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On July 14, 2011, the Fed repealed the Regulation Q prohibition on paying interest on demand deposit accounts, effective July 21, 2011.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New York State Banking Board General Regulation Part 20, which largely mirrors Regulation Q, is likewise repealed.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.

Proposed Reg CC Amendments: Collection of Checks and Funds Availability

The Federal Reserve Board has requested public comment on proposed amendments to Regulation CC (Availability of Funds and Collection of Checks) to encourage banks to clear and return checks electronically, add provisions that govern electronic items cleared through the check-collection system, and shorten the "exception" hold periods on deposited funds.

To encourage electronic collection and return of checks between banks, the proposal provides that a depositary bank would be entitled to the expeditious return of a check only if it agrees to receive returned checks electronically. In addition, the proposal would permit the bank responsible for paying a check to require that checks presented to it for same-day settlement be presented electronically. More generally, the proposal would apply Regulation CC's collection and return provisions, including warranties, to electronic check images that meet certain requirements.

Additionally, due to the faster collection and return timeframes that result from electronic collection and return, the proposal would shorten the safe-harbor period for an exception hold to four business days, which should enable the depositary bank to learn of the return of virtually all unpaid checks before being required to make these deposits available for withdrawal.

NJ passes bill to encourage banks to locate in underserved areas

A bill intended to encourage banks to locate in underserved communities received final legislative approval last week. If signed into law by Gov. Christie, the legislation would allow the creation of special districts in communities with few or no financial institutions.

Banks that locate in those districts would be eligible to hold State Treasury funds, and municipalities could choose such banks to hold their municipal deposits. Both steps would help to boost profitability and thereby serve as an incentive to locate in the districts.

"In many urban areas, residents are relegated to using check-cashing stores for their banking needs and forced to pay service fees that are disproportionately higher than those at established financial institutions," said Sen. Donald Norcross (D., Camden), a sponsor of the bill. "By providing incentives for banks to open in underserved communities, we will help provide fairer access to the banking services that residents depend on and prevent people from having to pay unnecessary and burdensome costs for basic financial transactions."

Modeled on a program in New York, the New Jersey legislation was created after the sudden closure of a Bank of America branch in Jersey City that left many residents without access to a local bank.

FinCEN Rule Strengthens SAR Confidentiality

FinCEN Rule Strengthens SAR Confidentiality;
Provides Guidance to Permit Sharing with Affiliates

VIENNA, Va. – The Financial Crimes Enforcement Network (FinCEN) today released a final rule – Confidentiality of Suspicious Activity Report as well as an advisory, and two guidance documents, and a Notice of Availability of Guidance that together clarify and strengthen the scope of Suspicious Activity Report (SAR) confidentiality, and expand the ability of certain financial institutions to share SAR information with most affiliates.

“FinCEN’s SAR confidentiality regulations along with parallel best practices guidance on sharing SAR information, also issued today, promote the protection of SAR information while seeking to ensure that the appropriate parties, but only those parties, have access to SARs,” said FinCEN Director James H. Freis, Jr. “It is essential to the partnership between the financial industry and government that sensitive financial information reported to FinCEN be protected. As to the newly issued guidance, we believe that allowing information sharing among affiliates will help the financial industry protect itself from abuses of financial crime, be consistent with industry efforts to strengthen enterprise-wide risk management, and also promote the reporting of even more useful information to FinCEN and law enforcement investigators,” said Freis.

The regulations clarify the scope of the statutory prohibition against the disclosure by a financial institution or by a government agency of a SAR or any information that would reveal the existence of a SAR.

The related advisory, Maintaining the Confidentiality of SARs is intended for all Bank Secrecy Act stakeholders: federal and state regulatory agencies, law enforcement, self-regulatory organizations, and financial institutions. The advisory emphasizes the importance of confidentiality for maintaining a vigorous suspicious activity reporting regime, and intends to help focus BSA stakeholders to be vigilant in managing information sharing.

In addition, FinCEN produced a pair of guidance documents for depository institutions and for the securities and futures industries that interpret a provision in the SAR confidentiality rules.

These guidance documents complement FinCEN’s previous guidance for banks and securities and futures industries, which permitted the sharing of SARs with head offices and parent companies. The new guidance allows for the sharing of a SAR with a domestic affiliate, provided that affiliate is itself subject to a SAR rule. The affiliates must be linked under a common ownership and cannot themselves be the subject of the SAR. The guidance made public today clarifies that sharing with foreign affiliates is not permitted at this time.

FinCEN developed the new rule, advisory, guidance, and notice in consultation with the Federal Banking Agencies, Securities and Futures Regulators, and the Internal Revenue Service.

The final rule and guidance become effective 30 days after publication in the Federal Register.

Find FinCEN’s responses to public comments received on the guidance as it was proposed and additional information regarding the effective date and the rationale for the guidance in FinCEN’s Notice of Availability of Final Interpretative Guidance.

IRS Announces 2011 Standard Mileage Rates

On Friday December 3, 2010, the Internal Revenue Service announced the 2011 optional standard mileage rates to be used for calculating the deductible costs of an automobile for business, charitable, medical or moving purposes. These are the rates used to determine the amount of an employee’s ordinary and necessary expenses of local travel or transportation away from home that may be reimbursed.

The 2011 rates are as follows:

• 51 cents per mile for business miles driven


• 19 cents per mile for medical or moving miles driven


• 14 cents per mile for miles driven in service of charitable organizations

Deposit Insurance Coverage for Noninterest-Bearing Transaction Accounts Free Nationwide Seminars for Bank Employees

The FDIC will host two identical telephone seminars for bank officers and employees that will explain the insurance coverage rules and disclosure requirements regarding the new temporary unlimited insurance coverage for noninterest-bearing transaction accounts at all FDIC-insured depository institutions. Each seminar will consist of a 30-minute audio and slide presentation, followed by a one-hour question-and-answer period. The seminars, which are free to officers and employees of FDIC-insured banks and savings associations, will be conducted on December 14 and December 16, 2010.

For registration information, visit this FDIC link.

Overdraft Payment Programs and Consumer Protection Final Overdraft Payment Supervisory Guidance

The FDIC expects financial institutions' boards of directors and management to ensure that the institution mitigates the risks associated with offering automated overdraft payment programs and complies with all consumer protection laws and regulations, including providing clear and meaningful disclosures and other communications about overdraft payment programs, fees, and other features and options, and demonstrating compliance with new opt-in requirements for automated teller machine (ATM) withdrawals and one-time point-of-sale debit card transactions. In addition, the FDIC expects financial institutions to:

• Promptly honor customers' requests to decline coverage of overdrafts (i.e., opt-out) resulting from non-electronic transactions;


• Give consumers the opportunity to affirmatively choose the overdraft payment product that overall best meets their needs;


• Monitor accounts and take meaningful and effective action to limit use by customers as a form of short-term, high-cost credit, including, for example, giving customers who overdraw their accounts on more than six occasions where a fee is charged in a rolling twelve-month period a reasonable opportunity to choose a less costly alternative and decide whether to continue with fee-based overdraft coverage;


• Institute appropriate daily limits on overdraft fees; and consider eliminating overdraft fees for transactions that overdraw an account by a de minimis amount; and


• Not process transactions in a manner designed to maximize the cost to consumers.

For more on the topic, visit The Gold Book chapters: Bounce Protection and Overdraft Services Consent.

New Law Makes ATM Theft A Crime

On August 30, 2010, Governor Paterson signed S5536-A, which became Chapter 464 of the laws of 2010.  The law amends Penal Law sections 155.35 and 155.43 to make it a crime to steal an ATM or its contents.

The crime is classified as grand larceny in the 3^rd degree, a Class D felony.

If a person steals an ATM or its contents and has been previously convicted of grand larceny in the 3^rd degree within the previous five years, such crime is classified as aggravated grand larceny, a Class C felony.

For additional information on ATMs see Automatic Teller Machines.

The Penal Law changes became effective on November 1, 2010.