Proposed Revisions to Flood Insurance Q & As

The federal agencies that supervise banks, thrifts, and credit unions, and the Farm Credit System, published guidance last week that updates the Interagency Questions and Answers Regarding Flood Insurance that were most recently published on July 21, 2009 at 74 FR 35914-35947.

The guidance finalizes two questions and answers that had been previously proposed.

The agencies request comment on three additional proposed updates to questions and answers relating to force placement of flood insurance.

It is the intention of the agencies that, after public comment has been received and considered and the guidance has been adopted in final form, the agencies will issue a final update to the 2009 Interagency Questions and Answers Regarding Flood Insurance. The final update will continue to supplement other guidance or interpretations issued by the agencies and the Federal Emergency Management Agency.

What's New: Annual adjustments for reserve calculations and deposit reporting

The Federal Reserve Board announced this week, the annual indexing of the reserve requirement exemption amount and of the low reserve tranche for 2012. These amounts are used in the calculation of reserve requirements of depository institutions. The Board also announced the annual indexing of the nonexempt deposit cutoff level and the reduced reporting limit that will be used to determine deposit reporting panels effective 2012. See Reserve Requirements in The Gold Book.

What's New: IRS Announces 2012 Pension Plan Limits

The Internal Revenue Service announced today the cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2012. In general, many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged. See Cost-of-Living Adjustments as well as Traditional IRA Deductions and Roth Contribution Phaseouts.

What's New: NYS Fee Prohibition

Effective April 19, 2011, the NYS General Business Law section 399-zzz prohibits financial institutions from charging fees when sending paper billing statements through the mail.

Financial institutions may not charge fees or impose a higher rate on a loan product or other service if they have to send paper billing statements or if their customers want to make a payment through the mail. Also, there is no prohibition from offering a consumer a credit or other incentive to choose to make such payments or to receive billing statements by some other means, i.e., on-line.  Thus, an institution (creditor) could offer a lower rate or fee, or no fee or a non-financial incentive if its customer agrees to go “paperless”.  See Checking Accounts.

What's New: Use of Adverse Action Notices in Employment Actions

As of July 21, 2011, The Dodd-Frank Wall Street Reform and Consumer Protection Act established additional requirements that employers must follow if they use consumer reports in making employment decisions to hire applicants or deny promotions to current employees. Refer to Fair Credit Reporting Act in the Human Resources chapter of  The Gold Book.

What's New: Garnishment of Exempt Funds Rules

A new federal regulation that is intended to protect Federal benefit payments held in deposit accounts from the reach of creditors will impose significant new requirements on financial institutions. The rule, which became effective on May 1, 2011, established procedures banks must follow with respect to garnishments and limits the ability of banks to freeze or restrain bank accounts in which certain federal benefits have been paid by direct deposit.

For further information, please refer to the Legal Processes chapter of The Gold Book  and new sub-section, Garnishments.

What's New: Updated Gold Book Content

Sections of The Gold Book have been recently updated to reflect the repeal of Regulation Q (see Interest on Deposits ) and NYS changes to the handling of information subpoenas (see the update in a sub-section of the Adverse Claims chapter).

What's New: New Legislation - Information Subpoenas

On August 3, 2011, Governor Cuomo signed a new law which amends CPLR section 5224(a)(3) and adds subdivision 10 to section 601 and subdivision 3 to section 602 of the General Business Law.  These changes are intended to reduce the burden on financial institutions that receive many information subpoenas, with or without restraining notices, against deposit accounts.

For details, see Subpoenas and Subpoenas Duces Tecum in the Adverse Claims section of The Gold Book.

 

Repeal of Regulation Q

On July 14, 2011, the Fed repealed the Regulation Q prohibition on paying interest on demand deposit accounts, effective July 21, 2011.  Institutions that elect to pay interest on demand deposit accounts will not be able to offer such customers unlimited deposit insurance.  This may be more attractive to business customers who tend to keep larger checking or operating account balances.

With the advent of interest bearing checking accounts, this may herald the demise of retail repo or sweep accounts.  In these accounts funds from a demand deposit account are swept at the end of the day into a repo account either at the bank or through a third party brokerage service.  There the funds are able to earn interest until they are swept back into the demand deposit account the next morning.  Thus, for some institutions the repeal of the prohibition on paying interest on demand epposit accounts will result in the replacement of indirect interest payments on demand deposit accounts (the retail repo or sweep account structure) with explicit direct interest bearing demand deposit accounts.  This may depend on that rate banks are willing to offer on such accounts.

New York State Banking Board General Regulation Part 20, which largely mirrors Regulation Q, is likewise repealed.

The definition of interest under FDIC regulation section 321.1(c) has been moved to Part 330 (deposit insurance coverage), specifically the definition section at 330.1.

FDIC regulation section 329.103, which addresses the rules for the payment of premiums has also been moved to section 330.101.

Section 330.101 also now includes that section of former Regulation Q that allows a bank to pay a premium on a demand deposit account without it being deemed interest as long as the payment on the funds is not tied to the balance in the account and the duration of the account balance.  The origins of this rule came about years ago to enable institution to pay bonus or extra cash payments to ATM customers on a random basis when they performed certain ATM transactions.

Deposit Insurance Notice Requirement Regarding the Payment of Interest on Demand Deposit Accounts

Under a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), insured depository institutions may pay interest on demand deposit accounts (DDAs) starting July 21, 2011. Under another section of the Dodd-Frank Act, the FDIC provides unlimited deposit insurance for noninterest-bearing transaction accounts through December 31, 2012.  If on or after July 21, 2011, an insured depository institution modifies the terms of a DDA so that the account may pay interest, the institution must notify affected customers that the account no longer will be eligible for unlimited deposit insurance coverage as a noninterest-bearing transaction account.

What's New: FFIEC Supplement to Authentication in an Internet Banking Environment

The FDIC, with the other FFIEC agencies, has issued the new guidance, which describes updated supervisory expectations regarding customer authentication, layered security, and other controls in an increasingly hostile online environment. Financial institutions will be expected to comply with the guidance no later than January 1, 2012.

The Gold Book chapter addressing Authentication for Internet Banking has been updated accordingly.

IRS Raises 2011 Mileage Rates Mid-Year

The IRS has recently issued announcement 2011-40 which provides for mid-year adjustments to the 2011 mileage rates. The rates were changed to reflect the increase in gas prices since last year.

Effective July 1, 2011, the business standard mileage rate will rise to 55.5 cents per mile and the medical/moving mileage rate to 23.5 cents per mile. The charitable standard mileage rate remains at 14 cents per mile for the remainder of 2011.

The standard mileage rate is used by taxpayers to deduct costs of operating vehicles for business purposes. The standard rate is also used by many businesses to reimburse employees for mileage. The moving/medical rates are used to compute deductible costs of operating a vehicle for medical or moving purposes. The charitable mileage rate is used to determine vehicle costs for charitable purposes.

Regulation Q Repealed

The Federal Reserve Board on announced the approval of a final rule to repeal its Regulation Q, which prohibits the payment of interest on demand deposits by institutions that are member banks of the Federal Reserve System.

The final rule implements Section 627 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which repeals Section 19(i) of the Federal Reserve Act in its entirety effective July 21, 2011. The repeal of that section of the Federal Reserve Act on that date eliminates the statutory authority under which the Board established Regulation Q.

The rule also repeals the Board's published interpretation of Regulation Q and removes references to Regulation Q found in the Board's other regulations, interpretations, and commentary.

The Board's notice for the final rule may be found here: http://www.gpo.gov/fdsys/pkg/FR-2011-07-18/html/2011-17886.htm

What's New: Abandoned Property Chapter Updated

In addition to the change of inactivity periods which have been updated in The Gold Book, there are a few other notable changes to the NYS Abandoned Property Laws.

• financial institutions are no longer required to file preliminary reports


• financial institutions are no longer required to file negative reports


• Form AC2709, VERIFICATION AND CHECKLIST FOR UNCLAIMED PROPERTY is updated as of May 2011


• Form AC2709 no longer has to be notarized


• Many of the contact addresses for unclaimed funds have changed

To see the new Form AC2790 click here: http://www.osc.state.ny.us/ouf/forms/ac2709.pdf

A new page summarizing the reporting process has been added to The Gold Book.

Abandoned Property Updates Underway

Please be advised that on March 31, 2011, New York passed amendments to the Abandoned Property Law. The new law, effective immediately and due with the next reporting cycle, provides the following:

Lower dormancy periods (from 5 years to 3 years) for the following property types:

• Money or securities held in escrow, but excluding escrow accounts for which the duty or obligation for which such amount was deposited has not been performed and such performance is still required


• Amounts due on deposits or any amount to which a shareholder of a savings and loan or a credit union is entitled


• Accumulations of interest or other increments held by a bank for payment of an interest in a bond and mortgage apportioned or transferred by it

In addition to adjusting dormancy periods, the new law also amended New York’s reporting provisions.  There are three major changes to keep in mind for your next report to New York:

1.       Publication requirements: Every banking organization must publish on or before September 1st of each year a notice naming potential owners of unclaimed property being held by the banking organization.  This provision provides a little more flexibility in that the previous requirement mandated that the banking organization had to publish the notice within 30 days of filing their report.

2.       Preliminary reports no longer required: Certain industries (mainly in the financial services industry) were required to file a preliminary report and conduct a publication prior to remitting a final report/remittance.  This bill removes the preliminary report requirement.  The bill further confirms the reporting deadlines and cut-off dates.  Once the statutory due diligence and publication requirements have been satisfied, the report and remittance would be due (for banking institutions) by November 10th.

3.       Miscellaneous: NY State law still mandates that all unclaimed funds valued at $20 and higher follow the statutory due diligence requirements.  The State Controller’s Office posts all owners entitled to property valued at $20 and higher on their website for at least one year.Gift cards remain at a 5 year dormancy period.

Please check back soon for as we continue to update the Abandoned Property section of The Gold Book.

Abandoned Property Law Changes

New abandoned property law changes for NYS are effective immediately.  Notably, the escheatment period for deposit accounts has been reduced from 5 to 3 years, and the reduction in time period applies to other types of abandoned property as well.  The November report must reflect the new time period.  Other changes have been made in the law regarding preliminary reports and publication requirements.

Check back soon for updated information and news about updates to the abandoned property section of The Gold Book.

Proposed Reg Z Rule

Federal Reserve proposes rule under Regulation Z pertaining to a consumer's ability to repay a mortgage and minimum mortgage underwriting standards.

The Federal Reserve Board on Tuesday requested public comment on a proposed rule under Regulation Z that would require creditors to determine a consumer's ability to repay a mortgage before making the loan and would establish minimum mortgage underwriting standards.

The revisions to the regulation, which implements the Truth in Lending Act (TILA), are being made pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposal would apply to all consumer mortgages (except home equity lines of credit, timeshare plans, reverse mortgages, or temporary loans).

Consistent with the act, the proposal would provide four options for complying with the ability-to-repay requirement.

• First, a creditor can meet the general ability-to-repay standard by considering and verifying specified underwriting factors, such as the consumer's income or assets.


• Second, a creditor can make a "qualified mortgage," which provides the creditor with special protection from liability provided the loan does not have certain features, such as negative amortization; the fees are within specified limits; and the creditor underwrites the mortgage payment using the maximum interest rate in the first five years. The Board is soliciting comment on two alternative approaches for defining a "qualified mortgage."


• Third, a creditor operating predominantly in rural or underserved areas can make a balloon-payment qualified mortgage. This option is meant to preserve access to credit for consumers located in rural or underserved areas where banks originate balloon loans to hedge against interest rate risk for loans held in portfolio.


• Finally, a creditor can refinance a "non-standard mortgage" with risky features into a more stable "standard mortgage" with a lower monthly payment. This option is meant to preserve access to streamlined refinancings.

The proposal would also implement the Dodd-Frank Act's limits on prepayment penalties.

The Board is soliciting comment on the proposed rule until July 22, 2011. General rulemaking authority for TILA is scheduled to transfer to the Consumer Financial Protection Bureau on July 21, 2011. Accordingly, this rulemaking will not be finalized by the Board.

The Board's notice for the proposed rule can be found here:

Highlights of Proposed Ability-to-Repay Rules (26 KB PDF)

Notice (1.15 MB PDF)

FDIC Overdraft Payment Guidance Q & A

The FDIC recently released a FAQ (Q & A) in response to the Overdraft Payment Supervisory Guidance issued in November 2010.

It can be found here:
http://www.fdic.gov/news/conferences/overdraft/FAQ.pdf

What's New: Federal Reserve Holiday Schedule

The Federal Reserve holiday schedule has been updated through 2015.

New ATM Design Standards

The US Department of Justice recently issued Design Standards for facilities including financial institutions ATMs. Section 220 of the 2010 Design Standards adds specific technical requirements for speech output, privacy, tactilely discernible output and output controls, display screens and Braille instructions. ATMs will be required to be speech enabled.

Institutions considering the purchase of new ATMs should consult the 2010 Design Standards either at the American with Disabilities Act home page or the Department of Justice website.

Although the standards are not yet mandatory, banks should check with ATM vendors for more information regarding future hardware and software requirements.