in its regulatory reports as 60 days past due during the deferral period (unless the loan is reported in nonaccrual status or charged off).

Question: What type of documentation should financial institutions maintain relative to providing an accommodation to a borrower affected by COVID-19?

Answer (FDIC FAQ): Financial institutions should maintain appropriate documentation that considers borrowers’ payment status prior to being affected by COVID-19, and borrowers’ payment performance according to the changes in terms provided by the payment accommodation. Documentation could also include the borrowers’ recovery plans, sources of repayment, additional advances on existing or new loans, and value of the collateral.

Question: Do loans that receive payment accommodations have to be reported as nonaccrual, reflect appropriate ACL or ALLL, and be charged off?

Answer (FDIC FAQ): Each financial institution should refer to the applicable regulatory reporting instructions, as well as its internal accounting policies, in determining whether to report loans with accommodations to customers affected by COVID-19 as nonaccrual assets in regulatory reports. (See also the response to question 3.) Each institution should maintain an appropriate ALLL for these loans, considering all information available prior to filing its reports about their collectability. As information becomes available that indicates a specific loan will not be repaid, institutions should preserve the integrity of their internal loan grading methodology and maintain appropriate accrual status on affected credits. Financial institutions should appropriately recognize credit losses according to their charge-off policies as soon as a loss can be reasonably estimated.

Question (added 4/3/20): If a borrower requests mortgage forbearance, and we defer their entire monthly payment including escrow, how do we handle the resulting escrow shortage or deficiency? 

Answer: The Bank’s actions related to the escrow balance will likely depend on how long the customer’s forbearance lasts and when the loan’s normal escrow computation year ends. Some key points to consider:

  • Even if the escrow balance does not contain sufficient funds, banks must make timely payments for escrowed items. So, although the escrow balance does not contain enough funds, taxes and hazard insurance premiums and any other items paid from the escrow account must be paid on time.
  • The annual escrow statement must still be provided to the borrower within 30 days of completion of the escrow computation year.  See § 1024.17(i). This section of RESPA provides an exception for the annual statement in the case of default, foreclosure and bankruptcy if the borrower is more than 30 days past due.  However, a borrower who enters into a forbearance plan is not considered past due so this exception will not apply.  If the completion of the borrower’s annual computation year occurs during the forbearance period, the bank will need to perform the annual escrow analysis and adjust the escrow payment based on the shortage and/or deficiency at the time of analysis.  When the forbearance period ends, the bank can then follow one of the two options detailed below.

Once the borrower’s forbearance period ends, the bank cannot simply make an adjustment to the escrow payment amount to collect the shortage or deficiency, nor cannot it demand the borrower pay the amount in full. Rather, RESPA provides the bank must go through the aggregate analysis process to determine the shortage or deficiency amount. Given this, the bank has two options:

  • It can do a short year statement immediately to calculate the escrow account shortage or deficiency and adjust the escrow payment for the remainder of the current escrow computation year. This allows the bank to begin to collecting the shortage or deficiency per RESPA’s rules related to shortages and deficiencies – see 1024.17(f)(3) & (4). 
  • Permit the borrower to begin making payment at the payment amount in effect prior to the forbearance period (or based upon the analysis conducted during the forbearance period if the annual computation year ended during the forbearance period). Then, wait until the end of the escrow computation year to reanalyze the escrow account to determine the shortage or deficiency amount and adjust the payment according to RESPA’s shortage and deficiency provisions. 

Question (updated 5/26/20): On March 29, 2020, FEMA extended the grace period for NFIP flood insurance renewal premiums. What affect does this have on our force-place procedures? Does this mean the policy does not expire for an additional 120 days?

Answer: First, it is important to understand this extension applies only to NFIP policies, not private flood insurance policies. Second, what this extension does is allow more time for the consumer to pay the fee to renew their flood policy for policies with an expiration date between February 13 – June 15, 2020. It extends the 30-day grace period following the NFIP policy expiration date; it does NOT extend the expiration date of the policy by 120 days. If the borrower doesn’t renew the policy within this time frame, the policy would expire based on the expiration date on the policy. The Interagency Exam Procedures require the bank, upon discovering that the security property is not covered by an adequate amount of flood insurance, provide a notice to the borrower that the borrower should obtain flood insurance. If a borrower allows a policy to lapse when insurance is required, the bank or servicer is required to commence force placement procedures. Under the Biggert-Waters Act, the bank may force place and charge for insurance beginning on the date on which coverage lapses. Prior to the FEMA extension, regulators expected banks to send the letter upon the expiration of the policy regardless of the grace period. The federal prudential regulators all released separate FAQs addressing the FEMA notice.  The Fed FAQs reiterate the flood rules have not changed.  However, they indicate the agency will not cite a bank for flood violations when acting in good faith including: sending force-placement letters upon policy expiration, indicating borrower has a 120-day grace period to renew their policy; or send force-place letters 45 days prior to end of 120-day grace period.  Banks must force place no later than the end of the 120-day period and may charge the borrower at any time after purchase.  The FDIC’s FAQs dealt more with loan modifications and loan deferral programs indicating the bank may temporarily rely on a previous SFHD form; delay the establishment of required escrow until after the emergency; and delay providing written notice or provide in another method such as email or telephone.  The FDIC FAQs did state regarding the extended grace period, the lender should factor this extended grace period in when working with borrowers.  However they offered no additional details. The OCC’s FAQ stated the OCC does not expect to take supervisory action against a bank for reasonable delays in complying with the force placement requirements provided the bank makes good faith efforts to support borrowers and comply with these requirements.  All agencies remind banks that if they do force place during the grace period and the borrower provides their own policy, the bank must refund any period of overlap within 30 days.

Question:  What should we consider if we experience decreased lending demand as businesses temporarily close or increase in delinquencies?

Answer: Work with your board and management to evaluate budget and spending, succession planning updates, need to cancel unnecessary travel/larger meetings. Board may need to continue to meet more frequently on a remote basis to evaluate the risks and propose solutions.

Question:  On March 19, 2020, the Governor issued a Proclamation regarding the payment of property taxes. We have several loans where taxes are escrowed. Are the property tax payment deadlines extended?

Answer: The Proclamation of Disaster Emergency temporarily suspends the imposition of penalty and interest on certain property tax payments. Per the Iowa Department of Revenue website, “the Governor has issued a proclamation that waives penalty and interest that would have accrued if someone did not pay property tax by April 1, 2020. If someone doesn't pay by April 1, 2020, the person would still be technically "delinquent," he or she just wouldn't owe penalty and interest for the late payment. Treasurers will still have authority to send a delinquency notice if payment is not received ahead of April 1, 2020.” Based on this statement, it is clear that the property taxes are still due on March 31, 2020. Therefore, banks with escrow for property taxes should make these payments so they are received by their due date.

Question: On March 23, 2020, the Governor of Iowa signed a proclamation allowing remote notarization and witnessing. Can our bank start notarizing using FaceTime and other methods?

Answer: The new proclamation allows for “Remote Notarization and Witnessing” under sections 16 and 17 of the Proclamation. Section 16 states: “Pursuant to Iowa Code § 29C.6(6), I temporarily suspend the personal appearance requirement in Iowa Code § 9B.6, but only to the extent that the notarial act complies with the requirements of section 6 of 2019 Iowa Acts chapter 44 (Senate File 475) and any additional guidance provided by the Iowa Secretary of State regarding approved communication technology”. Section 17 further states: “Pursuant to Iowa Code § 29C.6(6) and Iowa Code § 135.144(3), and in conjunction with the Iowa Department of Public Health, I temporarily suspend the regulatory provisions of Iowa Code §§ 144B.3, 633.279, and 633B.105, to the extent that they require the physical presence of a testator, settlor, principal, witness, or other person, if the person is present in a manner in which the witness or other person can see and hear the acts by electronic means, such as video conference, Skype, FaceTime, Zoom, or other means, whether or not recorded”. The IBA is seeking further clarification from the Secretary of State who is responsible for writing procedures for the new section 9B.14A Notarial acts performed for remotely located individuals scheduled to go into effect on 7/1/20.

Question: How should financial institutions respond to COVID-19 related issues relative to inspections of real property? (updated May 26, 2020)

Answer (FDIC FAQ): The federal prudential regulators issued an Interagency Interim Final Rule applicable to loan closings between April 17 and Dec. 31 deferring the timing of appraisals and evaluations for up to 120 days following consummation if needed. This applies to covered real estate transactions except those for acquisition, development or construction. This deferral option does not apply to HPMLs. Creditors are expected to have measures in place to estimate property value as part of the underwriting process, consider the borrower’s ability to repay and implement a tracking process to ensure the appraisal/evaluation is obtained by the end of the 120 day period after consummation..

Question (added 4/3/20): If the bank elects to offer a payment deferral program, do we have any requirements regarding reporting this to the nationwide credit reporting agencies?

Answer: Yes. The CFPB issued a policy statement on April 2, 2020 reiterating prior guidance encouraging financial institutions to work constructively with borrowers affected by COVID-19 to meet their financial needs including considering payment deferrals. The CARES Act, a section of which amends the FCRA, generally requires furnishers to report as current certain credit obligations for which furnishers make payment accommodations to consumers affected by COVID-19 who have sought such accommodations from their lenders. The Bureau and all other federal and state regulators expect furnishers to comply with the CARES Act. If the borrower was current prior to the payment deferral, the furnisher must continue to report the account as current. Specific Metro II codes can and should be used to denote the payment deferrals. Furnishers who report information about consumers where (1) consumers' accounts are affected by natural and declared disasters such as COVID-19 should review FAQ 58, or if the consumers' accounts is placed in forbearance as a result of a natural or declared disaster such as COVID-19, or for other reasons they should review FAQ 45. Furnishers are encouraged to work with their nationwide credit reporting representatives or processors for details.



VENDOR MANAGEMENT

Question: We are concerned about our critical vendors. What should we be asking?

  1. Will they be impacted if their employees need to work from home?
  2. How will the bank communicate with them in a secure manner?
  3. Will there be a delay in new or existing product orders?
  4. When was last time they updated and tested its BCP and does it include a pandemic plan?
  5. What are they doing to monitor the progression of the virus and how will they communicate with you? On what time frame?
  6. Have their vendors been impacted that affect their service to you? Do they have backup vendors ready to step in?

Question: Can the bank terminate a vendor relationship for non-performance?

Answer: Review your contract. The contract may have a Force Majeure clause (creates an exception to performance under the contract). Have legal counsel review the contract and provide guidance. Consider if you have an exclusivity requirement. Consider alternatives within the agreement and potential consequence.

 

EMPLOYEES

Question: Should banks try to transition to a “work from home” or shift rotation stance?

Answer: Due to the community spread, banks should consider this when possible. Before implementing this process, the bank should be sure to test the system capacity to support remote access, establish secure VPN connections and ensure VPN and other remote access systems are fully patched.

Question: For employees that must remain on the bank premises, what should we do to protect them?

Answer: Review current trends for employee wellness authority expectations. Perform routine environmental cleaning. Communicate frequently with employees. Cross train when possible. Review procedures to make sure they are current and can be used by someone less familiar with the job responsibilities.
 


RESOURCES

FDIC

OCC

CFPB

 

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