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Agencies issue joint statement on loan modifications and reporting for financial institutions
On March 22, the Federal Reserve Board (Fed), CFPB, FDIC, NCUA, OCC, and Conference of State Bank Supervisors (CSBS) issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” to address the “unique and evolving situation” created by Covid-19. Guidance covered in the statement includes, among other things (i) “encourage[ing] financial institutions to work prudently with borrowers” negatively impacted by disruptions in the economy caused by the virus, to include providing loan modifications to borrowers and mitigating credit risk; (ii) advising that in “accounting for loan modifications” the modifications “do not automatically result in [troubled debt restructurings] (TDRs).” The agencies assert 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”; (iii) reporting loans as past due as a result of a payment deferral is “not expected”; (iv) reporting short-term loan arrangements, such as deferrals, as nonaccrual assets is temporarily not required; and (v) reminding financial institutions that restructured loans “continue to be eligible as collateral at the [Fed’s] discount window.” The statement adds that “the agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk,” and “agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.” (See Fed press release; OCC press release; FDIC press release and FIL-22-2020; NCUA press release; CFPB press release; and CSBS press release.)
Fed encourages use of discount window
On March 16, the federal bank regulatory agencies issued a statement encouraging depository institutions to use the Federal Reserve’s discount window to meet household and business demands for credit.
Fed encourages banks to use capital and liquidity buffers
On March 15, the Federal Reserve issued a press release that, among other things, encouraged banks to use their capital and liquidity buffers to lend to households and businesses and announced that reserve requirement ratios will be reduced to 0% effective March 26. The Federal Reserve, OCC, and FDIC issued a joint press release on March 17 with the same encouragement.
Fed agencies encourage flexibility in light of Covid-19 crisis
On March 13, the OCC, FDIC, and NCUA issued guidance on March 13 that borrows heavily from the Federal Reserve’s 2013 Guidance SR 13-6 / CA 13-3: Supervisory Practices Regarding Banking Organizations and Their Borrowers and Other Customers Affected by a Major Disaster or Emergency to address how institutions can work prudently with affected customers and how the agencies can provide regulatory relief in a safe and sound manner to institutions.
Releases by the FDIC (FIL-17-2020, OCC (Bulletin 2020-15, and NCUA (Letter 20-CU-02, along with the Fed’s 2013 Guidance all encourage financial institutions to be flexible in working with all borrowers affected by the coronavirus outbreak, with the FDIC especially calling out customers in vulnerable industry sectors such as airlines, energy, travel, tourism, shipping, and small businesses.The guidance suggests the following efforts to aid customers: (i) waiving certain fees (e.g. ATM, overdraft, and late payments); (ii) increasing ATM daily withdrawal limits; (iii) easing restrictions on check-cashing; (iv) increasing credit card limits for creditworthy borrowers; (v) offering payment accommodations (e.g. extending due dates and allowing deferrals); and (vi) working with consumers temporarily unable to work due to business closures, slowdowns, or sickness. The regulators also encourage prudent efforts to modify terms of existing loans, and in the OCC’s guidance, to consider easing terms on new loans in a manner consistent with prudent banking practices.
The regulators stated their intent to work with institutions to reduce the burden of examinations, including making greater use of off-site reviews, and not to assess penalties or take other supervisory actions if institutions are unable to comply with reporting requirements despite reasonable and prudent efforts. The guidance also encourages institutions that need to temporarily close physical locations to offer alternative service options when practical and to notify their primary federal or state regulator and customers about temporary closures and alternative service options as soon as practical.
Fed agencies issue Covid-19 guidance
On March 9, the Federal Reserve, CFPB, FDIC, NCUA, OCC, and CSBS issued a joint release encouraging institutions to “work constructively with borrowers and other customers in affected communities” and stating that “prudent efforts consistent with safe and sound lending practices should not be subject to examiner criticism.” The agencies also acknowledged that institutions would face staffing and other challenges and committed to expedite requests to provide more convenient availability of services and work to minimize the disruption and burden of examinations and inspections.
OCC issues Comptroller’s Handbook booklet updating deposit-related credit guidance
On March 12, the OCC issued Bulletin 2020-14 announcing the revision of the Deposit-Related Credit booklet of the Comptroller’s Handbook that was issued in September 2018. The revised booklet provides guidance for OCC examiners in connection with the examination and supervision of national banks, federal savings associations, and federal branches and agencies of foreign banking organizations that provide small-dollar, unsecured credit products and services such as check credit, overdraft protection, and deposit advance products. The revised booklet includes, among other things, (i) updated guidance following the rescission of OCC Bulletin 2018-28, Deposit-Related Credit: Updated Comptroller’s Handbook Booklet Advance Products (previously covered by InfoBytes here); (ii) changes to OCC issuances, laws, and regulations made since the last booklet; (iii) information explaining the applicability of references to covered savings associations; and (iv) clarifying edits regarding supervisory guidance and sound risk management practices. An appendix containing a sample request letter is also included.
Financial regulators provide supervisory relief, and VA encourages mortgage relief to veterans after Tennessee tornadoes
On March 12, the OCC, Federal Reserve Board, FDIC, NCUA, and the Tennessee Department of Financial Institutions issued an interagency statement on supervisory practices for financial institutions affected by the recent tornadoes in Tennessee. Among other things, the agencies called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should also contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas. In FIL-16-2020, the FDIC further encouraged supervised institutions to consider, among other things, (i) extending repayment terms; (ii) restructuring existing loans; or (iii) easing terms for new loans to affected borrowers, if done in a manner consistent with sound banking practices. The FDIC stated it will also consider regulatory relief from certain filing and publishing requirements.
Separately, on March 10, the Department of Veterans Affairs (VA) issued Circular 26-20-5 to encourage mortgagees to provide relief for VA borrowers affected by the recent tornadoes in Tennessee. The Circular encourages loan holders and servicers to (i) extend forbearance to distressed borrowers and to members of the National Guard assisting in the recovery efforts; (ii) establish a 90-day moratorium on initiating new foreclosures; (iii) waive late charges; and (iv) suspend credit reporting on affected loans. The Circular will be rescinded April 1, 2021. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief guidance here.
Regulatory agencies issue pandemic planning statement
On March 6, the Federal Reserve, FDIC, OCC, NCUA, Conference of State Bank Supervisors, and the CFPB—through the Federal Financial Institutions Examination Council—issued an Interagency Statement on Pandemic Planning, which, among other things, updates 2006 and 2007 guidance on the need for business continuity plans (BCPs) that address the effects of pandemics. The interagency statement encourages banks to develop plans that, among other things, limit disruption of operations, minimize staff contact by utilizing remote access, and plan for staffing challenges by cross-training bank staff. The statement recommends that the BCPs of financial institutions should include: (i) a preventive program; (ii) a documented strategy that applies to the stages of the pandemic; (iii) a “comprehensive framework of facilities, systems, or procedures to ensure that the institution’s critical operations will continue” (iv) a testing program; and (v) an oversight program to ensure ongoing review and updates to the plan.” The statement also lists websites that offer information on pandemic planning activities. The FDIC and the OCC also published advisories, FIL-14-2020, and OCC 2020-13, respectively.
On March 9, the agencies issued a joint press release encouraging the financial institutions to “meet the financial needs of customers and members affected by” COVID-19. Also, the U.S. Senate sent a letter to trade associations encouraging them to provide job security for employees who self-quarantine or must miss work to take care of sick family members, and to ensure staff will not be required to use all sick leave/vacation leave or “report for work when such leave is exhausted.” The letter urges the entities to work with their customers by waiving late fees and overdraft fees among other measures. The Connecticut Department of Banking issued its own guidance as well regarding temporary remote work, and on March 5, the Washington Department of Financial Institutions issued similar guidance.
OCC proposes licensing policy changes
On March 5, the OCC announced a Notice of Proposed Rulemaking (NPR) and request for comment on proposed amendments that would update and clarify certain licensing policies and procedures and would revise its rules in 12 CFR part 5 to eliminate unnecessary requirements. Proposed changes include, among other things (i) allowing national and federal savings associations to “follow the procedures applicable to state banks or state savings associations…for certain business combinations”; (ii) expanding operating subsidiary notice and expedited review processes to include activities that are substantively the same as activities previously approved by the OCC; (iii) allowing “non-controlling investments and pass-through investments” in non-OCC supervised entities; (iv) creating procedures for citizenship and residency waivers for national bank directors; (v) redefining “troubled condition” in relation to director and senior executive officer changes; and (vi) adding chief risk officer to the list of positions for which a bank in troubled condition must provide notice when making a personnel change. Comments must be received by May 4.
OCC updates FAQs on third-party risk management
On March 5, the OCC released Bulletin 2020-10, which provides answers to frequently asked questions (FAQs) concerning its existing guidance on management of third-party relationships, including relationships with fintech firms and data aggregators. This bulletin, issued to supplement Bulletin 2013-29, “Third-Party Relationships: Risk Management Guidance,” rescinds (but incorporates the substance of) OCC Bulletin 2017-21 (covered by InfoBytes here). Key topics addressed in the new FAQs include:
- clarifying the definition of “third-party relationships” and “business arrangements”;
- outlining expectations for banks that have third-party relationships with cloud computing providers or data aggregators;
- addressing a bank’s reliance on and use of third party-provided reports, certificates of compliance, and independent audits;
- discussing risk management when a third party—such as a less established fintech firm, start-up, or other small business—has limited ability to provide the same level of financial information or other due diligence-related information as a more established third party;
- suggesting approaches for due diligence and ongoing monitoring in instances where the bank has limited negotiating power;
- addressing ways banks can offer products or services to underbanked/underserved populations through fintech third-party relationships;
- discussing considerations for banks when entering into a marketplace lending arrangement with a nonbank entity; and
- outlining measures to address risk management when obtaining alternative data from a third party that may be used by or on behalf of a bank.
The bulletin also reiterates that banks are expected “to practice effective risk management regardless of whether the bank performs an activity internally or through a third party,” and that a “bank’s use of third parties does not diminish the bank’s responsibility to perform the activity in a safe and sound manner and in compliance with applicable laws and regulations.”