Disclaimer – New information is being provided on a daily basis regarding the pandemic, the economic stimulus money, expectations of regulatory agencies, etc. The following questions and answers are based on the information available to us at this time. As more information becomes available, these answers may change.
How is the coronavirus (COVID-19) affecting credit unions? The financial impact COVID-19 will have on the lives of Americans has yet to be determined. However, credit unions are already stepping forward to help soften the blow for their members. And they’re looking to us for help balancing compliance with service. Our outsourced compliance services team here at CU Service Network has compiled a list of frequently asked compliance questions, below.
Normally reserved for our compliance clients, we are making this information available to all credit unions in hopes it helps you navigate this complex and confusing environment.
Question: Are we required to provide monthly billing statements for Paycheck Protection Program (PPP) loans?
The Small Business Administration and US Treasury have yet to provide guidance on whether financial institutions are required to send out monthly billing statements to PPP loan recipients. In the absence of clear guidance, providing members with monthly billing statements is a best practice, even if the loan balance will likely be forgiven. At the end of the deferral period, bank statements and billing statements can be provided by your member as supporting documentation for loan forgiveness. The statements will also provide a reminder to any members who do go into repayment when their repayment period begins. With these factors considered, providing monthly PPP loan statements to members is not required but is still a wise practice for your credit union and an opportunity to provide excellent service to your members.
Question: If a member asks for a loan payment deferment and we deny the request, do we need to provide an Adverse Action Notice?
In the Commentary to Regulation B, Section 1002.2(c)(1)(i), it states that a refusal to extend the term of a loan applied for in accordance with the creditor’s procedures is adverse action.
Question: Is there a problem if we allow our loan officers to decide which members will be granted a loan payment deferral?
Yes, there is a potential fair lending issue in allowing employee discretion in granting loan payment deferrals. The problem with allowing employees to decide if/when to grant a deferral is that each employee will use their own ideas and opinions in the process, which could lead to disparate treatment. To avoid the potential fair lending violations, the credit union should develop procedures and guidelines for all employees to use in making loan payment deferral decisions. All decisions should be documented.
Question: We are offering loan payment deferments for the next 90 days for any loan that isn’t already more than 60 days past due. How should we report these loans to the consumer reporting agencies?
How you report those will depend on how those loans are currently being reported. If the member is being reported as delinquent at the time you grant the payment deferment, you would continue to report that loan as delinquent. If the member was current prior to making any payment accommodations, you would continue to report that loan as current. To properly reflect loans that are deferred or some other accommodation, review the Metro® 2 guidance and information provided at https://www.cdiaonline.org/resources/furnishers-of-data-overview/metro2-information/.
Question: Our credit union is allowing members to skip a payment on closed-end loans. What are some issues to consider?
One common way assistance is being offered is via “skip-a-payment” promotions on outstanding loans. This is a program already offered by many credit unions; a borrower can pay a small fee and “skip” making their monthly closed-end loan payment. While this is an excellent way to alleviate some financial pressure on a member, certain disclosures need to be made. A member should understand that the skipped payment will extend the term of the loan and interest will continue to accrue until the next payment is made. The credit union should also consider the impact skipping a payment might have on a member’s GAP or credit insurance. A process should also be put into place to ensure loans with skipped payments are not reported to credit bureaus as delinquent.
Question: We want to offer small loans with no payment due for 90 days. What concerns should we keep in mind?
Promotions offering loans with no payment due for 90 days are relatively common. Normal loan documents and disclosures can be used, but the borrower should be informed if interest will accrue during the first 90 days. Additionally, the credit union should put a process in place to ensure the loans are not reported to credit bureaus as delinquent during the deferred payment period.
Question: Our credit union is planning to temporarily increase our members’ credit card limits. What should we know before we do this?
A credit union is well within its rights to increase credit card limits. However, the credit union should understand the level of risk involved in taking this action without reviewing each cardholder’s current credit report. Additionally, cardholders under the age of 21 must be excluded from the automatic limit increase. Regulation Z requires proof of the ability to repay be obtained prior to raising the credit limit for a borrower under 21 years old.
Should your credit union decide to move forward with temporarily increasing credit card limits, members should be given information about how they may opt-out of the increase. When the credit union decides to end the temporary increase, 45 days’ notice should be given to members that their limit will be reduced and processes should be in place to prevent members being charged over limit fees or negative information being reported to credit bureaus.
Question: With the IRA contribution deadline extended to July 15, 2020, is the deadline for filing Form 5498 also extended?
Yes. IRS Notice 2020-35 extends the deadline to provide Form 5498, IRA Contribution Information, to August 31, 2020. This further extension now grants credit unions six weeks from the extended IRA contribution deadline to furnish contribution information to the IRS and IRA owners. The extension applies to Form 5498, IRA Contribution Information; Form 5498-ESA, Coverdell ESA Contribution Information; and Form 5498-SA, HSA, Archer MSA, and Medicare Advantage MSA Information.
Question: Are Regulation D limits still in place?
On April 23, 2020, the Federal Reserve Board announced an interim final rule that eliminates the six transfer limit from the definition of a “savings deposit.” This means that credit unions can now allow members to make an unlimited number of transfers and withdrawals from their savings/share accounts. While the rule allows financial institutions to suspend the transactions limits, it does not require it. Credit unions can continue to impose transfer limits if they choose.
Credit unions that opt to suspend the transaction limitations should contact their data processing vendors to discuss any programming changes that may need to be done.
The Federal Reserve has also reduced the reserve requirement for transaction accounts to zero percent.
Question: With the changes in Regulation D reserve requirements and convenience transfer limitations, should we change our membership agreement?
As of now, the Federal Reserve has not made the changes to Regulation D permanent. With that in mind, we recommend holding off on making changes to your membership agreement until further guidance is issued. Also pending further regulatory guidance, the changes to Reg D will not impact Regulation CC, nor the frequency of periodic statements required by Regulation E.
Question: Can we re-open a previously closed account if we get an ACH Economic Impact Payment (EIP or COVID-19 stimulus payment) with that account number?
NACHA rules allow you to return a payment when a previously active account has been closed, but it may be possible that a credit union’s account agreement explicitly authorizes the credit union to take the action of re-opening an account. However, because of potential UDAAP, compliance, and maybe even more importantly, reputational risk, we do not recommend re-opening a closed account to accept an EIP. In this situation, we recommend returning the EIP in accordance with ACH Operating Rules and Guidelines. Most ACH returns to the IRS will result in a paper check being issued; therefore, make appropriate use of Return Reason Codes.
Question: What should we do if we receive an ACH EIP into a joint account where one of the account owners has passed away since the last tax refund was received? Should we return those payments?
EIPs are not considered benefit payments, and therefore are not subject to federal government reclamations; you are not required to return an EIP that posts after the date of the payee’s death.
If the credit union receives a stimulus check made payable to a deceased member, you should not accept the check for deposit.
Question: We understand that actual stimulus checks will be issued to people who don’t have tax refunds deposited electronically. What should we do if a member brings in an EIP check that’s payable jointly but the member is the only owner on the account?
This situation is no different than any situation where a member wants to deposit a joint check into an individual account. The credit union can refuse the deposit. However, if the check is properly endorsed (i.e., all check payees have endorsed the check), the check is now a bearer instrument and the check can be deposited into the individual account. It’s a business decision how the credit union handles this situation, so weigh the risk. The risk arises if the endorsements are not valid or have been forged. In this case, the credit union could be liable to the payee(s) other than the member for the amount to which they were entitled. If the credit union is willing to accept the risk, you can allow the check to be deposited.
Question: Can the credit union use the Economic Impact Payments (EIP) to offset funds members owe the credit union? Can these funds be garnished?
Under the current program, EIPs are not considered protected funds and are subject to garnishment. However, if you are a state chartered credit union, you should be aware that some states and state banking associations, have enacted prohibitions on garnishing funds from these payments or using these funds to offset current obligations at your institution. We recommend you consult with legal counsel to determine how you will handle garnishments or internal collections from individuals receiving EIPs.
Question: Our collections department has asked if we can use the funds from any EIP to offset money owed by the member (charged off, delinquent or negative balance accounts). Can we?
The CARES Act specifically codes the economic impact payment (EIP) as a tax refund, not a government benefit, and tax refunds are subject to garnishment. So, technically, yes, the funds could be used to offset money owed to the credit union. However, if the amount owed to the credit union was charged off due to bankruptcy, there may be legal restrictions and you should contact your attorney before offsetting EIP funds in a bankruptcy.
Having said that, we STRONGLY recommend considering the potential bad press the credit union is likely to receive if you take money intended to help members buy groceries and pay rent during this pandemic to offset money owed to the credit union. Again, we believe you CAN use the funds to offset moneys owed, but just because you can, doesn’t mean you should.
Question: Do we need to notify NCUA if we close one or more branches due to the COVID-19 pandemic?
Under NCUA Regulations, Part 748.1, each federally insured credit union will notify the regional director within 5 business days of any catastrophic act that occurs at its office(s). A catastrophic act is any disaster, natural or otherwise, resulting in physical destruction or damage to the credit union or causing an interruption in vital member services projected to last more than two consecutive business days. Informational account inquiries, share withdrawals and deposits, and loan payments and disbursements are considered vital member services. If you are able to offer these services via other means, there is no need to notify NCUA of a branch closure.
Question: What about our annual meeting?
A federal credit union has flexibility to postpone its annual meeting and this may be necessary for credit unions with annual meetings scheduled over the next few months. The credit union should provide notice of the cancellation and rescheduled meeting as required in the FCU Bylaws. A federal credit union can amend the date of its annual meeting by using the fill-in-the-blank provision in its bylaws with the two-thirds vote of its board, without seeking the NCUA’s approval. State credit unions should also consult their bylaws and refer to state law in order to take the appropriate steps to reschedule the annual meeting.
Question: What issues with Bank Secrecy Act could arise because of the pandemic?
Your credit union should continue filing CTRs and SARs in a timely manner and your compliance program should continue as normal. Unfortunately, there are scams which often arise from national emergencies. Credit Union staff should be aware of scams involving fake charities, fraudulent investments, and sales of products making false claims about treating or curing the virus.
Question: Members are asking about withdrawing large amounts of cash. Can we limit daily cash withdrawals?
Yes, you can limit the amount of cash a member can withdraw on one day, and you probably should. If you choose to impose daily cash limits, we recommend posting a notice in the lobby and at the drive-thru.
You can also discourage this action as it’s not safe for members to carry large amounts of cash. Remind your members that their funds are fully insured up to $250,000 by the National Credit Union Share Insurance Fund. However, if your member insists on making a significant cash withdrawal, we recommend having him/her sign a hold harmless agreement, absolving the credit union of any liability.
Question: Can we waive fees to help our members?
Absolutely. We’ve heard from credit unions who are waiving loan fees, such as late payment fees, over-the-limit fees, overdraft protection program fees, skip-a-payment fees, etc. Some credit unions are waiving wire transfer fees and expedited shipping fees for cashier’s checks and credit/debit cards. You can also waive share certificate early withdrawal fees, as long as the certificate has been open for at least six days.
Question: Will assisting our members result in issues with our next exam?
No. NCUA has taken the stance of encouraging credit unions to work with members affected by the Covid-19 pandemic. Short-term modifications made in response to borrowers who were current prior to the pandemic will not be considered troubled debt restructuring (TDR). NCUA examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected, including those considered TDRs. In circumstances where modifications are considered TDRs, NCUA assures credit unions that its examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.
Links to additional resources:
- NCUA Coronavirus (COVID-19): Information for Federally Insured Credit Unions and Members
- NACHA ACH Resources During the Coronavirus Pandemic
- WesPay COVID-19 Resource Center
- CO-OP COVID-19 Best Practices Guide
- NCUA Letter to Credit Unions concerning Covid-19
- FFIEC Statement on Pandemics
- CFPB Page on protecting finances during a pandemic
- Interagency Statement on Loan Modifications and Working with Members Affected by Coronavirus
How we can help:
The CU Service Network compliance team assists credit unions across the country with outsourced compliance needs, from testing and marketing reviews to full outsourcing. As you can imagine, we have been quite busy assisting our credit unions over the past few weeks with items such as sample notices and disclosures for COVID-19 related products and services. Our now fully-remote team is focused on staying up-to-date with this environment and standing ready to review advertising and other member communications for compliance.
Not a compliance client? Contact us at email@example.com to learn more. We hope you found this Q&A helpful during this confusing time.