FDIC and OCC Release Guidance on Working with Customers Affected by COVID-19

On March 13, 2020, U.S. the Federal Deposit Insurance Corporation (FDIC) issued the FDIC Statement on Financial Institutions Working with Customers Affected by the Coronavirus and Regulatory and Supervisory Assistance (the FDIC Statement) and the Office of the Comptroller of the Currency (OCC) issued the similarly titled OCC Bulletin 2020-15 (the OCC Statement and together with the FDIC Statement, the Statements). In the Statements, each agency acknowledges the many challenges facing insured depository institutions, their customers and borrowers in the wake of the COVID-19 pandemic. The FDIC and OCC recommend that regulated institutions work with their affected customers, borrowers and communities to make appropriate accommodations consistent with safe and sound banking practices and applicable laws. 

For consumers, each agency suggests that regulated institutions consider waiving certain fees, such as overdraft fees, late payment fees on credit cards and other loans, and early withdrawal penalties on time deposits. For borrowers, each agency encourages regulated institutions to consider offering payment accommodations such as allowing borrowers to defer or skip some payments or extending the payment due date or to consider restructuring a borrower’s debt obligations. These types of efforts can ease cash flow for businesses and permit them to stay open longer, serving customers and paying employees.  

Of particular note, the FDIC Statement addresses the accounting and reporting issues associated with determining whether the modification of an existing loan would constitute a troubled debt restructuring (TDR). The FDIC indicates that a loan modification will be treated as a TDR under applicable accounting standards only if the institution grants a concession to the borrower that it would not otherwise grant because a borrower is experiencing financial difficulties. For example, if a borrower is experiencing a temporary liquidity need due to COVID-19-related economic conditions, but otherwise meets an institution’s underwriting standards, the institution might extend the term of loan, which would be treated as a TDR. However, although the TDR designation means a modified loan is impaired for accounting purposes, it does not automatically result in an adverse classification for regulatory purposes. The FDIC emphasizes that loans designated as TDRs for accounting purposes may still be fully performing and collectible credits that should not be adversely classified. Insured depository institutions providing borrower accommodations arising out of COVID-19 economic conditions should be sure to appropriately differentiate the classification of TDRs and be prepared to justify those classifications to examiners, who have been instructed to review the entirety of the lending relationship and “exercise significant flexibility in determining whether to adversely classify credits that are impacted by COVID-19, including those designated as TDRs.”

Overall, the Statements provide assurance to regulated institutions that these kinds of efforts, taken in a prudent manner with appropriate management and oversight, will not be criticized by examiners. For regulated institutions affected by COVID-19, the FDIC and OCC agree to work with such institutions by (a) making greater use of off-site reviews for examinations and (b) working with regulated institutions unable to comply with reporting requirements due to the effects of COVID-19. The FDIC will, in coordination with state authorities, provide expedited processing for regulated institutions that must temporarily close a facility or provide alternative service options to customers. Regulated institutions that are required to close should also notify the OCC of the temporary closure. Notably, the FDIC states that it will not assess penalties or take other supervisory action against regulated institutions that are unable to fully satisfy reporting requirements due to the impact of COVID-19; the OCC does not give similar assurance in such circumstances and instead suggests that national banks facing challenges in meeting reporting requirements should contact their OCC supervisory office to discuss. Whether providing relief for customers, borrowers or other community members or in making adjustments to its own business operations, regulated institutions should ensure that they continue to act prudently and in line with safe and sound banking practices. For more information, see the FDIC’s own COVID-19 Resource Page or the OCC’s COVID-19 Resource Page for both bankers and consumers.