What's New? Additional CRA Guidance

The Gold Book has been updated with additional OCC guidance and FAQs for financial institutions. Click here.

Considerations for Economic Impact Payments

Signed in March 2020, the CARES Act provides Economic Impact Payments (EIPs) to qualified consumers. The government is disbursing EIPs to people based on information contained within their 2018 or 2019 federal tax returns. Both electronic and physical EIPs are distributed in weekly cycles. As these stimulus funds begin to be distributed to individuals, certain questions and risks have arisen that financial institutions need to consider.

EIP Automated Clearing House (ACH) direct deposits returned by an institution will be redistributed as a physical check payment. Use caution when an EIP is received for deceased accountholders. EIPs are not subject to reclamation of funds by the Treasury Department and should be handled in accordance with the institution’s existing controls.

There are cases where an electronic EIP is received for a closed account. An institution may risk reputational harm returning the EIP if the closed account relates to an existing customer that’s readily identifiable. However, an institution may expose itself to liability if it distributes the funds to an incorrect party. Careful analysis should be performed with proper documentation if an institution chooses not to automatically return the EIP.

As a Receiving Depository Financial Institution (RDFI), the institution is protected by safe harbor if it exactly processes and posts the EIP in accordance with the instructions accompanying the transaction entry. Any change in depositing the funds into an account other than that received in the transaction entry, or subsequently transferring the funds to another account, will create potential liability. 

EIPs are not protected from offset by the financial institution for outstanding debts or overdrafts. New York has passed restrictions prohibiting institutions from claiming EIPs for such purposes. Institutions should review their core system settings to ensure that EIPs are not automatically applied to such pre-existing negative account balances. Different systems may require different process solutions.

As EIPs have Social Security Numbers (SSN) included in the payment transaction information, institutions must review IT controls to determine whether the SSN information will carry into the recording and reporting of the EIP through its online statements, physical paper statements, and mobile banking services. Fraud may exist in the creation of fraudulent EIP checks or the fraudulent transacting of valid EIP checks. Multiple deposits of EIP checks through remote deposit capture or mobile banking channels are other concerns that should be considered. Communication and training on potential fraud and identity theft red flags will be essential in combatting these risks.

IRS Postponement of Deadlines

IRS Forms 5498 reporting deadlines are postponed to August 31, 2020. 

The deadlines applicable to any of the following acts that would have fallen on or after April 1, 2020 and before July 15, 2020 have been postponed until July 15, 2020:

• Simplified Employee Pension (SEP) and Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) plan contributions
• Indirect rollovers from employer sponsored retirement plans to IRAs
• 2019 traditional IRA, Roth IRA, and HSA regular contributions -(from previous guidance)
• 2019 CESA regular contributions
• Rollovers between IRAs, between HSAs, and between CESAs
• 120-day rollover period for first-time home buyers
• Repayment of a Qualified Reservist Distribution
• Deadline to remove excess or unwanted IRA contributions

Extention of 5498 Filing Deadline

On May 28, 2020, the IRS issued Notice 2020-35, which further postpones, to August 31, 2020, the due date for filing with the IRS and furnishing to account holders Form 5498, IRA Contribution Information, Form 5498-ESA, Coverdell ESA Contribution Information, and Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information. Previously, on April 10, 2020, the IRS issued Notice 2020-23, which provided guidance that extended from June 1 to July 15 the deadline for filing and furnishing IRS Forms 5498 and 5498-SA.

FAQs on the CRA Related to COVID-19

Click here to read the Q & A.

OCC COVID-19 Information

The OCC is working cooperatively with all state and federal banking agencies and other organizations to assist regulated institutions and their customers in managing the impact of the outbreak. Accordingly, the OCC has provided links to information concerning the operation of financial institutions during the COVID-19 pandemic.

Click here to read more on the OCC website.

IRS: Withholding on certain periodic retirement and annuity payments

In Notice 2020-3, the IRS provided that, for 2020 the default rate of withholding on periodic payments will continue to be based on treating the taxpayer as a married individual claiming three withholding allowances when no withholding certificate is in effect.

Director, Shareholder, and Member Meetings: Interim Final Rule

The Office of the Comptroller of the Currency (OCC) is issuing an interim final rule that amends 12 CFR 5 and 7 to clarify that national banks and federal savings associations (FSAs) (collectively, banks) may permit telephonic and electronic participation at all board of directors, shareholder, and, as applicable, member meetings.

This interim final rule is effective on May 28, 2020. Comments on the interim final rule must be received no later than July 13, 2020.

Read more here on the OCC website.

NYS Provisions of Commercial Leases

A Local Law to amend the administrative code of the city of New York, in relation to personal liability provisions of leases for commercial tenants impacted by COVID-19 has been passed. This bill would temporarily prohibit the enforcement of personal liability provisions in commercial leases or rental agreements involving a COVID-19 impacted tenant. This would apply to businesses that were impacted by mandated closures and service limitations in the Governor's Executive Orders. Specifically, it covers (1) businesses that were required to stop serving food or beverages on-premises (restaurants and bars); (2) businesses that were required to cease operations altogether (gyms, fitness centers, movie theaters); (3) retail businesses that were required to close and/or subject to in-person restrictions; and (4) businesses that were required to close to the public (barbershops, hair salons, tattoo or piercing parlors and related personal care services). Threatening to or attempting to enforce such a provision would also be considered a form of harassment.

EIP RIsk Management

Signed in March 2020, the CARES Act provides Economic Impact Payments (EIPs) to qualified consumers. The government is disbursing EIPs to people based on information contained within their 2018 or 2019 federal tax returns. Both electronic and physical EIPs will be distributed in weekly cycles. As these stimulus funds begin to be distributed to individuals, certain questions and risks have arisen that financial institutions need to consider.

Operational Risks – Your institution has standard policies and procedures on processing ACH payments and specifically, tax refunds. These payments should follow these standard procedures with particular attention paid to unique situations with the goal of providing EIPs to consumers.

Closed Accounts – Some entries may reject if the account is closed. Your institution should consider if you have the ability to identify if the closed account is for an accountholder who opened a different account, or has left the institution. It may be difficult to explain to a current accountholder that the payment was received and returned. Accounts for existing customers may have changed for any number of reasons, including internal changes made to the core since the person filed either his or her 2018 or 2019 tax returns. Changes related to your core system that caused them not to get paid would be even more difficult to explain.   As mentioned above, any returned EIP will be redistributed via check.

Deceased Account holders – These payments should be handled in your institution’s usual manner. EIPs are NOT subject to reclamation, so the institution would not be liable to Treasury for the reclamation of these payments.

Handling Economic Impact Payment Challenges
Signed in March 2020, the CARES Act provides Economic Impact Payments (EIPs) to qualified consumers. The government is disbursing EIPs to people based on information contained within their 2018 or 2019 federal tax returns. Both electronic and physical EIPs will be distributed in weekly cycles. As these stimulus funds begin to be distributed to individuals, certain questions and risks have arisen that financial institutions need to consider.
Operational Risks – Your institution has standard policies and procedures on processing ACH payments and specifically, tax refunds. These payments should follow these standard procedures with particular attention paid to unique situations with the goal of providing EIPs to consumers.
Closed Accounts – Some entries may reject if the account is closed. Your institution should consider if you have the ability to identify if the closed account is for an accountholder who opened a different account, or has left the institution. It may be difficult to explain to a current accountholder that the payment was received and returned. Accounts for existing customers may have changed for any number of reasons, including internal changes made to the core since the person filed either his or her 2018 or 2019 tax returns. Changes related to your core system that caused them not to get paid would be even more difficult to explain.   As mentioned above, any returned EIP will be redistributed via check.
Deceased Account holders – These payments should be handled in your institution’s usual manner. EIPs are NOT subject to reclamation, so the institution would not be liable to Treasury for the reclamation of these payments.

Corporate Governance: Annual Meetings and the COVID-19 Emergency

The Office of the Comptroller of the Currency (OCC) recognizes the recent disruptions and significant challenges faced by banks1 as a result of the coronavirus disease (COVID-19) emergency. The OCC is issuing this bulletin in response to inquiries from banks that are considering changes to the date, time, or location of their annual meetings as a result of stay-at-home and similar orders and potential health concerns. The bulletin also addresses the specific regulatory requirements applicable to federal savings associations (FSA) that may seek to delay their annual meetings.

https://www.occ.gov/news-issuances/bulletins/2020/bulletin-2020-51.html

Payments and Deposit Rules Impacted by COVID-19

The CFPB issued FAQs related to pandemic relief measures for accountholders. The answers clarify that terms of checking, savings, or prepaid accounts can be changed immediately due to the pandemic, if changes are favorable to the consumer. Institutions are reminded of their advance notice obligations if changes are not favorable to the consumer. The Aid describes other types of immediate relief such as fee waivers and proactive outreach, adding a reminder that stop payment orders must be honored. This Compliance Aid does not impose any new or changed regulatory requirements.

The CFPB FAQs may be found here.

More information may be found in The Gold Book sections covering Checking Accounts, Regulation E and Regulation D.

FDIC Proposed Rulemaking

The Federal Deposit Insurance Corporation (FDIC) approved a notice of proposed rulemaking that would mitigate the deposit insurance assessment effects of participating in the Paycheck Protection Program (PPP) established by the U.S. Small Business Administration (SBA) and the Paycheck Protection Program Lending Facility (PPPLF) and Money Market Mutual Fund Liquidity Facility (MMLF) established by the Board of Governors of the Federal Reserve System. 

The PPP, PPPLF and MMLF were put in place to provide financing to small businesses and liquidity to small business lenders and the broader credit markets, and to help stabilize the financial system in a time of significant economic strain.  At the same time, PPP loans are fully guaranteed by the SBA, and transactions made with the PPPLF and MMLF are conducted with the Federal Reserve on a non-recourse basis.  The FDIC’s action today will ensure that banks will not be subject to significantly higher deposit insurance assessments for participating in these programs. 

The FDIC is proposing an effective date by June 30, 2020, and an application date of April 1, 2020, which would ensure that the changes are applied to assessments starting in the second quarter of 2020 and provide certainty to the IDIs regarding the assessment effects of these programs.  Comments on the proposed rule will be accepted for seven days after publication in the Federal Register.

Possible CRA Overhaul

Two federal banking regulators said at a May 12 hearing that they will move forward with their plans to overhaul the Community Reinvestment Act, indicating they may even speed up those efforts. Democrats on the Senate Banking Committee told the heads of the Office of the Comptroller of the Currency and the FDIC that local governments, civil rights groups and some bankers have called on the two agencies to pause their efforts to make major changes to the CRA as the country grapples with the ongoing effects of the coronavirus pandemic.

Easing Rules for PPP Lenders

The Federal Deposit Insurance Corp. approved a notice of proposed rulemaking that would ease the deposit insurance assessment effects for lenders participating in the Paycheck Protection Program, Paycheck Protection Program Lending Facility, and Money Market Mutual Fund Liquidity Facility. The changes would ensure that banks will not be subject to higher deposit insurance assessment rates solely for participating in the three programs.

What's New? Compliance Aid for PPP loans

The CFPB issued a Compliance Aid to provide FAQs on ECOA/Regulation B notification requirements for Payroll Protection Plan loan applications. Click here to read more in The Gold Book.

What's New? COVID Flood Insurance Compliance

On March 9, the Federal Reserve Board issued a statement to encourage financial institutions to meet the financial services needs of their customers and members in areas affected by the coronavirus. Since that time, the Federal Reserve Board has received questions from state member banks regarding flood insurance compliance requirements during the national emergency due to the COVID-19 outbreak. Two flood insurance questions and answers are found here in The Gold Book. 

What's New? Elimination of Reg D Transfer Limit

The Federal Reserve Board has made a temporary revision to allow savings account holders to make an unlimited number of transfers or withdrawals. Banks may (but are not required to) eliminate the limitation of six transfers or withdrawals per month in order to allow people greater access to their personal savings during the coronavirus pandemic and time of economic uncertainty and widespread unemployment. The change also does not prohibit banks from charging their customers fees for transfers or withdrawals beyond the six transfer limit. 

Mortgage Forbearance FAQs

Under the CARES Act, borrowers in a federally backed mortgage loan experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency, may request forbearance by making a request to their mortgage servicer and affirming that they are experiencing a financial hardship during the COVID–19 emergency. In response, servicers must provide a CARES Act forbearance, that allows borrowers to defer their mortgage payments for up to 180-days and possibly longer.

The Consumer Financial Protection Agency has provide FAQs related to the COVID-19 Emergency - Click Here.

What's New? CARES Act Pension Account Relief

IRA Contribution Deadline Extended. The CARES Act has extended the due date for filing Federal income tax returns and making Federal income tax payments from April 15, 2020 to July 15, 2020. Contributions made between April 15, 2020 and July 15, 2020 must be designated as either previous tax year (2019) or current tax year (2020) contributions. It is likely that the extension of the IRA contribution deadline will create 5498 reporting changes. See IRA Contribution Deadlines in The Gold Book.

Required Minimum Distributions (RMDs) Suspended for 2020. The new required beginning date to take RMDs for an IRA, SEP IRA, SIMPLE IRA or retirement plan such as a 401(k) is April 1 of the calendar year following the calendar year in which the individual attains age 72. Now, because of the CARES Act, RMD payments for 2020 are waived, including those for inherited IRAs. Additionally, this covers the first RMD. So an owner who turned 70 1/2 in 2019 and didn’t take the first year’s RMD, can now wait until 2021 to satisfy the requirement. Read more about Mandatory Distributions in The Gold Book.

Qualified Coronavirus-Related Distributions (QCDs). The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows eligible participants to take penalty-free withdrawals of up to $100,000 between January 1, 2020 and December 31, 2020 for those who meet certain criteria related to the coronavirus (COVID-19). A qualified individual may take coronavirus-related distributions from multiple sources, such as both a qualified retirement plan and an IRA, but the total amount of distributions eligible for favorable tax treatment is limited to $100,000.

QCDs include adverse financial consequences as a result of being quarantined, furloughed, laid off or having work hours reduced; being unable to work due to a lack of child care as a result of COVID-19; or closing or reducing hours of a business owned or operated by the individual due to COVID-19.

CARES Act Distributions are more favorable than hardship withdrawals—including those for Federal Emergency Management Agency (FEMA)-declared disasters—because:

• •              Income tax on the distribution may be paid over a three-year period;
• •              Participants will have the ability to repay the amount withdrawn to an eligible retirement plan within three years;
• •              Repayments will not be subject to the retirement plan contribution limits;
• •              Eliminates the 10% “early distribution” penalty that generally applies to distributions from retirement plans and IRAs before age 59½; and
• •             

More is found in The Gold Book under Penalty Exceptions.

Plan Amendments. Plan sponsors may begin operating their plans in accordance with the CARES Act immediately.  Plan sponsors will generally have until the end of the first plan year beginning on or after January 1, 2022 to amend their plans. It lets people make early withdrawals from retirement accounts without paying the typical 10% penalty. Learn more about Plan Amendments here.

Pension Loan Provisions and Repayment Requirements. For retirement plan loans to qualified individuals made between March 27, 2020 and September 23, 2020, the CARES Act:

-       Increases the maximum loan amount from $50,000 to $100,000; and

-       Allows participants to take the full amount of their vested benefit as a loan, rather than limiting the loan amount to 50% of their vested balance.

The CARES Act also delays the due date for loan repayments for qualified individuals that are due between March 27, 2020 and December 31, 2020 for 1 year, and extends the maximum 5-year repayment period accordingly. See Plan Loans Under the CARES Act.

Safe Harbor Hardship Withdrawals. Under regulations issued in September 2019, a new safe harbor was created for hardship withdrawals due to a Federal Emergency Management Agency (FEMA)-declared major disaster. Accordingly, if FEMA declares a major disaster in a state as a result of COVID-19, a safe harbor hardship withdrawal would be available for 401(k) or 403(b) plans to cover a participant’s expenses and losses (including loss of income)—provided that their home or workplace is located in an area designated by FEMA for individual assistance.