December 2025 OBA Legal Briefs

Pennies

By Pauli Loeffler

I have gotten numerous questions from bankers regarding guidance as these coins will be phased out.  I had one banker tell me that she had heard that “rounding” down was not acceptable.  When I asked the source of this information, she had received it by word of mouth. I found nothing to support this assertion and assign it to be a rumor.

As far as guidance, I would point you toward information provided by the Federal Reserve  of Atlanta:

Cash was the third-most-used payment instrument in 2024, accounting for 14 percent of all consumer payments in the United States and 21.3 percent of all payments that were made in-person.  About 70 percent of cash payments were for $10 or less.  In August 2025, the US Treasury ceased production of new 1-cent coins (pennies).  The penny is not phased out yet and will continue to serve as a legal tender until the market runs out of pennies or until users no longer find it valuable for transactions.  The first penny was minted in 1787, and the long history of the penny coin is described

The elimination of the penny coin has three long-term implications:

It eliminates the high cost of minting the penny coin (which was 3.68 cents in 2024; see here icon denoting destination link is offsite).

It will reduce the burden of paying cash by reducing the number of coins that need to be exchanged between the payer and payee.

However, it will require rounding of cash payment amounts to their nearest zero cents, 5 cents (nickel), or 10 cents (dime).

The first item needs no explanation.  The second item—no more heavy pockets or wallets full of coins—was already analyzed in the microblog post.  Therefore, this post will focus on the third item, which is the effect of rounding payments made in cash.

Rounding rules for cash payments

The slow phase-out of the penny coin implies that sooner or later transactions will have to be rounded up or down to either zero, 5, or 10 cents. Yet, there are no official rounding rules in the United States, although H.R.3761icon denoting destination link is offsite, a bill that would allow rounding, was introduced in 1989. This post focuses on “symmetric” rounding (defined below). Other possible rounding methods (upward and downward) are defined and analyzed in the full report icon denoting destination link is offsite.

The “symmetric” rounding rule implies that: (i) cash payments ending with 1 and 2 pennies are rounded down to 0 pennies; (ii) cash payments ending with 3 and 4 pennies are rounded up to 5 pennies; (iii) cash payments ending with 6 and 7 pennies are rounded down to 5 pennies; and (iv) cash payments ending with 8 and 9 pennies are rounded up to 10 pennies.

The symmetric rounding rule was adopted in Canada in 2012 after the Royal Canadian Mint stopped supplying new penny coins (see here icon denoting destination link is offsite). The symmetric rounding rule was also adopted by the European Central Bank (see here icon denoting destination link is offsite), even though the 1 euro-cent is still in circulation. This rule was adopted because several euro zone countries already allow rounding of the 1 euro-cent and 2 euro-cents to their nearest zero, five, or ten euro-cents. The list of countries includes Belgium, Estonia, Finland, Ireland, Italy, Lithuania, the Netherlands, and Slovakia.

Data and preliminary findings

The data are taken from the 2024 Survey and Diary of Consumer Payment Choice (SDCPC). The SDCPC is a sample of US consumers age 18 and older and conducted yearly each October. The data are publicly available.

The 2024 SDCPC data contain 3,896 in-person cash payments conducted by 1,994 respondents who made cash payments. Therefore, on average, each cash-using respondent has made 1.95 (or almost two) cash payments during three consecutive days in the month of October 2024.

Perhaps the most important finding from the data with respect to rounding is that survey respondents reported that 72 percent of their cash payments already end with 0 (zero) pennies. Clearly, these payments will not be affected by the elimination of the penny because even now pennies are not used for most cash payments. Figure 1 shows the percentage of cash payments that end with zero and five cents.

If you would like more information, you can access it at this link: https://www.atlantafed.org/blogs/macroblog/2025/11/03/rounding-rules-and-cash-inflation-when-we-no-longer-make-cents. You can read the entire article here.

Check your to-do list

By Pauli Loeffler

Let’s review some of your annual compliance chores to ensure they are tidy and cared for.

Security, Annual Report to the Board of Directors § 208.61 – The Bank Protection Act requires that your Security Officer report at least annually to the board of directors on the effectiveness of the security program. The substance of the report must be reflected in the minutes of the meeting. The regulations don’t specify if the report must be in writing, who must deliver it, or what information should be in the report. It is recommended that your report span three years and include last year’s historical data, this year’s current data and projections for the next year.

Similar to compliance reporting to the board, this may include a personal presentation, or it may not. I recommend that it is, as it is an opportunity to express what is being done to control what has happened as well as foreseeable events and why, as that can assist you in getting the budget and assets necessary in the coming year. While the year end is not necessarily the most desirable time to make such a presentation, take whatever time you do get and use it wisely. Annual presentations such as this are better done when the directors can focus more on the message so try to avoid quarter ends, and especially the fourth quarter.

Regulation O, Annual Resolution §§ 215.4, 215.8 – In order to comply with the lending restrictions and requirements of 215.4, you must be able to identify the “insiders.” Insider means an executive officer, director, or principal shareholder, and includes any related interest of such a person. Your insiders are defined in Reg O by title unless the Board has passed a resolution excluding certain persons. You are encouraged to check your list of who is an insider, verify that against your existing loans, and ensure there is a notification method to keep this list updated throughout the year.

Fair Credit Reporting Act – FACTA Red Flags Report – Section VI (b) (§ 334.90) of the Guidelines (contained in Appendix J) require a report at least annually on your Red Flags Program. This can be reported to either the Board, an appropriate committee of the Board, or a designated employee at the senior management level.

This report should contain information related to your bank’s program, including the effectiveness of the policies and procedures you have addressing the risk of identity theft in connection with the opening of covered accounts and with respect to existing covered accounts, as well as service provider arrangements, specifics surrounding and significant incidents involving identity theft plus management’s response to these and any recommendations for material changes to the bank’s program. Times change, customers habits change, and importantly criminals change and each may require tweaks to the bank’s program.

BSA Annual Certifications – Your bank is permitted to rely on another financial institution to perform some or all the elements of your CIP under certain conditions.  The other financial institution must certify annually to your bank that it has implemented its AML program. Also, banks must report all blockings to OFAC within ten days of the event and annually by September 30, concerning those assets blocked as of June 30.

Information Security Program part of GLBA – Your bank must report to the board or an appropriate committee at least annually. The report should describe the overall status of the information security program and the bank’s compliance with regulatory guidelines. The reports should discuss material matters related to the program, addressing issues such as: risk assessment; risk management and control decisions; service provider arrangements; results of testing; security breaches or violations and management’s responses; and recommendations for changes in the information security program.

IRAs, IRS Notice.  If a minimum distribution is required from an IRA for a calendar year and the IRA owner is alive at the beginning of the year, the trustee that held the IRA on the prior year-end must provide a statement to the IRA owner by January 31 of the calendar year regarding the required minimum distribution.

Training – An actual requirement for training to be conducted annually is rare, but annual training has become the industry standard and may even be stated in your policies. There are six areas that require trainingBSA (12 CFR §21.21(c)(4) and §208.63(c)(4) Provide training for appropriate personnel.

• Bank Protection Act (12 CFR §21.3(a)(3) and §208.61(c)(1)(iii)) Provide initial & periodic training
• Reg CC (12 CFR §229.19(f) Provide each employee who performs duties subject to the requirements of this subpart with a statement of the procedures applicable to that employee)
• Customer Information Security found at III(C)(2) (Pursuant to the Interagency Guidelines for Safeguarding Customer Information), training is required. Many banks allow for turnover and train as needed, imposing their own requirements on frequency.)
• FCRA Red Flag (12 CFR 222.90(e)(3)) Train staff, as necessary, to effectively implement the Program;)
• Overdraft protection programs your bank offers. Employees must be able to explain the programs’ features, costs, and terms, and to explain other available overdraft products offered by your institution and how to qualify for them. This is one of the “best practices” listed in the Joint Guidance on Overdraft Protection Programs issued by the OCC, Fed, FDIC and NCUA in February 2005 (70 FR 9127, 2/24/2005), and reinforced by the FDIC in its FIL 81-2010 in November 2010.

Reg Z Thresholds and Updates – As of this writing, I have found no changes for 2026 as of this writing.  Below are those effective January 1, 2025

• 1026.3 – Exempt transactions. There are exemptions from coverage by Reg Z under (b) of this section. One such exemption is when the loan amount exceeds the threshold set under in comment 3(b)-3 for that period. Effective January 1, 2025 the amount increases from $69,500 to $71,900. This applies for loans exceeding the threshold amount which are NOT secured by real or personal property used or expected to be used as the principal dwelling of the consumer nor is a private education loan under as defined in § 1026.46(b)(5). There are additional requirements for exemption with regard to open-end credit. Please note that the Oklahoma Uniform Consumer Credit Code uses the same threshold as Reg Z.
• 1026.32 – High Cost Mortgage Loans (HOEPA) – The adjusted total loan amount threshold for high-cost mortgages in 2025 will be $26,968. The adjusted points-and-fees dollar trigger will

be $1,348.

For qualified mortgages (QMs) under the General QM loan definition in § 1026.43(e)(2), the threshold for the spread between the annual percentage rate (APR) and the average prime offer rate (APOR) in 2025 will be:

3. For 2025, reflecting a 3.4 percent increase in the CPI-U that was reported on the preceding June 1, to satisfy § 1026.43(e)(2)(vi), the annual percentage rate may not exceed the average prime offer rate for a comparable transaction as of the date the interest rate is set by the following amounts:
4. For a first-lien covered transaction with a loan amount greater than or equal t`3o $134,841, 2.25 or more percentage points;
5. For a first-lien covered transaction with a loan amount greater than or equal to $80,905 but less than $134.841, 3.5 or more percentage points;
6. For a first-lien covered transaction with a loan amount less than $80,905, 6.5 or more percentage points;
7. For a first-lien covered transaction secured by a manufactured home with a loan amount less than $134,841, 6.5 or more percentage points;
8. For a subordinate-lien covered transaction with a loan amount greater than or equal to $80,905, 3.5 or more percentage points;
9. For a subordinate-lien covered transaction with a loan amount less than $80,905, 6.5 or more percentage points.

For 2025, a covered transaction is not a qualified mortgage unless the transaction’s total points and fees do not exceed:

1. For a loan amount greater than or equal to $134,841: 3 percent of the total loan amount;
2. For a loan amount greater than or equal to $80,905 but less than $134,841: $4,005;
3. For a loan amount greater than or equal to $26,968 but less than $80,905: 5 percent of the total loan amount;
4. For a loan amount greater than or equal to $16,855 but less than $26,9682: $1,305
5. For a loan amount less than $16,855: 8 percent of the total loan amount.

Recent State Court Opinion Threatens Oklahoma’s Financial System

By Scott Thompson

The Oklahoma banking community, represented by the Oklahoma Bankers Association (OBA), is voicing serious concern over a recent decision by the state’s Court of Civil Appeals. The OBA has filed an amicus curiae brief, petitioning the Oklahoma Supreme Court to grant a writ of certiorari and reverse the opinion, arguing it is not only legally flawed but poses a significant threat to the fundamental mechanics of banking and contractual relationships across Oklahoma.

The central case involves a challenge to a bank’s deposit account agreement, specifically regarding an arbitration clause and the bank’s contractual right to unilaterally modify the terms. The Court of Civil Appeals’ opinion, as written, could invalidate numerous existing contracts by essentially predetermining that such a unilateral modification clause renders the entire agreement—including the arbitration provision—illusory and unenforceable. This outcome, the OBA contends, has massive negative implications for banks, accountholders, and other economic sectors relying on similar contract structures.

The OBA’s first and most critical point is that the Court of Civil Appeals fundamentally misunderstands the traditional at-will nature of the bank-accountholder relationship.

• Mutual Freedom to Terminate: Banking is an at-will relationship. This means a bank can close an account and end its relationship with an accountholder at any time, provided it gives notice as required by the account agreement and law. Crucially, an accountholder has the same freedom: they can terminate their relationship simply by withdrawing their funds and moving to a different institution.
• The Power of Choice: The OBA emphasizes the prevalence of banking options in Oklahoma—over 170 different banks, plus credit unions and other financial institutions. If an accountholder dislikes the terms of an agreement, such as the inclusion of an arbitration provision, they can easily choose to bank elsewhere.
• Distinction from Employment Law: The brief draws a stark contrast between banking and employment relationships, citing the precedent of Thompson v. Bar-S Foods Co. Employment, the OBA notes, often involves high barriers to entry and greater impediments to change, making termination far more impactful. Because accountholders can easily transfer their funds, the underlying concerns that led to the Thompson decision—like a substantial impediment to moving—are absent in the banking context.

The OBA argues that if the relationship were not at-will, every minor change to an account agreement would require the execution of an entirely new contract, which is both inefficient and costly, particularly for smaller banks. Existing regulations, such as those under the Truth in Savings Act (12 C.F.R. § 1030.5), only require advanced notice (30 days) of changes that may adversely affect the consumer, which clearly implies the accountholder has the opportunity to exit the relationship before the change takes effect.

The Opinion, by failing to recognize the at-will nature, effectively interferes with freedom of contract, throwing countless active banking contracts into a state of unpredictability.

The Court of Civil Appeals’ main point of contention appears to be the bank’s right to “change any . . . term[] of th[e] Agreement at [the bank’s] sole discretion.” The OBA stresses that this unilateral-change provision is a common and necessary aspect of banking contracts for two primary reasons:

1. Legal Compliance: Banks operate in a heavily regulated environment. Changes to federal or state laws, regulations, or compliance requirements often necessitate that account agreement terms be altered relatively quickly.
2. Economic Adaptation: Changing economic circumstances may also require contractual adjustments.

Requiring an entirely new account agreement or affirmative, express consent (beyond continuing to use the account after notice) for every necessary update would be inefficient, costly, and in many cases, not feasible—especially for smaller banks with limited resources.

The ripple effect of the Opinion is not confined to the financial sector. The OBA warns that the approach used by the Court of Civil Appeals would inevitably be pressed toward its extreme, calling into question contracts across the entire economy, including:

• Credit card agreements
• Cell phone agreements
• Utility and streaming-service contracts

All these entity-consumer relationships are commonly governed by contracts that allow one party to unilaterally update costs or terms, with the consumer’s continued use serving as consideration after notice is supplied. Allowing this Opinion to stand could destabilize the enforceability of these widely used commercial agreements.

The most forceful argument by the OBA focuses on the Opinion’s alleged misapplication of arbitration precedent, specifically regarding the Federal Arbitration Act (FAA) and the doctrine of severability. Under U.S. Supreme Court precedent concerning the FAA, the doctrine of severability is a mainstay:

• A challenge to the validity of the arbitration agreement itself must be decided by a court first.
• A challenge to the validity of the entire contract in which the arbitration agreement appears must be resolved by the arbitrator, not a court, assuming the arbitration clause itself is valid.

The Plaintiffs’ core challenge is that the unilateral modification clause makes the entire contract illusory and, therefore, void. The OBA cites controlling precedent, including Nitro-Lift Techns., L.L.C. v. Howard, where the U.S. Supreme Court explicitly instructed Oklahoma courts that an attack on the validity of the contract as a whole must be resolved by the arbitrator.

The Opinion, has repeated the error that the U.S. Supreme Court corrected in Nitro-Lift: it allowed the court to decide the validity of the entire contract based on the illusoriness challenge, rather than sending that challenge to the arbitrator. The OBA also asserts that the Opinion suffers from judicial overreach. The Court of Civil Appeals noted that the sole error presented on appeal was whether the Plaintiffs’ illusoriness challenge should have been resolved by the trial court or the arbitrator. The trial court sent the matter to the arbitrator. The narrow holding was only supposed to instruct the District Court to “address the Hurts’ illusoriness challenge,” before sending the matter to arbitration. While the OBA contends the narrow holding itself is wrong, for the reasons previously stated, the Opinion went much further. It functionally predetermined the correct answer for the District Court, stating that the bank “has complete control over the performance of its obligations” and that the Agreement “lacks the reciprocity necessary to form a binding contract.”

This determination, made without post-remand arguments or evidence, effectively decides the case on the merits and is another reason the Opinion should be reversed.

The Oklahoma Bankers Association’s statement is a powerful plea for legal stability and adherence to federal arbitration law. The OBA’s members rely on the traditional at-will nature of banking and the enforceability of contracts that include unilateral modification provisions—a necessity for legal compliance and operational efficiency.

The concerns for banks are threefold:

1. Contractual Instability: The Opinion jeopardizes the enforceability of all account agreements that contain standard unilateral modification clauses, undermining the foundation of the bank-accountholder relationship.
2. Operational Burden: The ruling would make timely adaptation to new laws and economic conditions impractical by potentially requiring the re-execution of every account agreement for every minor change.
3. Conflict with Federal Law: By having a state court resolve the challenge to the validity of the entire contract, the Opinion stands in direct contravention of the Federal Arbitration Act and controlling U.S. Supreme Court precedent.

For the good of the Oklahoma banking industry, its employees, and the accountholders who benefit from widely available and stable financial services, the OBA has urged the state’s highest court to intervene, grant certiorari, and reverse the Opinion. We will keep you updated as the case continues through the process.