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Troy Snyder Brad Birkholz James Siegel
April 16, 2020 Article 5 min read

Financial institutions are facing new compliance challenges with the passing of the CARES Act. These frequently asked questions will help banks and credit unions navigate how the provisions of the Act impact BSA/AML and regulatory compliance.

Steps leading up to a historical building with large granite pillars in the front of the building. For financial institutions, the passing of the CARES Act has posed a unique set of challenges. While the bill is designed to help both customers and financial institutions, banks and credit unions must navigate the legalese of the CARES Act to determine how its provisions impact BSA/AML and regulatory compliance programs.

We’ve compiled frequently asked questions from our clients about the regulatory compliance ramifications of the CARES Act. We hope this guidance will help financial institutions better comply with the regulatory implications in this critical time.

Banks and credit unions must navigate the legalese of the CARES Act to determine how its provisions impact BSA/AML and regulatory compliance programs.

Bank Secrecy Act & anti-money laundering (BSA/AML)

How are beneficial ownership requirements impacted by the CARES Act?

A critical component of the CARES Act is the Paycheck Protection Program (PPP). Institutions don’t need to re-verify or obtain beneficial ownership from existing customers that haven’t been subject to beneficial ownership requirements, unless otherwise indicated by the institution’s risk-based BSA program. FinCEN and the SBA have both released guidance.

Institutions should also be aware that the beneficial ownership requirement for PPP loans differs from the rules outlined in 31 CFR 1010.230. The equity ownership threshold is 20% or greater, as opposed to the original rule’s 25% threshold.

Can we open an account for a customer whose driver’s license is expired if they’re unable to renew them due to state motor vehicle division closures?

While regulators have yet to address this question, institutions relying on driver licenses to verify the identity of a customer should start by reviewing applicable state websites for related guidance as many states have issued executive orders that temporarily extend expiration dates.

Institutions should also consider temporary alternative methods to verify the identity of a customer using other documentary or nondocumentary methods as outlined in 31 CFR 2020.220. Ultimately, any change in policy should be approved by the institution’s board of directors or a committee thereof.

As a lending entity not currently subject to BSA requirements, can I participate in the PPP?

All lenders participating in the PPP should establish an anti-money laundering (AML) compliance program equivalent to that of a comparable federally regulated institution before making a PPP loan to new or existing customers. Entities may also rely on the customer identification program (CIP) of a federally insured institution with an established CIP as part of its AML program.

What should I do if I have COVID-19 BSA concerns that aren’t addressed by regulatory guidance?

Institutions are encouraged to continue reaching out to their regulator(s) or examining authority should BSA concerns arise. FinCEN has also implemented a COVID-19-specific communication mechanism on their website at fincen.gov. While FinCEN may not provide anything more than an automated message confirming the receipt of BSA concerns, all messages are reviewed and relied on to determine whether additional or clarifying guidance is needed.

Given how the crisis has impacted staffing,  has any relief been provided in terms of BSA reporting requirements?

The FinCEN notice states: “FinCEN recognizes that certain regulatory timing requirements with regard to BSA filings may be challenging during the COVID-19 pandemic and that there may be some reasonable delays in compliance.” However, specific relief is limited to the temporary suspension of the Feb. 6, 2020 (FIN-2020-R001) ruling on CTR filing obligations related to sole proprietorships and entities operations under a “doing business as” (DBA) name.

Regulatory compliance

What are the impacts of the CARES Act on “alphabet regulation” compliance?

The CARES Act will primarily affect processes and procedures related to the Fair Credit Reporting Act (Regulation V) and the Real Estate Settlement Procedures Act (Regulation X). Institutions will also want to consider provisions of the Truth in Lending Act (Regulation Z) and the Equal Credit Opportunity Act (Regulation B) when handling any credit-related requests for relief from borrowers to determine when disclosure requirements may be triggered.

While fair lending isn’t addressed directly by the CARES Act, institutions choosing to originate PPP loans will need to assess how participation in the program will impact their fair lending risk profile. Institutions should start planning now on how they’re going to measure and react to PPP’s effect on their fair lending program later down the line in 2020.

What does the CARES Act change about the Fair Credit Reporting Act?

The CARES Act impacts credit reporting duties for institutions with customers to whom they grant COVID-19-related relief (accommodations) on any credit obligation. As long as the customer upholds their end of the bargain for the accommodation type they’re granted, their credit obligation must be reported as “current” to the credit bureau.

For example, if an institution grants the customer a three-month payment deferral due to COVID-19 disruption, the customer must be reported as current for the related credit obligation for the deferral period. However, if the customer doesn’t uphold their end of the accommodation agreement, this exemption doesn’t apply. For instance, if the arrangement was reducing a monthly payment to $100 from $500, and the customer doesn’t pay the reduced $100 payment as agreed, the institution can report the customer as delinquent.

Do the “accommodations” referenced in the CARES Act have to be formal written and signed agreements to qualify for the FCRA protections mentioned above?

No, they don’t. Section 4021 of the CARES Act defines “accommodation” as “an agreement to defer one or more payments, make partial payments, forbear any delinquent amounts, modify a loan or contract, or any other assistance or relief granted to a consumer who is affected by the coronavirus disease 2019 (COVID-19) pandemic.” Such relief could be granted verbally, such as a call center phone request for a payment deferral.

How might the relief options for federally-backed mortgage loans presented in the CARES Act be different from the loss mitigation options we’re currently offering?

Section 4022 of the CARES Act allows for an initial 180-day forbearance to be granted to any borrower with a federally-backed mortgage loan who affirms to be experiencing financial hardship. The initial 180 days of forbearance shall be granted without the institution requiring the borrower to provide additional documentation. The borrower can then request this period to be extended another 180 days, provided that, at the borrower’s request, either the initial or extended period of forbearance may be shortened, at which time institutions may be allowed to ask for documentation to support the extension.

Can we charge borrowers a fee for forbearance requests for federally-backed mortgage loans? What about for other COVID-19-related accommodations?

Institutions cannot assess additional fees, penalties, or interest on federally-backed mortgage loans where a forbearance is requested if the borrower has otherwise paid their mortgage loan as agreed up until the forbearance. While there isn’t a similar moratorium for fees, penalties, and interest on loan or credit products other than federally-backed mortgage loans, institutions should consider what potential UDAAP issues might arise in the event such fees and penalties were assessed.

How does the CARES Act impact foreclosure timelines outlined in RESPA?

Unless a property is determined to be vacant or abandoned, the CARES Act prohibits servicers of federally-backed mortgage loans from initiating any foreclosure process, seeking a foreclosure judgment or order of sale, or executing a foreclosure-related eviction or foreclosure sale for at least a 60-day period that began on March 18, 2020.

Recently, joint regulatory guidance has been issued, allowing real estate appraisals to be obtained up to 120 days after a loan’s closing in order to ensure such closings are not delayed. How does this permitted delay impact Regulation B’s valuation requirements?

Institutions should continue to provide borrowers the initial valuation disclosure in accordance with the time frames outlined in the Act. Regulatory agencies will not be enforcing Regulation B’s rule for the timing of delivery for valuations ordered from April 12 through Dec. 31, 2020. However, copies of all valuations obtained should be provided to applicants and borrowers as soon as possible after they become available.

The Federal Reserve has recently set reserve requirements to zero. How does this impact the excessive transaction monitoring rule within Regulation D?

In light of the reduction of reserve requirements, the Federal Reserve Board has announced an interim final rule to suspend Regulation D’s six-per-month limit on transfers for savings and money market accounts. The rule doesn’t mandate institutions to stop monitoring these transactions: if financial institutions wish to continue monitoring these transactions, including continuing to charge fees for transfers in excess of the six-per-month limit, they may do so.

If you have additional questions around the CARES Act, we’re here to help. Contact us to get in touch with one of our experts.

CARES Act: Get clarity. Then take action.

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