COVID-19 (Novel Coronavirus)

As the world continues to grapple with the devastating impacts of the Novel Coronavirus, millions of Americans’ day-to-day routines have been completely upended. In this time of uncertainty, it is important for institutions to continue operating in a manner that promotes confidence in the financial services industry, within the safety and wellness guidelines issued by federal, state and local governments and agencies.

To that end, Michael Christians Consulting, LLC has established this resource page to help financial institutions navigate some of the unique challenges presented by the current environment. Please be sure to check back often. We’ll do our best to update this page as quickly as possible as new information becomes available.

Stay safe and healthy everyone!

FinCEN Guidance – Bank Secrecy Act Responsibilities

Disappointingly, but not altogether surprising, some are attempting to profit (illegally) from the Coronavirus outbreak. In an advisory issued on March 16th, the Financial Crimes Enforcement Network (FinCEN) warned financial institutions to remain alert about fraudulent transactions in connection with COVID-19.

Examples of the observed illicit behavior include:

• Imposter Scams – bad actors are attempting to steal personal information by impersonating health-related agencies and organizations such as the Centers for Disease Control and Prevention (CDC) or the World Health Organization (WHO).
• Investment Scams – bad actors are promoting false investment opportunities in companies that falsely claim their products can prevent, detect or cure Coronavirus.
• Product Scams – bad actors are selling unapproved and/or misbranded products that make false health claims or are fraudulently marketing COVID-19-related supplies, such as facemasks.
• Insider Trading – bad actors are using inside information to buy/sell investments in connection with companies that are positively and/or adversely affected by the Coronavirus outbreak.

As a result, FinCEN is requesting financial institutions remain diligent in their reporting of suspicious activity. Any financial institution affected by COVID-19 that is concerned it may not be able to meet the timing requirements associated with filing its BSA reports is encouraged to contact FinCEN and its functional regulator as soon as practicable.

You can review the FinCEN advisory here.

UPDATE: On April 3rd, FinCEN issued additional guidance to financial institutions in response to the COVID-19 pandemic. As part of the guidance, FinCEN recognizes that certain timing requirements with regard to BSA filings (e.g. CTRs and SARs) may be challenging during the Coronavirus outbreak and acknowledges that there may be some reasonable delays in compliance.

FinCEN Guidance – Customer Due Diligence Rule

Under FinCEN’s customer due diligence rule, financial institutions are required to verify the following individuals in connection with a legal entity customer:

• Beneficial owner – each individual who directly or indirectly owns 25% or more of the equity interests of the legal entity
• Controlling party – a single individual who exercises control over the legal entity (e.g. CEO, COO, CFO, etc.)

On April 13th, FinCEN updated its frequently asked questions document related to the customer due diligence rule. Specifically, the updated FAQ’s provide as follows:

• A new Paycheck Protection Program (PPP) loan made to an existing customer does not trigger a financial institution’s requirement to verify previously submitted beneficial ownership information
• A new PPP loan made to an existing customer that has not previously submitted its beneficial ownership information does not trigger a financial institution’s requirement to collect that information
• A financial institution must collect beneficial ownership information from any new customer obtaining a PPP loan

FinCEN’s updated FAQs are available here.

OFAC Guidance

Under guidance issued by the Office of Foreign Assets Control (OFAC) on April 20th, a financial institution is encouraged to contact OFAC as soon as practicable if it believes it may experience delays in its ability to meet deadlines under regulatory requirements administered by OFAC. These requirements may include:

• Filing blocking and reject reports within ten business days,
• Responding to administrative subpoenas, or
• Filing reports required by general or specific licenses.

You can view the guidance here.

Regulation D – Elimination of Reserve Requirements

Effective March 26th the Federal Reserve has eliminated reserve requirements in connection with transaction accounts.

First, some background. Traditionally under Regulation D, a financial institution must maintain reserves in connection with its transaction accounts. Savings deposits (such as savings and money market accounts) are not transaction accounts and thus not subject to the reserve requirement. However, those savings deposits are limited to 6 transactions per month.

While the Federal Reserve’s action does not specifically alter the definition of transaction accounts nor does it remove the 6 transaction limitation in connection with savings deposits, elimination of the reserve requirement certainly changes things. While financial institutions are still required to report accounts as either transactions accounts or savings deposits, they are not required to maintain reserves in connection with their transaction accounts. This may provide some flexibility to institutions looking to give consumers additional access to their savings and/or money market accounts. Even though accounts that exceed the 6 transaction limitation may be classified as transactions accounts, the financial institution would not be required to maintain reserves against those accounts.

Update: On April 23rd, the Federal Reserve issued an interim final rule eliminating the limit on convenience transfers in connection with savings deposits. The interim final rule is permissive, meaning a financial institution may choose to eliminate the convenience transfer limitation or it can continue to enforce it. The rule also provides that a financial institution may choose to temporarily suspend enforcement of the limitation and begin enforcing it again at a later date.

The rule also clarifies that a financial institution has latitude as to how it reports savings deposits on its FR 2900 (Report of Transaction Accounts, Other Deposits and Vault Cash). The institution may continue to report these accounts as savings deposits or it may begin reporting them as transaction accounts.

The Federal Reserve’s interim final rule is available here.

Electronic Delivery of Credit Card Disclosures

On June 3rd, the Consumer Financial Protection Bureau (CFPB) issued a statement regarding the electronic delivery of certain credit card disclosures required under Regulation Z.

First, Section 1026.60 of Regulation Z requires card issuers to provide consumers with a credit card solicitation and application disclosure at the time he/she applies for a credit card. Second, Section 1026.6 of Regulation Z requires a card issuer to provide an account opening disclosure to the cardholder before he/she makes their first transaction under the plan. Finally, Section 1026.9 of Regulation Z discusses the subsequent disclosure requirements associated with a temporary rate or fee reduction in connection with a credit card account.

The CFPB recognizes that as a result of the COVID-19 pandemic, many consumers are actively looking to obtain a new credit card account or are seeking a temporary rate reduction in connection with an existing credit card account to help address short-term cashflow issues. The speed with which a card issuer can respond to these requests depends on how quickly it can satisfy the Regulation Z disclosure requirements.

Under the Electronic Signatures in Global and National Commerce (E-SIGN) Act, card issuers may provide these disclosures electronically; however, they must obtain electronic consent from the consumer to do so. To enable card issuers to respond more quickly to these types of requests, the CFPB’s statement is making it easier for them to provide the required disclosures electronically. The statement provides that the CFPB does not intend to cite in an examination or initiate an enforcement action against a card issuer for providing the required credit card disclosures electronically to a consumer who has only verbally consented to electronic delivery.

Update: The CFPB rescinded this regulatory flexibility effective April 1, 2021. On a go forward basis, card issuers that choose to deliver credit card disclosures electronically must do so in accordance with the requirements set out in the Electronic Signatures in Global and National Commerce (E-Sign) Act.

Interagency Guidance

On March 22nd the joint agencies issued a statement on loan modifications for financial institutions working with customers affected by the Coronavirus. The statement encourages financial institutions to consider short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms or other insignificant delays in payment. Furthermore, the statement makes clear that modifications made in direct response to COVID-19 to borrowers who are current at the time of modification do not constitute a TDR (troubled debt restructuring). For a closer look at this interagency statement, click here.

A couple of additional observations related to the interagency guidance:

• §1026.20 of Regulation Z provides that a change to the terms of an existing obligation, such as the deferral of individual installments, will generally be considered a modification. Modifications do not require new disclosures to the consumer. That being said, be sure to check applicable state law to confirm whether or not your modifications must be evidenced in writing. The consumer credit code in some jurisdictions requires this.
• For loan payment deferrals granted in connection with open-end credit accounts, remember the advance notice requirements found under §1026.9 of Regulation Z. Prior to resuming the consumer’s regular payment schedule, most financial institutions will be required to provide –
• 15-day advance notice for home equity lines of credit
• 45-day advance notice for other non-real estate secured open-end accounts

Update: On April 7th, the joint agencies issued an update to their March 22nd statement on loan modifications for financial institutions working with customers affected by the Coronavirus. Specifically, the April 7th revised statement makes it clear when a loan modification made in direct response to the COVID-19 public health emergency does not constitute a TDR (troubled debt restructuring).

A loan modification that meets all of the following criteria will not be considered a TDR:

• The modification was made in direct response to the Coronavirus pandemic,
• The loan was not more than 30 days past due as of December 31, 2019, and
• The modification agreement is executed between March 1, 2020 and the earlier of –
• 60 days following termination of the national health emergency, or
• December 31, 2020.

FFIEC’s Joint Statement on Additional COVID-19 Loan Accommodations

On August 3rd, the Federal Financial Institutions Examination Council (FFIEC) issued a joint statement outlining risk management and consumer protection principles that financial institutions should consider as borrowers affected by the Coronavirus pandemic near the end of their initial accommodation periods.

For those who continue to experience financial hardship, the statement encourages financial institutions to consider additional accommodation options, consistent with applicable laws and regulations, that can ease cash flow pressures, improve the borrower’s capacity to service the debt and facilitate the collection of payments.

The statement lays out five core principles for financial institutions to consider:

Home Mortgage Disclosure Act

Beginning this year, financial institutions that report at least 60,000 HMDA reportable transactions in a calendar year are required to report their HMDA data on a quarterly basis. On March 26th, the Consumer Financial Protection Bureau (CFPB) issued a policy statement informing these large-volume filers that it does not intend to cite in an examination or initiate an enforcement action against these institutions for failure to submit their HMDA data quarterly. The policy statement provides that at a later date the CFPB will provide information to large-volume filers as to when they will be expected to resume quarterly submissions.

Update: The CFPB rescinded this policy statement effective April 1, 2021. Large-volume filers required to submit their HMDA data on a quarterly basis are expected to resume their quarterly submissions not later than May 31, 2021 (including all covered loans and applications with a final action taken date between January 1 and March 31, 2021).

Quarterly Submission of Consumer Credit Card Agreements

Under §1026.58 of Regulation Z, any card issuer with 10,000 or more open credit card accounts is required to submit the agreements covering those credit cards to the CFPB on a quarterly basis. On March 26th, the CFPB issued a policy statement informing card issuers that it does not intend to cite in an examination or initiate an enforcement action against these issuers for failure to submit their credit card agreements on a quarterly basis. The policy statement provides that at a later date the CFPB will provide information to card issuers as to when they will be expected to resume quarterly submission of their credit card agreements.

Update: The CFPB rescinded this policy statement effective April 1, 2021. Card issuers are expected to submit their consumer credit card agreements for all four quarters of 2020 and the first quarter of 2021 not later than April 30, 2021.

Prepaid Account Agreements

Under §1005.19 of Regulation E, an institution with 3,000 or more open prepaid accounts is required to submit the agreements covering those accounts to the CFPB on a rolling basis. On March 26th, the CFPB issued a policy statement informing these institutions that it does not intend to cite in an examination or initiate an enforcement action against these institutions for failure to submit their prepaid account agreements. The policy statement provides that at a later date the CFPB will provide information to these institutions as to when they will be expected to resume submission of their prepaid account agreements.

Update: The CFPB rescinded this policy statement effective April 1, 2021. Prepaid account issuers are expected to ensure that their agreements on file with the Bureau as of April 30, 2021 are current through the first quarter of 2021. Thereafter, issuers must resume making submissions to the CFPB on a rolling basis.

Mortgage Servicing Supervisory and Enforcement Practices

On April 3rd, the joint agencies issued a statement on supervisory and enforcement practices regarding a number of the mortgage servicing rules found under federal law. In addition, the statement provided additional details with regard to CARES Act forbearances.

The Coronavirus Aid, Relief and Economic Security (CARES) Act provides that borrowers with a federally backed mortgage loan experiencing financial hardship as a result of the COVID-19 emergency may request a forbearance. Financial institutions are required to provide a forbearance for up to 180 days upon receipt of an attestation from the borrower that he/she is experiencing a financial hardship as a result of the COVID-19 emergency. The forbearance period may be extended for up to an additional 180 days if the borrower makes such a request during the initial forbearance period.

With regard to the mortgage servicing rules…

Loss Mitigation Procedures

A CARES Act forbearance is considered a short-term loss mitigation option. As a result, a CARES Act forbearance is exempt from most of the loss mitigation procedural requirements found in Section 1024.41 of Regulation X.

Early Intervention Requirements

Section 1024.39 of Regulation X requires large servicers to make a good faith attempt to establish live contact with a delinquent borrower not later than the 36th day of the borrower’s delinquency. In addition, large servicers must provide a written notice not later than the borrower’s 45th day of delinquency. The joint agency statement provides that the regulators do not intend to cite in an examination or bring an enforcement action against a large servicer for its failure to strictly adhere to these timing requirements.

Continuity of Contact Provisions

Large servicers struggling to staff their customer service call centers during the COVID-19 emergency are reminded that they have discretion in determining whether to assign a single person or a team of personnel to a delinquent borrower.

Annual Escrow Account Statements

Generally, mortgage servicers are required to provide an annual escrow account statement within 30 days of completion of the escrow account computation year. The joint agency statement provides that the regulators do not intend to cite in an examination or bring an enforcement action against a mortgage servicer for its failure to strictly adhere to this timing requirement.

Payoff Statements

Section 1026.36 of Regulation Z requires mortgage servicers to respond to a request for a payoff statement within seven business days. The joint agency statement provides that servicers unable to strictly adhere to this timing requirement as a result of the COVID-19 emergency may provide a payoff statement within a reasonable period of time.

You can access the joint statement here.

CFPB Issues Credit Reporting Guidance

In accordance with the recently passed CARES Act, the CFPB issued a policy statement reminding financial institutions of their responsibility to report to consumer reporting agencies that a borrower is current, even if the borrower has sought relief (e.g. loan payment deferral or modification) as a result of the COVID-19 pandemic.

Under Section 1022.43 of Regulation V, a consumer may initiate a direct dispute with a financial institution to challenge the accuracy of information reported by that financial institution to a consumer reporting agency. Generally speaking, an investigation must be conducted within 30 days. The CFPB’s policy statement provides that it does not intend to cite in an examination or bring an enforcement action against a financial institution that does not strictly adhere to the 30-day time limit.

Update: The CFPB rescinded the portion of this policy statement related to Section 1022.43 of Regulation V. Effective April 1, 2021, financial institutions are expected to conduct an investigation of a direct dispute within 30 days.

Appraisals

The Federal National Mortgage Association (Fannie Mae) is extending temporary appraisal requirement flexibilities for lenders struggling to obtain a full appraisal (with a full interior inspection) during the COVID-19 emergency. In its Lender Letter (LL-2020-04), Fannie Mae identifies the types of appraisals that it will accept, in order of preference:

• Traditional Appraisal
• Desktop Appraisal
• When performing a desktop appraisal, the appraiser relies on public records, multiple listing service (MLS) information and other third-party data sources to identify the characteristics of the subject property. A desktop appraisal should contain the following exhibits –
• A location map indicating the location of the subject property and any comparables, and
• Photographs of the subject property
• The appraiser should include both exterior photographs as well as photographs of the interior as supplied by the borrower
• Exterior-Only Appraisal
• An exterior-only appraisal should contain the following exhibits –
• A street map that shows the location of the subject property and any comparables,
• Photographs of the subject property, and
• The appraiser should include both exterior photographs as well as photographs of the interior as supplied by the borrower
• Any other data (as an attachment or addendum to the appraisal report) that is necessary to provide an adequately supported opinion of market value

The temporary appraisal requirement flexibilities are effective immediately and apply to all loans with an application date on or before May 17, 2020. You can view Fannie Mae’s Lender Letter here.

In addition, the joint agencies have issued an interim final rule providing for a new temporary exception to the mandatory appraisal requirement. While the agencies continue to encourage financial institutions to make a good faith effort to obtain a full appraisal; if necessary, an institution may delay the requirement for a full appraisal for up to 120 days from the date of closing.

This exception is not applicable to transactions for the acquisition, development, or construction of real estate. In addition, the temporary exception will sunset on December 31, 2020.

GSEs Announce Extended Timeline fo URLA Implementation

On April 14, 2020, Freddie Mac and Fannie Mae (the GSEs) announced that they are extending the implementation timeline for the redesigned Uniform Residential Loan Application (URLA). The announcement indicates that the timeline is being extended to support the industry during the COVID-19 pandemic, providing lenders additional time to make the necessary updates to their systems, policies, and procedures. The revised timeline is shown below:

• August 1, 2020 – Limited Production Begins
• Lenders that meet certain eligibility requirements may begin submitting the redesigned URLA
• January 1, 2021 – Open Production Begins
• All lenders may begin submitting the redesigned URLA
• March 1, 2021 – Mandated Effective Date
• All lenders must begin submitting the redesigned URLA
• March 1, 2022 – Retirement Date
• The current URLA will be retired

To view the announcement, click here.

COVID-19 Considered a Personal Financial Emergency for Purposes of Regulation Z

On April 29th, the CFPB issued an interpretive rule declaring COVID-19 as a personal financial emergency for purposes of Regulation Z.

Under Regulation Z, in connection with closed-end consumer credit transactions secured by real property, financial institutions must provide a Loan Estimate not later than 7 business days before closing and a Closing Disclosure not later than 3 business days before closing. The regulatory language permits a consumer to waive these waiting periods in the event he/she is experiencing a bona fide personal financial emergency.

Also, under Regulation Z, for transactions in which a financial institution will acquire or retain a security interest in the consumer’s principal dwelling (except for purchase money transactions), the consumer must be given a 3-day right to cancel. This waiting period may also be waived in the event the consumer is experiencing a bona fide personal financial emergency.

To exercise these waivers, the consumer must provide the financial institution with a written statement that:

• Describes the nature of the personal financial emergency,
• Makes a specific request to waive the applicable waiting period, and
• Is signed by all parties primarily liable on the legal obligation or entitled to exercise the right to cancel.

Matters Specific to Credit Unions

Annual Meeting Guidance

Federally-chartered credit unions (FCU’s) concerned about moving forward with their regularly scheduled in-person annual meeting were provided some relief by the National Credit Union Administration (NCUA). The guidance provides that an FCU’s board of directors may adopt by a two-thirds vote an amendment to its bylaws to hold its annual meeting virtually without satisfying an in-person quorum. The FCU must have the technological capacity to facilitate virtual meeting attendance, participation and voting. In addition, the FCU must provide its membership at least 7 days advance notice of its change to a virtual meeting format and appropriate instructions for how to join, participate and vote during the virtual meeting. NCUA’s Letter to Federal Credit Unions 20-CU-02 is available here.

Coronavirus Operations FAQs

The NCUA has also published an FAQ document regarding operations during the Coronavirus outbreak. Among other things, the document identifies the considerations that must be made by credit unions before restricting access or closing facilities and how COVID-19 is impacting the NCUA’s examination and supervision program. You can find the NCUA’s FAQ document here.

Responsible Small Dollar Lending

On March 26th the joint agencies issued a statement encouraging responsible small dollar lending. In follow-up, the NCUA issued Letter to Credit Unions 20-CU-04 available here. The letter reminds FCU’s of their ability to originate both PAL I and PAL II payday alternative loans.

Requirements specific to PAL I loans:

• Must be for an amount between $200 and $1,000
• Must be for a term between one month and six months
• The consumer must be a member of the FCU for at least one month before receiving a PAL I loan

Requirements specific to PAL II loans:

• Must be for an amount not to exceed $2,000
• Must be for a term between one month and 12 months

Requirements applicable to both PAL I and PAL II loans:

• The loan must be fully amortized
• A member may only have one PAL I or PAL II loan outstanding at any given time
• The FCU may not provide more than three PAL I or PAL II loans to a member in any rolling 6-month period
• The FCU may not rollover a PAL I or PAL II loan
• The FCU may not charge an application fee in excess of $20
• The aggregate amount of PAL I and PAL II loans extended by an FCU may not exceed 20% of its net worth

NCUA Offers Temporary Regulatory Relief in Response to the COVID-19 Pandemic

Federal Credit Union Occupancy

Under §701.36 of the NCUA’s rules and regulations, a federal credit union must dispose of property that is not being used to conduct credit union business within 5 years. The NCUA will not require an FCU to count any time period between now and December 31, 2020 toward this 5-year timing requirement.

Loan Participations

Under §701.22 of the NCUA’s rules and regulations, a federally insured credit union’s aggregate amount of loan participations purchased from any one originating lender may not exceed the greater of $5 million or 100% of the credit union’s net worth. The NCUA is temporarily increasing this threshold to $5 million or 200% of the credit union’s net worth until December 31, 2020.

Call Reports

The NCUA will not take action against any credit union for submitting its March 31st call report after the respective filing deadline as long as the report is submitted within 30 days of the official filing date (Sunday, April 26th).