US Banking regulatory agencies released an update yesterday to supervisory guidance issued on March 22, 2020 after the presidentially declared National Emergency of March 13, 2020. The updated statement clarifies and communicates agencies’ views on consumer protection and specifics of the CARES Act, Section 4013, Temporary Relief from Troubled Debt Restructurings.
Covered topics and recap of the Interagency Guidance Revision:
Working with Customers
Financial institutions are encouraged to prudently work with borrowers who are impacted by the effects of Covid-19 and are experiencing difficulties meeting their contractual obligations. Loan modifications will be viewed positively to mitigate adverse impacts while institutions operate in a safe and sound manner. Generally, agencies will not require modified loans to be automatically classified as TDR’s.
Accounting and Reporting Considerations
CARES Act allows for a financial institution to modify and report loans under Section 4013. Accounting for loan modifications under Section 4013 is stipulated in the statement. Financial institutions do not have to report section 4013 loans as TDR’s in regulatory reports but institutions should maintain records and data of these loan populations. Other key topics covered in this section include credit risk, regulatory capital, past due reporting, non-accrual status and charge-offs.
Working with Customers and Consumer Protection Considerations
Financial institutions are encouraged to consider prudent arrangements to ease cash flow burdens on impacted borrowers, to help them meet debt obligations, keep their homes and avoid foreclosure. Lenders should adhere to consumer protection requirements, including fair lending laws and provide opportunities for borrowers to benefit from these arrangements in a time of National Emergency.
Additional information and communication will be provided as the effects of Covid-19 continue to unfold.