Tuesday, November 29, 2022

May 2011 Legal Briefs

By John S. Burnett

  • The Interagency Appraisal and Evaluation Guidelines
  • FDIC Posts OD Guidance FAQ
  • Fed and FDIC Propose to Pull Interest on Deposits Regs

By Pauli Loeffler

  • SHELTER FROM THE STORM – Garnishments, Part Two

By Andy Zavoina

  • Good News and Bad News about a New LAR is in Your Future
  • New FDIC CRC Address
  • Good 1099 News

 

May 2011

By John S. Burnett

The Interagency Appraisal and Evaluation Guidelines

On December 10, 2010, the OCC, FRB, FDIC, OTS and NCUA pooled their resources and sent banks, savings associations and credit unions an early holiday “gift” — Revised Interagency Appraisal and Evaluation Guidelines, which arrived with an effective date of the same day. The revised Guidelines were issued just over two years after the agencies issued a proposal to revise Guidelines published in 1994, in order to “provide further clarification of the Agencies’ appraisal regulations and supervisory guidance to institutions and examiners about prudent appraisal and evaluation programs.” Clearly, much had changed since the 1994 Guidelines were issue. The agencies issued the latest guidance to update and replace the 1994 document and several of the supervisory issuances from the intervening years. A key statement from the prefatory material accompanying the Federal Register publication of the revised Guidance—“ Since the (November 2008) issuance of the Proposal, changes in market conditions underscore the importance of institutions following sound collateral valuation practices when originating or modifying real estate loans and monitoring portfolio risk.”
The agencies did not include some changes that may be required under the Dodd-Frank Act (DFA). Any such changes will be identified as the agencies implement individual DFA mandates.
The Guidelines include four appendices, one of them added based on comments on the 2008 Proposal. Appendix A clarifies which real estate-related financial transactions are exempt from the Agencies’ appraisal regulations. Appendix B addresses the use of analytical methods or technological tools in the development of an evaluation. Appendix C (added) clarifies the minimum appraisal standards required by the Agencies’ appraisal regulations for analyzing and reporting appropriate deductions and discounts in appraisals. And Appendix D (Appendix C in the Proposal) provides a glossary of terms.

Coverage
The Guidelines “pertain to all real estate-related financial transactions originated or purchased by a regulated institution or its operating subsidiary for its own portfolio or as assets held for sale, including activities of commercial and residential real estate mortgage operations, capital markets groups, and asset securitization and sales units.”


Forbearance

Although the Guidance was effective on December 10, 2010, on case-by-case basis, an institution needing to improve its appraisal and evaluation program may be granted some flexibility from its regulator on the timeframe for revising its procedures to conform to the Guidelines. Any adjustment of the timeframe can be influenced by the level and nature of the institution’s real estate lending activity.

Inadequate Appraisal and Evaluation Programs
Subject to a regulator’s willingness to give some leeway on a timeframe for changes to an institution’s appraisal and evaluation policies and procedures, institutions that fail to comply with the Agencies’ appraisal regulations or to maintain a sound appraisal and evaluation program consistent with supervisory guidance can be cited in supervisory letters or exam reports, and may be criticized for unsafe and unsound banking practices, and ordered to take appropriate corrective action.

Major Guidance Topics
Institutions should review the Guidance for details of specific sections of the document, which covers these topics. Key topics range from independence of appraisal and evaluation programs to third party arrangements, covering a lot of territory between.
As has always been the case, the Guidelines place responsibility for oversight of an institution’s Appraisal and Evaluation Program squarely with its board of directors or its designated committee.

Automated Valuation Models and Broker Price Opinions
Under the Minimum Appraisal Standards, the Guidance reminds institutions that the “result of an Automated Valuation Model (AVM), by itself or signed by an appraiser, is not an appraisal, because a state certified or licensed appraiser must perform an appraisal in conformance with USPAP and the Agencies’ minimum appraisal standards.” The Guidance also cites Section 1473(r) of the Dodd-Frank Act to ban the use of a broker price opinion as the primary basis to determine the value of a piece of property for the purpose of a loan origination secured by the property for the purpose of purchasing the property as a consumer’s principal dwelling. Dodd-Frank is again cited in a statement that future regulations will address a requirement that the appraiser conduct a physical property visit to the interior of a mortgaged property in connection with a “higher risk” mortgage.
Re-use of an Appraiser for Another Lender
The Appraisal and Evaluation Review section details circumstances under which the use of an appraisal prepared for another financial services institution may be appropriate, but cautions that reliance on an evaluation prepared for such an institution because it may not have enough information on the other institution’s risk management practices for developing evaluations.
Third Party Arrangements
Consistent with regulatory guidance on third party arrangements in other spheres of an institution’s business, the Agencies remind institutions that they remain responsible for understanding and managing the risks of any third-party arrangement for administration of any part of its appraisal and evaluation function. The institution is charged with responsibility for all functions under the Guidance, whether completed by the institution itself or a third party such as an Appraisal Management Company (AMC), whether or not the third party is affiliated with the institution. The section of the Guidance on Third Party Arrangements provides information on key aspects of any such arrangement that an institution needs to understand and control.
Referrals
When an institution suspects a state certified or licensed appraiser has failed to comply with the requirements of USPAP (Uniform Standards of Professional Appraisal Practice) or applicable state laws, or engaged in other unethical or unprofessional conduct, it should file a complaint with the appropriate state appraiser regulatory officials. In addition, since April 1, 2011, under Regulation Z § 226.42(g), an institution must file a complaint with the appropriate state appraiser certifying and licensing agency under certain circumstances. The Guidance goes on to remind institutions of their SAR-filing responsibility when they suspect fraud or identify other transactions that would trigger a SAR-filing duty.

FDIC Posts OD Guidance FAQ

Some of the questions surrounding the FDIC’s November 2010 “Final Overdraft Payment Supervisory Guidance” have been answered and some merely addressed on the new Frequently Asked Questions page that the FDIC posted April 1 at http://fdic.gov/news/conferences/overdraft/FAQ.html. There are 14 questions and answers posted, plus a couple of helpful examples concerning one of the more contentious areas of concern—“meaningful and effect follow-up” for chronic or excessive use of overdrafts.


Areas addressed

The questions are arranged by major topics.
I. Defining automated and ad hoc programs for overdraft payment
II. Excessive use and meaningful follow-up
III. Fee limits and maximizing fees
IV. Other questions

Section I: Automated and ad hoc programs
Many of the questions asked by FDIC-supervised institutions focused on trying to better define the distinctions between automated overdraft payment programs and ad hoc payment practices, because significant parts of the guidance are focused only on automated programs, and the distinctions in the November Guidance document weren’t terribly clear.
The only question on the FAQ that attempts to better define the automated/ad hoc quandary is the first question in that section. It uses slightly fewer ambiguous phrases, but still describes automated programs as “typically” relying on computerized decision-making, using pre-established criteria, with little to no case-by-case review. Ad hoc practices are described in the FAQ as “typically” involving the exercise of bank employee judgment on specific pay/return decisions, as an accommodation, with assumed employee knowledge of the customer.
Comment: It is clear that if a computer makes all the pay/return decisions or even most of them, without employee intervention, you’re in an automated environment. If you’re handling overdrafts manually, with some policy and procedural guidance, and even with information on the customer from your processing system (date opened, average balances, times OD, etc.), and the decision rests with an officer or employee of the institution, you’re in an ad hoc environment. If you’re somewhere in between, the distinctions remain fuzzy, and a conservative approach is to consider your institution subject to the Guidance as if you are in an automated environment.

What parts of the Guidance would apply to institutions with ad hoc overdraft decision-making?
Even after peeling away the specific supervisory expectations that the FDIC reserves for institutions with automated overdraft payment plans (key among them the monitoring and follow-up expectation for chronically overdrawn consumers), there remains an expectation that institutions that handle overdrafts on an ad hoc basis will “manage potential reputational, compliance, and litigation risks regarding certain overdraft payment practices, such as check clearing practices designed to maximize overdraft fees. In addition, the Guidance provides updated information on the laws, regulations, and other guidance that apply to all types of overdraft payment practices and programs.”
Comment: There’s a message in that answer, which is the third in the group dealing with the definitions of “automated” and “ad hoc.” One of the key expectations in the Guidance, that institutions “review check-clearing procedures of the institution and any third-party vendor to ensure they operate in a manner that avoids maximizing customer overdrafts and related fees through the clearing order,” remains on the “to do” list for all FDIC-supervised institutions. “Ad hoc” institutions also need to remember that the “Best Practices” of the 2005 Joint Guidance on Overdraft Protection Programs apply to all institutions except OTS-supervised savings associations (which will be pulled in beginning July 21, 2011, anyhow). In general, however, the 2005 Guidance is now understood to apply primarily to promoted overdraft programs.

Section II: Excessive Use and Meaningful Follow-up
One of the other frequent questions put to the FDIC involved what it meant by “occasion,” as used in the description of “excessive or chronic use.” Did it refer to a day on which the consumer was overdrawn, to the payment of an item that overdraws the consumer’s account, or something else? It turns out that it actually refers to the imposition of an overdraft fee. According to the first answer in this section of the FAQ, whether it’s a per-transaction overdraft fee or a daily fee due to an outstanding overdraft status, it’s an “occasion.” If three items are paid and three overdraft fees assessed as a result (even if aggregated into a single amount), three “occasions” are involved. If a fee posted to an account (a monthly maintenance fee, for example) overdraws the account and triggers an overdraft fee, that’s also an “occasion.”
If no fee is assessed for payment of an overdrawn item (due to a daily cap, for example), there is no “occasion.”
Comment: Left unsaid in the FAQ, but stated by an FDIC staff member during the FDIC’s March 29 teleconference on the Guidance, is that the imposition of a fee for returning an item unpaid does not count as an “occasion.”

What is meaningful and effective follow-up for chronic or excessive use?
The Guidance document said that contacting a consumer in person or by telephone to discuss less costly alternatives to an automated payment program and giving the consumer a reasonable opportunity to decide whether to “stay the course” or choose an alternative service is an example of meaningful and effective follow-up. However it offered no additional examples and many institutions asked whether other options would be acceptable. The second answer in Section II, and the Illustrations of Follow-up options that followed the FAQ, explain that institutions have fairly wide latitude in designing their programs, and that personal visits or telephone contacts are not the only ways to accomplish the goal. Different types of follow-up can be used for different customer profiles. A bank’s overall follow-up program will be viewed to determine whether the institution—
• Has a regular program to inform excessive or chronic users of [their] overdraft usage and cumulative costs in a prominent or conspicuous fashion;
• Highlights availability of alternatives to overdraft payment programs that may be lower-cost or more appropriate; and
• Provides a clear and simple manner to contact the institution to discuss available alternatives.
The answer goes on to say that an institution “should be able to demonstrate that it monitors account usage, undertakes programs designed to address excessive or chronic use, and monitors its success in informing frequent users of overdraft payment programs of the high cumulative costs of the program and the availability of less-costly or otherwise more appropriate alternatives.” [Emphasis added.] In the second illustration of a follow-up program, a targeted approach is used, including direct (in person or telephone) contact. In the description, the FDIC staff indirectly answers another important question – What about ongoing contact if the consumer wants to continue working with a fee-based overdraft system? To paraphrase the illustration, in such cases the institution should ask whether the customer would like to hear from the institution as a reminder of the alternatives, if fees continue to be assessed. And if the consumer says, in effect, “Don’t call me; I’ll call you,” the institution should honor the customer’s stated preference. If the consumer doesn’t state a preference, continued contact each time the consumer pulls the “6-in-12” trigger would be expected. This point was made more clearly during the teleconference on March 29.

Section III: Fee Limits and Maximizing Fees
There are three key elements of the Guidance in this section. The first is an expectation that institutions with automated payment programs will set an appropriate daily limit on overdraft fees. The FAQ really does not add much information other than to say that such a limit will be reviewed as one element of an institution’s overall approach for addressing chronic or excessive use of the program. A limit could be based on a stated number of overdraft fees or a daily dollar cap. Here again left unsaid is whether fees for returning items unpaid should be capped. Again, FDIC staff said during the March 29 teleconference that the cap only applied to overdraft fees.
The second and third answers in Section III addressed the expectation that institutions with automated overdraft programs will “consider” the use of a de minimis overdraft amount before a fee is charged. Two suggested ways to address the de minimis issue are based on either small overdraft items or small overdraft balances. Tiering overdraft fees so that smaller amounts trigger smaller fees is an alternative approach.
The fourth question attempted to clarify the expectation (of all institutions) that their systems not be operated to maximize customer overdraft fees through the order of posting. The answer suggests that institutions use neutral posting orders, such as order of receipt, check number, etc. It also specifically states that re-ordering transactions to clear the highest [value] item first is not considered neutral.
Comment: The FDIC makes a clear statement here that institutions that have been using a high-to-low value posting order will be expected to adopt a more neutral posting order by July 1, 2011. Because the FAQ answer says that other approaches are acceptable “when necessary based on sound business justification,” institutions appear to have an OK to post “must pay” items like ATM and debit card transactions, cashed on-us checks, etc., before other items.

Section IV: Other Questions
There were five miscellaneous questions answered in the FAQ. Summarizing them—
1. Banks do not have to develop alternative programs to offer them in connection with their follow-up on chronically overdrawn consumers. But if an institution has them available, they should be offered (subject, of course, to the consumer’s qualification).
2. Institutions don’t have to close out accounts of consumers due to chronic or excessive use. They should, however, be aware of the risks associated with such accounts, and take appropriate action to mitigate those risks where appropriate. Closing such an account is one way to mitigate elements of risk.
3. The FDIC encourages (not requires) institutions to allow consumers to opt out of overdraft coverage for checks, ACH items and other items not covered by Regulation E’s opt-in requirement for card-related transactions. It also encourages that they provide occasional reminders of the availability of such an opt-out and the right to revoke an opt-in under Regulation E. Comment: An opt-out appears to be a required element of a follow-up program for chronically overdrawn consumers, however.
4. Smaller or rural institutions can provide financial education (if they wish) using web-based resources or referrals to reputable non-profits.
5. This all needs to be accomplished by July 1, 2011.

Fed and FDIC Propose to Pull Interest on Deposits Regs

In two separate Federal Register notices, the Fed and the FDIC have proposed to eliminate their rules under three laws prohibiting the payment of interest on demand deposits. The Federal Reserve would “remove and reserve” Regulation Q (12 CFR Part 217); the FDIC would eliminate its “Interest on Deposits” regulation at 12 CFR Part 329.
Both actions are based on the Dodd-Frank Act’s § 627, which repeals sections of the Federal Reserve and Federal Deposit Insurance Acts that have banned the payment of interest on demand deposit accounts for almost eight decades. That the rules will be issued in final form in time for the date of repeal – July 21, 2011 – seems certain.
The FDIC plans to move the Part 329 definition of “interest” into its “Deposit Insurance Coverage” regulation (12 CFR Part 330) because it may assist in better defining “noninterest-bearing transaction account.”


By Pauli Loeffler

SHELTER FROM THE STORM – Garnishments, Part Two

First Things First – Log and Look:
Your bank is served with a garnishment or levy on or after May 1, 2011. Your first step has not changed: enter the time, date, etc. on the garnishment/levy log. After that, what do you need to do? Well, Section 212.4 puts the examination for the Notice of Right to Garnish Federal Benefits before determination of whether you have an account holder as defined in Section 212.3. In my mind, this is putting the cart before the horse: if you don’t have an account holder, it doesn’t make a whole heck of a lot of sense to go any further! An account holder is defined in Section 212.3:

Account holder means a natural person against whom a garnishment order is issued and whose name appears in a financial institution’s records as the direct or beneficial owner of an account.

This means we are looking for any account held either individually or in trust with the debtor as a beneficiary. The definition will cover sole proprietorship accounts but arguably should not attach to partnerships, LLCs or corporations even if the named debtor is the sole member of an LLC, and presumably, this will not be an issue. The reason I say this is that the Federal benefits subject to protection are required to be deposited into the account of the named beneficiary (with the exception of Social Security payments to the checking account owned by the parent as representative payee of minor children as beneficiaries), and deposits to accounts of a partnership, an LLC nor a corporation would not comply with the agency requirements. If the named debtor is a separate business entity OR there are no accounts held by the named debtor, then don’t bother looking for the Notice of Right the Garnish Federal Benefits.

You need to remember that while Oklahoma pre- and post-judgment garnishments, Oklahoma reach safe deposit boxes, the new Rule has no effect on this aspect at all

One problem engendered by the new Federal Garnishment Rules is what happens when there is a zero or negative balance for one or more accounts at the time of service but you do not immediately look for the Notice of Right to Garnish Federal Benefit. For instance if there is no Notice of Right to Garnish Federal Benefits, then you may properly avoid an account review for the lookback period under Section 212.5:

(d) Uniform application of account review. The financial institution shall perform an account review without consideration for any other attributes of the account or the garnishment order, including but not limited to:

(4) The balance in the account, provided the balance is above zero dollars on the date of account review….

Section 212.7 further exempts the bank from providing the Notice to Account Holder in this situation as well:

A financial institution shall issue the notice required by Sec. 212.6(e) in accordance with the following provisions.

(a) Notice requirement. The financial institution shall send the notice in cases where:

(1) A benefit agency deposited a benefit payment into an account during the lookback period; and

(2) The balance in the account on the date of account review was above zero dollars and the financial institution established a protected amount.

But if you do not look for the Notice of Right to Garnish Federal Benefits at the time of service and to determine none is attached, and then a deposit is made between service and the review for the Notice that brings the account above a zero balance, this will necessitate an account review for the lookback period.

If you DO determine that you have one or more accounts for the debtor, then you have two (2) business days after the date of service to see if there is the Notice of Right to Garnish Federal Benefits attached. This is most likely to be present whenever the garnishment or levy is from the IRS, or is for recoupment for overpayment of one of the protected benefits, or is a garnishment/levy for child support from an agency administering the State child support program. If the Notice is present, then you simply proceed in accordance with the instructions contained in the garnishment or levy AND YOU HAVE NO FURTHER RESPONSIBILITIES UNDER 31 CFR PART 212. Be aware that a Financial Institution Deposit Match Levy (a “FIDM”) from the Oklahoma Child Support Services WILL have the Notice of Right to Garnish Federal Benefits in capital letters in a box located on the first page in a box, and the levy will capture funds subsequently deposited into an account. If your bank receives a child support garnishment or levy from other than the Oklahoma child support agency, you will NOT take any action with regard to the garnishment or levy unless your bank has branches/significant business presence in that state! The Notice of Right to Garnish Federal Benefits does NOT give other state’s jurisdiction over financial institutions that do not operate in their state. You will simply respond to the state agency seeking to enforce the order that it has no jurisdiction over your institution and that the agency will need to utilize Oklahoma Child Support Services to enforce their garnishment/levy orders.

No Notice of Right to Garnish Federal Benefits:
If there is no Notice of Right to Garnish Federal Benefits, then you must perform the account review under Section 212.5 to determine if protected federal benefits have been directly deposited during the lookback period. If there have been no direct deposits of protected federal benefits YOU HAVE NO FURTHER RESPONSIBILITIES UNDER 31 CFR PART 212, and you will proceed in the same manner you always have with regard to the garnishment or levy.

Oh, No! There are Direct Deposits of Federal Benefits!
When the account review reveals direct deposits of federal benefits during the lookback period, you must calculate the protected amount. You will find a very useful Federal Garnishment Calculator Tool at this link: http://www.bankersonline.com/tools/operational/fed_garn_dy.html

This nifty tool calculates the time frame for processing, the lookback period, calculating protected/unprotected amounts, and the mailing date for the Notice to Account Holder required under Section 212.7. You will also find the Appendix A, Model Notice to Account Holder at this link.

If the account review reveals that there have been one or more direct deposits of protected federal benefits, AND there are funds in the account, then in addition to mailing the garnishment package to the debtor, you will send the Notice to Account Holder required under Section 212.7.

Answering the Garnishment Summons When There are Protected Amounts:
Bankers need to be aware that with the possible exception of collection firms, the vast majority of lawyers, creditors and even judges will be unaware of the new Garnishment of Federal Benefits Rule. This means they will need to be educated regarding such aspects as the preemption of Oklahoma law, the binding effect of the bank’s determination of protected/unprotected funds, the fact the bank is protected during account examination and pending review, etc. in complying with the Rule. The garnishment forms are under the authority of the Administrative Office of the Courts. I have discussed what changes are needed in the garnishment forms due to 31 CFR Part 212, and have been afforded the opportunity to submit proposed language. However, the new forms require approval of the Oklahoma Supreme Court before they become “official,” so at least for the next several weeks you will be using the current garnishment forms. These are available online in Word, WordPerfect and PDF formats at this link: http://www.oscn.net/static/forms/aoc_forms/garnishment.asp

The form you will be using for your answer is the Noncontinuing & General Garnishee’s Answer/Affidavit; Calculation for Non-continuing Garnishment of Earnings. If the account review reveals that there have been one or more direct deposits of protected federal benefits, and there are funds in the account EVEN IF ALL funds are protected (e.g., there are $0.00 unprotected funds available) then I recommend that you respond as follows on page two of that form:.

2. At the time of service of the garnishment summons or upon the date it became effective,the garnishee was indebted to the judgment debtor or had possession or control of the following property, money, goods, chattels, credits, negotiable instruments or effects belonging to the judgment debtor as follows: (Please check appropriate response)

_____ Earnings as shown on the attached Calculation for Garnishment of Earnings form which is incorporated reference into this answer;
    x       Other; specify: Following the review of the debtor’s account pursuant to 31 CFR §212.1 et. seq (see attached Bullet Point Summary), garnishee has determined $X.XX funds in excess of the protected amount available.

You will then attach the Bullet Point Summary (see below) to this page of the Answer. This will help to educate the creditor and put the creditor on notice that there are protected federal benefits involved. If he takes the time to read the Bullet Point Summary, it may prevent a call to the bank asking for an explanation. It may prevent the creditor from seeking further discovery by way of deposition or interrogatories under Tit. 12 O.S. 1183, or a trial under Tit. 12 O.S. 1190.

Fees for Garnishments and Levies/Right of Offset

The changes occasioned by the Garnishment of Federal Benefits Rule has engendered lots of calls and emails regarding if, when, how and how much a bank can charge the customer/deduct from the funds available when a garnishment or levy is received.
We start with the basic premise that you may charge whatever you want for processing these garnishments and levies, and this is NOT one of the fees required to be disclosed under Reg DD. However, you are limited as to what you may deduct from the funds being remitted to the creditor IF there are not sufficient funds/”unprotected funds” to pay the creditor in full as well as your entire fee. For instance, let’s say there are no federal benefits directly deposited into the account, the judgment is $200.00, there is $150.00 in the account and your fee is $25.00. In this case, you may deduct $10.00 from the funds before you remit the rest AND you may overdraft the account for balance of your fee. Under the same situation, if there ARE federal benefits going into the account, and the $150.00 are funds exceeding the protected amount, the best you will be able to do is deduct $10.00 from the those funds before remitting and you will have to eat the rest of fee under Sec. 212.6(h) of the new Federal Garnishment Rule:

Impermissible garnishment fee. The financial institution may not charge or collect a garnishment fee against a protected amount, and may not charge or collect a garnishment fee after the date of account review.

In the event, there are $0 “funds in excess of the protected amount,” I would bill the creditor the $10.00 under Tit. 12 O.S. Sec. 1190 A. provides:

A garnishee may deduct a fee of Ten Dollars ($10.00) from the funds of the defendant in the garnishee’s possession as reimbursement for costs incurred in answering. If the garnishee is not indebted to the defendant and the garnishee’s answer evidencing that is filed and mailed or delivered to the judgment creditor or to the judgment creditor’s attorney of record, the garnishee may assess the judgment creditor a fee of Ten Dollars ($10.00) as reimbursement for such costs.

With regard to offset under the so-called “Banker’s lien” when there are “funds in excess of the protected amount,” I would not, repeat, WOULD NOT utilize the right to offset a delinquent loan or loan installment prior to remitting the funds. This is due to the fact that Tom v. First American Credit Union, 151 F.3d 1289 (10th Cir. 1998) is still the last word on the topic from the United States Court of Appeals for the Tenth Circuit. Oklahoma is part of the Tenth Circuit. Note, you may recoup overdraft fees from protected federal benefits if these are going into the overdrafted account.

Financial Institution Deposit Match Levies find are authorized under Federal and Oklahoma Statutes and under the Administrative Code for DHS. As noted above, these will have the Notice of Right to Garnish Federal Benefits, so 212.5, 212.6, will not apply and you do get the $20 fee in the Administrative Code 340:25-5-212:

Financial institution Data match reporting system
(a) Legal basis. Oklahoma Child Support Services (OCSS) maintains a financial institution data match reporting system to identify noncustodial parents’ assets and issue levies on accounts of noncustodial parents who are in noncompliance with an order for support. In maintaining the system, OCSS follows Part A of Subchapter IV of Chapter 7 of Title 42 of the United States Code, associated federal regulations, and state statutes. This Section establishes provisions necessary to implement Sections 666(a)(17) and 669A of Title 42 of the United States Code and Sections 240.22 through 240.22G of Title 56 of the Oklahoma Statutes. The definitions in Section 240.22A of Title 56 of the Oklahoma Statutes apply to the terms used in this Section.
(b) Financial institutions.
(1) All data supplied to OCSS by financial institutions doing business in Oklahoma must be in accordance with the Financial Institution Data Match Specifications Handbook published by the federal Office of Child Support Enforcement.
(2) A financial institution may charge an account levied on by OCSS a fee of $20, under Section 240.22E(E) of Title 56 of the Oklahoma Statutes, which is deducted from the account before the financial institution remits funds to OCSS. If the levied funds are subsequently refunded by OCSS because of an OCSS error described in (d)(4)(A) or (d)(4)(B) of this Section, OCSS refunds any fee charged to the appropriate account holder.

While the bank is entitled to the $20.00 fee for FIDMs, the bank has no right of offset with regard to past due loans or installments.
With regard to the IRS, you are not permitted to deduct any fees from funds subject to an IRS levy or garnishment. You could, however overdraft the account for your fee if there are no federal benefits directly deposited to the account OR there ARE federal benefits automatically deposited to the account and the Notice of Right to Garnish Federal Benefits is attached. You will be back under 212.6(h) if there is no Notice of Right to Garnish Federal Benefits and insufficient “funds in excess of protected amounts” to pay the levy in full. You may NOT utilize the right of offset without permission of the IRS.

Bullet Point Summary of 31 CFR Part 212, Garnishment of Accounts Containing Federal Benefits
Effective May 1, 2011


• 31 CFR Part 212 preempts any State or local law or regulations inconsistent with its provisions. A State law or regulation is inconsistent if it requires the financial institution (“FI”) take actions or make disclosures that contradict or conflict with Part or require the FI to violate Part 212 in order to comply with the State law or regulation (§ 212.9).
• When a FI receives a garnishment order, it must determine if the creditor (United States or a State child support enforcement agency) has attached a Notice of Right to Garnish Federal Benefits within the time period established by § 212.4(a).
• If there is no Notice of Right to Garnish Federal Benefits, the FI shall review the debtor’s account history for the prior two-month period (“lookback period”) for the presence of direct deposits of exempt federal benefits and allow the debtor access to an amount equal to the lesser of the sum of such exempt payments during the lookback period or the balance in the account on the date of review as established by § 215(a). This is the “protected amount” and is conclusively exempt from garnishment and nor may it be used to pay the FI’s garnishment fees (§ 212.6).
• Funds in excess of the protected amount shall be reported/remitted to the garnishor as required allowed by State law (§ 212.6). Further, the debtor is permitted to file the Oklahoma Claim for Exemption and Request for Hearing with regard to the funds in excess of the protected amount (§ 212.8).
• The FI is protected from liability to a creditor for any penalties under State law, contempt of court, civil procedure, or other law for failing to honor a garnishment order, for account activity during the examination and pending review. The FI is protected from liability to a creditor that initiates a garnishment order for any protected amounts, to an account holder for any frozen amounts, or for any penalties under State law, contempt of court, civil procedure, or other law for failing to honor a garnishment order when a direct deposit of benefits has occurred during the lookback period or the garnishment order was obtained by the United States of a State Child support enforcement agency The FI is further protected from other potential liabilities (§ 212.10).

31 CFR PART 212 AND THE INTERIM FINAL RULE (76 FR 9939) may be accessed:

http://www.bankersonline.com/regs/31-212/31-212-000.html

By Andy Zavoina, CRCM

Good News and Bad News about a New LAR is in Your Future

The bad news is you’ll have a new LAR requirement to meet under the Dodd-Frank Act. The DFA amends Reg B so that you’ll have to gather HMDA-LAR like information for loans to women-owned, minority-owned, small businesses. The requirement is under a new section of the ECOA, 704B. The good news is that for the time being Reg B has not been amended. Until the requirements are clear, under Reg B, there isn’t much you can do except prepare your staff with the knowledge that this is coming.

New FDIC CRC Address

If the FDIC is your regulator, keep reading. The FDIC’s Consumer Response Center (CRC) receives, investigates, and responds to consumer complaints and other inquiries about your bank. You reference the CRC and its mailing address on your Equal Housing Lender poster(s) and on your adverse action notices. On March 25 the FDIC issued FIL-18-2011, which provides a new mailing address for the CRC. You need to change your poster(s) and adverse actions to reflect the new address:

FDIC
Consumer Response Center
1100 Walnut St, Box #11
Kansas City, MO 64106

You can replace your poster or, in the short term, affix the correct address over the old address with paper and tape. Your CRA notices are not affected.

Good 1099 News

President Obama’s health-care law had a new 1099 requirement in it. A business-to-business transaction in excess of $600 would have to be recorded and reported to the IRS, beginning in 2013. Small businesses including bankers complained about this requirement. President Obama signed a law repealing the requirement on April 14, 2011.