How COVID-19 is Impacting Banking Regulations

Banks Experience Changes and Clarifications, as well as some Flexibility, in Regulations

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Changes in Appraisal Timelines

Banks have found it increasingly challenging to obtain, in a timely manner, the required appraisals and evaluations needed for real estate-related financial transactions. In response, the OCC, FRB, FDIC, and NCUA agencies, working with state financial regulators, have issued an interagency statement to specifically address those challenges resulting from the effects of COVID-19.

The interagency statement:

  • Defers the requirement to obtain an appraisal or evaluation for up to 120 days following the closing of a transaction for certain residential and commercial real estate transactions, but not including transactions for acquisition, development, and construction of real estate.
  • Outlines existing flexibilities in industry appraisal standards and appraisal regulations issued by the agencies. It also describes temporary changes to Fannie Mae and Freddie Mac appraisal standards that can assist lenders during this challenging time.
  • Provides this relief to allow regulated institutions to provide additional liquidity to creditworthy households and businesses in light of strains on the U.S. economy due to COVID-19.
  • Indicates regulated institutions should use their best efforts to obtain a credible valuation of real property collateral before the loan closing, and underwrite loans consistent with the principles in the agencies’ Standards for Safety and Soundness and Real Estate Lending Standards.

Important to note, this flexibility is a temporary change to the appraisal rules and expires on December 31, 2020.  Read the entire statement here: https://www.fdic.gov/news/news/press/2020/pr20051b.pdf

FEMA Extends Grace Period for Flood Insurance Renewal Premiums

FEMA has taken steps to address the COVID-19 pandemic issues as well.  The agency is extending the grace period to renew flood insurance policies from 30 to 120 days. This extension was designed to provide some financial relief and to help serve its National Flood Insurance Program (NFIP) customers who may be experiencing financial challenges at this time.

This extension applies to NFIP flood insurance policies with an expiration date between February 13 through June 15, 2020.

As bankers are aware, there is typically a 30-day grace period to renew policies. FEMA proactively recognized that some policyholders might not meet the standard policy renewal deadline. Therefore, FEMA took this action to deal with the triple threat of the economic disruption from the pandemic, and to avoid lapses in flood insurance during the spring flood season and the start of hurricane season.

CFPB Clarifies Adverse Action Notice for Timing and Expectations for PPP loans

Regulation B / Equal Credit Opportunity applies to both consumer and commercial loans. Paycheck Protection Program (PPP) loans and their related applications are subject to this regulation.  Banks are required to provide to the loan applicant a “Notice of Action Taken” within 30 days of a completed application. However, when is an application an application?

The Consumer Financial Protection Bureau (CFPB) has stated that a PPP application that the creditor  submitted to the Small Business Administration (SBA) for loan processing is not a “completed application” under Regulation B until a creditor receives a loan number from the SBA, or a response about the availability of funds.

If a bank (creditor) receives an SBA Paycheck Protection Program (PPP) loan application including sufficient data (not necessarily complete for PPP purposes) for a credit decision, the creditor may evaluate the application, and deny the credit request without ever submitting the PPP loan to the SBA. The creditor must then provide an adverse action notification to the applicant within 30 days of taking that adverse action.

The CFPB also clarified that if a bank (creditor) has gathered sufficient data from the SBA Paycheck Protection Program (PPP) loan applicant for a credit decision, but hasn’t received a loan number from the SBA or a response about the availability of funds, the creditor can neither deny the application based on incompleteness nor provide a notice of incompleteness. For additional explanation and to read the related Compliance Aid issued by the CFPB, click here: FAQs.

Fed Comments on Large Cash Withdrawals and SARs Filing

In times of uncertainty, a number of depositors have chosen to rely on cash. The Federal Reserve recently posted a comprehensive response to many of the issues and challenges banks are facing. One question asked of the Fed addressed the need to file SARs in reaction to large cash withdrawals due to the uncertainty of the pandemic.

The Fed noted, “A large cash withdrawal on its own, without other indications of suspicious activity, would not require a bank to file a SAR. Banks are required to file SARs when there is a known or suspected violation of federal law, a suspicious transaction related to money laundering / terrorist financing, or a violation of the Bank Secrecy Act (BSA), such as structuring transactions to evade thresholds that trigger BSA reporting requirements. If there is a reasonable explanation or a legitimate business purpose for the large cash withdrawal (that is not a violation of federal law, related to money laundering, and not a violation of the BSA), then there is no need for the bank to file a SAR.”

For more information, read the COVID-19 Supervisory and Regulatory FAQs, which cover all areas of banking and deal with banking challenges across your organization.

New Rules and Regulations Daily

Take time each day to stay informed. We have never in recent history seen a time when the rules (both natural and man-made) are changing on a daily basis. Take care of yourself, your staff, and your families.

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