April 2020 Newsletters

A Review of Recent Reg. CC Changes

By C/A Staff

Regulation CC is one of those regulations that’s been around for what seems like forever.  Since first becoming effective in 1987, there have been few changes to the regulation itself.  The regulation seems to be stuck in the paper-check writing and cashing phase of the ‘80s and ‘90s despite the ever-changing world of electronic banking, online banking, and electronic transactions. But, thanks to the 2018 Rule, we are beginning to see some forward-moving changes to this regulation.

So, what were some of the changes brought about by the 2018 Rule? New definitions were added to the regulation which related to electronic images, electronic checks and electronic returned checks.  The days of having an original check item available for inspection are almost gone.  The time and costs associated with obtaining an original item are no longer feasible for most banks, so electronic images have become almost essential. To this end, the Final Rule added necessary definitions to fully incorporate electronic checks into the rule. We have available a webinar that extensively reviews the 2018 changes if you’re interested, here: https://compliancealliance.com/news-events/revised-reg.-cc-webinar

The rule also made modifications to the requirements for returning checks in a more expeditious manner and require that both paper and electronic checks comply with a “two-day test”.  This means that banks have to return checks no later than 2:00 P.M. (local time for the depository bank) of the second business day following the banking day in which the check was presented.  The rule holds the paying/returning bank responsible for failure to meet these time requirements.  Under the changes, the amount for notice of nonpayment increased (from $2,500 to $5,000) and the content requirements were revised; while new indemnities were added to address liability for losses created by remote deposit capture and electronically created items. 

If those aren’t enough, we have even more changes just around the corner. The adjustment for inflation amendment to Subpart B of Regulation CC was finalized in June of 2019 by the Federal Reserve and Consumer Financial Protection Bureau (CFPB) and becomes effective July 1, 2020. The amendment implements a statutory adjustment for inflation which results in an adjustment to the dollar amounts under the Expedited Funds Availability (EFA) Act. The first inflation adjustment takes place on July 1, 2020, with the next one on July 1, 2025, and on July 1 of every fifth year after 2025.  The dollar amount adjustments include the following:

  • The $225 next business day availability for non-next day checks (from $200);
  • The $450 for withdrawal by cash or similar means (from $400);
  • The $5,525 threshold for exception holds for new accounts and large deposits (from $5,000); and
  • The $5,525 threshold for determining whether an account has been repeatedly overdrawn (from $5,000).

In addition to the increases noted above, civil liability damages for failure to comply have also increased. The $1,000 and $500,000 amounts for civil liability for failing to comply with Regulation CC will increase to $1,100 and $552,500, respectively. 

Banks need to work with their vendors to ensure the thresholds are set to reflect the requirements of the amendment. Funds availability notices must also be updated to reflect these changes.  Most importantly, a change in terms notice must be sent to customers per Reg. CC. While the regulation allows the notice to be sent before or after the change, we recommend sending it 30 days prior to the effective date of the change. Keep in mind that the change in terms notice will have to be provided to customers with every inflationary increase, every five years.

We have available a webinar that extensively reviews the 2019 changes if you’re interested, here: https://compliancealliance.com/news-events/compliancealliance.com/news-events/reg-cc-2019-webinar as well as a sample change notice here: https://compliancealliance.com/find-a-tool/tool/regulation-cc-change-in-terms-notice-for-new-adjusted-amounts

As always, if you have additional questions about any of these Reg. CC changes, feel free to ask one of our attorneys on the Hotline.

Consumer Economic Relief in the CARES Act

Guest article by C/A's sister company, Review Alliance

On March 27, 2020, President Donald Trump signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act. This legislation is aimed at providing relief for individuals and businesses that have been negatively impacted by the coronavirus outbreak. The Senate unanimously voted on the stimulus bill that will help Americans during the Coronavirus Pandemic. The vast majority of Americans will be receiving checks from the federal government as part of the $2 trillion stimulus package. Americans who pay taxes will receive a one-time direct deposit of up to $1,200 and married couples will receive up to $2,400. In addition, $500 per child younger than age 17 will be included. So, what do financial institutions need to be prepared for?

The IRS has stated that for people who have already filed their 2019 tax returns, the economic impact payment will be deposited directly into the same banking account reflected on the return. For those who have not yet filed their return for 2019, the IRS will use information from the 2018 tax return. In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online so that individuals can receive payments immediately as opposed to checks in the mail. So, what happens if the bank account listed is now closed and the customer has not updated the IRS portal? Until new guidance has been issued, banks need to continue to follow their current NACHA guidelines for ACH returns, including considering using the Same Day ACH capabilities to return ACH payment exceptions more quickly.

The bank may choose to reopen closed accounts, keeping in mind the pros and cons associated with this. The pros of opening these accounts include, but are not limited to, enabling the bank to give their customers easier access to these funds in order to pay essential bills, such as their mortgage, rent and utilities, as well as buying groceries for their family. Some of the cons associated with this practice could include hardships on the limited number of employees who would be responsible for reopening multiple closed accounts, as well as possible reputational and UDAAP risks. In addition, it is currently at the bank’s discretion how they will handle these economic impact direct deposits into accounts that are overdrawn or charged off.

Reputational risk in banking is a hidden threat that can literally erupt out of nowhere and even without warning. It is often intangible and hard to measure; however, the impact is very real and could potentially create a negative public perspective of the bank during a natural disaster. This can cause adverse impacts on the bank’s revenue, customer base and key employees as well as lead to negative content in web search results. If you, as the financial institution, find yourself susceptible to reputational risk it will be very important to mitigate this risk and help prevent further damage by demonstrating business integrity and focusing on a positive customer experience.

Furthermore, Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) can also cause significant financial injury to financial institutions and its customers. For example, in 2019, the Consumer Financial Protection Bureau (CFPB) entered into a consent order with a federal savings bank. This bank violated the Consumer Financial Protection Bureau Act of 2010 by reopening deposit accounts consumers had previously closed without obtaining the consumers prior authorization or providing notice that the account had been reopened. Under the terms of this consent order, that particular bank was required to provide approximately $12 million in restitution and pay $3.5 million in civil money penalties, among other provisions. 

When reopening closed accounts, it is imperative that the bank ensure proper authorization has been obtained from the customer. Banks must also continue to adhere to their current BSA and CIP obligations as well as remain alert for fraudulent schemes, such as those that occur during natural disasters. Fraudsters may attempt to infiltrate other programs being implemented under the CARES Act, creating further challenges for financial institutions. For security reasons, the IRS plans to mail a letter about the economic impact payment to the last known address within 15 days after the payment is paid. This letter will provide information on how the payment was made and how to report if the payment was not received. Banks should encourage their customers to visit IRS.gov if they are unsure whether the letter is legitimate or not, to help protect both the bank and the customer from scam artists.

In the midst of this unexpected pandemic, we realize that information is coming out at a rapid pace and there are still a lot of unanswered questions. No one knows for sure what is coming, but what we do know is that banks should be providing their customers with the most updated information available and following the most current guidelines that have been implemented by regulators and government agencies. We at Compliance Alliance and Review Alliance, a division of Bankers Alliance, will continue to stay abreast of all updated changes and will provide additional articles, webinars and huddles as new information is published.

Coronavirus Relief Checks: What You Need to Know

By C/A Staff

Unless you’ve been living under a quarantine rock you’re undoubtedly aware that on March 27th, 2020, Congress passed, and President Trump signed into law, H.R.748, better known as the CARES Act. The Law provides multiple forms of relief, including the $350 billion Paycheck Protection Program and a delayed tax-return deadline of July 15th. The most important form of relief however, is the disbursement of relief checks intended for the majority of Americans.

Who gets a check?
The majority of Americans are eligible to receive a stimulus check if they meet certain qualifications set-out in the Law. Specifically, eligibility will be based on each individual’s most recent tax return and adjusted gross income (AGI), which is difficult to explain but quite straightforward with this delightful formula:

Ultimately, an individual filer will be eligible to receive a check if their most recent tax return showed AGI below $99,000. The thresholds rise to $146,500 for head of household filers with one child, and $198,000 joint filers with no children. If an individual is above these thresholds, they will not be receiving a check. Additionally, those without a Social Security number, nonresident aliens, and individual’s claimed as dependent’s are equally out of luck.

How much does everyone get?
The relief checks are expected to be $1,200 for individuals, or $2,400 for married couples, with $500 per each qualifying child. Filers with AGI up to $75,000 for individuals, and up to $150,000 for married couples filing joint returns will receive full payments. However, as income rises above these amounts, the payment will be reduced by $5 for each $100 above the $75,000/$150,000 thresholds. As discussed in the previous section (I hope you read that section and didn’t immediately jump to the “how much do I get” section), single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible to receive the relief checks.

How will the government send the checks?
The IRS plans to use the direct deposit information provided by filers for their 2018 or 2019 tax returns. So for individuals who filed taxes in 2018 or 2019 with direct deposit information, they don’t need to do anything; the check will be automatically deposited into the account. For individuals who don’t file taxes but do receive Social Security payments, they also don’t need to take any action. The Treasury Department has said that the IRS will use the information on the Form SSA-1099 and Form RRB-1099 to generate the stimulus checks to Social Security recipients who did not file tax returns in 2018 or 2019. For individuals who do not have their direct deposit account set up, paper checks will be mailed to them directly.

When will the checks arrive?
The IRS will make approximately 60 million payments to Americans through direct deposit starting in Mid-April, most likely beginning the week of April 13th, for those who have set up direct deposits. For those who haven’t set up direct deposit, the wait for paper checks will be noticeably longer. The paper checks are estimated to begin going out sometime after May 4th, at a rate of about 5 million per week, which means some checks won’t be sent until Mid-August. This timeline is subject to change of course due to the highly fluid nature of the situation. The IRS says the checks will be issued in reverse order based on an individual’s AGI, so that people with the lowest income will get their payments first. 

What does this mean for you?
Nearly all of your customers are expected to receive government issued checks in the coming weeks. Should be simple, right? We’ve already seen an influx of questions regarding this program, and I’ve done my best to address the most common concerns below.

What should your bank be prepared for?
You can expect quite a few questions from customers regarding when and how they will receive their checks,. Reading the first part of this article will provide you with all you need to know about the relief checks, so that’s an easy one. You should also be prepared to inform customers of where they can find guidance on this program. The following links are where you and your customers can find further guidance on the program.

If a customer’s deposit account is closed, may we reopen it to accept the relief checks?
There hasn’t been any specific guidance on this particular question at this point. Conservatively, we would advise not “re-opening” a closed account to accept a stimulus deposit, similar to the best practice recommendation for IRS tax returns. Re-opening a closed account without the consent of the account owner could raise UDAAP and potential legal issues, so tread lightly. Ultimately, the best practice here is for your bank to treat these checks the same way you would general IRS tax returns.

If a customer has a negative balance, can we charge-off the account using the relief checks?
While there hasn’t been any specific guidance issued on this question, your bank should consider the reputational risk of depositing the funds and then using them to offset a negative balance. Although the bank would be within their rights to do so, it could cause reputational risk that is simply not quantifiable considering the spirit and intent of the Law, which is to assist our society in this time of crisis.

Can we deposit into an open account as long as the names on the checks are owners on the account?
Yes, the bank may deposit a relief check into an open account as long as the names to which the check is payable match the name/names on the account.

Can the bank charge a fee to cash the relief checks for non-customers?
There isn’t an express prohibition in charging a fee to cash the checks. The bank would just want to be sure that the fee is disclosed before the transaction is conducted to avoid any potential UDAAP issues.

Parting Words
Unfortunately, the IRS and Treasury Department haven’t issued too much guidance on these upcoming checks, so we’re all going to be figuring this out on the fly. As always, Compliance Alliance will be here to support you and your bank through this time whether it be through telephone, email, or our hotline chats. Don’t hesitate to run any questions or concerns you may have by us and we’ll be there to fill in the blanks. Good luck and stay safe!

CARES Act Forbearance: What You Need to Know

By C/A Staff

What’s this all about?
As offices, restaurants, gig services, and other businesses across the country shut down and the unemployment rate skyrockets due to the Coronavirus pandemic, federal regulatory agencies have taken action to bring relief to homeowners who can’t make their mortgage payments. Specifically, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law on March 27th, 2020, borrowers with federally backed mortgage loans experiencing a financial hardship due directly or indirectly to the COVID-19 emergency may request a forbearance by making a request to their mortgage servicer and affirming that they are experiencing a financial hardship during this emergency. The regulatory agencies have stated that a forbearance under the CARES Act qualifies as a short-term payment forbearance program under Regulation X, or RESPA.

In the agencies’ April 3rd joint statement, they stated their flexible supervisory and enforcement approach regarding certain consumer communications required by the mortgage servicing rules during this emergency.

A little context, please?
Just to make sure we’re all on the same page here, forbearance is when a mortgage servicer – that’s the company that sends the mortgage statement and manages the loan, or lender – allows a borrower to pause or reduce mortgage payments for a limited period of time. Importantly, it does not erase what the borrower owes, and the borrower will have to repay any missed or reduced payments in the future. So, if your borrower is able to continue making payments, they should keep doing so.

What kind of relief are we talking about?
So the types of forbearance available vary by loan type. If the mortgage is backed by the federal government, which includes FHA, VA, USDA, Fannie Mae, and Freddie Mac loans, then provisions of the recently passed CARES Act explicitly allow borrowers to temporarily suspend payments if they are experimenting financial difficulty due to the impact of the COVID-19 emergency on their finances, regardless of whether they are delinquent.

For non-government backed or private loans, these loan servicers may also have forbearance or deferment options, but the exact options available may differ.

For the federally backed mortgages under the CARES Act, if a borrower is experiencing financial hardship due to the Coronavirus pandemic, they may request a forbearance for up to 180 days, and servicers must provide the forbearance. The borrower also has a right to request an extension for an additional 180 days, and the servicer must extend this forbearance. While there won’t be any additional penalties, fees, or interest added to your account, your regular interest will accrue.

Other than the borrower informing the servicer that they have a pandemic-related hardship, they cannot be required to submit additional documentation to qualify for this forbearance.

What should you make your borrowers aware of?
Regardless of the type of mortgage a borrower has, the regulators have instructed borrowers to communicate with their loan servicer regarding relief options, so here are some things to consider.

First, if a borrower can’t make their mortgage payments or needs to reduce or suspend their payments, you can expect your borrowers coming to you for guidance and relief, and the agencies have made it clear that you must provide relief in the form of forbearance options.

Second, when providing these options to your borrowers, you need make sure the following concerns are clearly addressed:

  1. Will you owe entire unpaid amount in a lump sum once pause period has ended or at the end of the loan term?
  2. Can the loan term be extended so missed payments are added to the end of mortgage?
  3. Will subsequent monthly payments be higher for a period of time to make up for the higher for a period of time to make up for the deferred amount?

What’s the conclusion, here?
Ultimately, your Bank needs to be prepared to provide forbearance and payment suspension options to your borrowers. We know this is a highly fluid and confusing time for everyone, but rest assured that the Compliance Alliance Team is here to answer all of your questions and concerns. For additional guidance, check-out our Pandemic Planning for Banks page full of resources on this topic here: https://compliancealliance.com/about-us/pandemic-planning-for-banks. Additionally, you can review the April Joint Statement here: https://www.fdic.gov/news/news/press/2020/pr20047a.pdf.