Banking and Finance Law Daily FFIEC offers advice for lender accommodation issues
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Tuesday, August 4, 2020

FFIEC offers advice for lender accommodation issues

By Colleen M. Svelnis, J.D.

FFIEC has issued a statement with guidelines as emergency relief accommodations set into place begin to reach their expiration dates.

The Federal Financial Institutions Examination Council, on behalf of its members (Federal Reserve Board, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency), has issued a Joint Statement on Additional Loan Accommodations. The statement brings attention to risk management and consumer protection principles for financial institutions to consider while working with borrowers as loans near the end of the initial loan accommodation periods provided during the COVID-19 pandemic. These include identifying, measuring, and monitoring the credit risks of loans that receive accommodations; well-structured and sustainable accommodations; consumer protection considerations; accounting and regulatory reporting treatment; and the role of internal control systems.

FFIEC members also delivered the statement to their supervised institutions, with an OCC Bulletin, and a FDIC financial institution letter advising its supervised institutions of the joint statement. The Fed’s Division of Supervision and Regulation and Division of Consumer and Community Affairs asked Reserve Banks to distribute a letter to the supervised organizations in their districts and noted that any questions should be sent via the Fed’s public website.

The statement explains that FFIEC members have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the COVID-19 pandemic and view loan accommodations as "positive actions" which can "mitigate adverse effects on borrowers caused by the COVID event." For borrowers who are unable to meet their obligations due to continuing financial challenges, the statement notes that some financial institutions may face difficulties in assessing credit risk due to limited access to borrower financial data, and difficulty in analyzing the impact of COVID event-related government assistance programs.

The agencies encourage financial institutions to "consider prudent accommodation options that can ease cash flow pressures on affected borrowers, improve their capacity to service debt, and facilitate institutions’ ability to collect loans, consistent with applicable laws and regulations." These arrangements could mitigate the long-term impact of a financial challenge on borrowers by helping to avoid delinquencies or other adverse consequences. The statement warns that "Imprudent practices can adversely affect borrowers and expose financial institutions to increases in credit, compliance, operational, and other risks as well as present risks to a financial institution’s capital."

Effective risk management includes providing clear, conspicuous, and accurate communications and disclosures to inform borrowers of affordable and sustainable accommodation options prior to the end of the accommodation period.

Financial institutions are encouraged to provide consumers with available options for repaying any missed payments at the end of their accommodation to avoid delinquencies or other adverse consequences. Consumers should also be provided with options to make changes to the terms of the credit product to support sustainable and affordable payments for the long term.

The statement also addresses issues relative to accounting and regulatory reporting and internal control systems. Internal controls for initial and additional accommodation periods include quality assurance, credit risk review, operational risk management, compliance risk management, and internal audit functions that are commensurate with the size, complexity, and risk of a financial institution’s activities.

FFIEC stated that the principles in this joint statement are intended to be tailored to a financial institution’s size, complexity, and loan portfolio risk profile, as well as the industry and business focus of its customers or members.

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