As the COVID-19 pandemic continues to impact how we live and work, banks have been confronted with a host of regulatory and legal issues to address. Here are some of the more important:
Customers Affected by COVID-19
The federal banking agencies and the Conference of State Bank Supervisors issued a joint statement on March 9 encouraging banks to work constructively with borrowers and other customers affected by COVID-19. The statement notes any prudent efforts that are consistent with safe and sound banking practices should not be subject to examiner criticism.In addition, the federal banking agencies issued a joint statement pursuant to the Community Reinvestment Act (CRA) on March 19 informing banks that the agencies will favorably consider retail lending and other retail services that are responsive to the needs of low- and moderate-income individuals, small businesses, and small farms affected by COVID-19 in a safe and sound manner. Such CRA activities might include waiving bank fees and increasing the availability of short-term credit.
While federal statutory law provides that banks must give notice 90 days advance notice to close a branch, regulators have adopted a more flexible approach in the case of emergencies and permitted closings on a more immediate basis. In addition, while regulators encourage banks to minimize disruptions in service, they acknowledge that circumstances may dictate that a bank modify branch hours or close the branch’s lobby and provide services only through a branch’s drive-through and are willing to discuss options with the bank.
Board and Shareholder Meetings
As a result of government guidance seeking to limit social gatherings so as to curb the spread of COVID-19, banks and their holding companies are considering whether they can hold board and shareholder meetings by remote participation through electronic means. In this regard, federal banking law permit bank boards to meet electronically if the bank’s bylaws so permit. Virginia law allows the board to permit any or all of the directors to participate in a meeting by “any means of communication by which all directors participating may simultaneously hear each other during the meeting.”
In addition, Virginia law permits shareholders to participate in any meeting “by means of remote communication to the extent the board of directors authorizes such participation.” Reasonable measures must be adopted to verify a person participating remotely is a shareholder and that such shareholder has a reasonable opportunity to participate in the meeting and vote.
Banks must consider the ability of their vendors to continue to perform mission-critical functions under contracts. In some cases, a bank may need to determine who bears the risk if a contract can’t be performed. In this regard, there are a number of issues under contract law for the bank to consider.
As a result of COVID-19, the Virginia Supreme Court has ordered the closing of courthouses throughout the Commonwealth. There may be some clerk’s offices that are not open on a regular schedule because of such court closings. This obviously affects the filing of deeds of trust and other instruments necessary for lenders to properly secure their loans.
As a consequence, banks must consider delaying loan closing or obtaining GAP insurance from title insurance companies to protect their security interests during the period after closing but before the recordation of the deed of trust and related documents.
The uncertainty created by the impact of COVID-19 makes consumers who are worried about money especially vulnerable to fraud. On March 18, the FDIC issued a warning that consumers may receive communications that purport to be from representatives from the FDIC and that seek sensitive personal information regarding their deposits. These are scams, according to the FDIC. Banks should be sensitive to this particular kind of scam and other scams as a result of COVID-19.