The economic side effects of the COVID-19 pandemic have left many consumers vulnerable to even the smallest unanticipated costs, and often without the day-to-day liquidity from regular income. The federal government responded with immediately available economic assistance programs, that have been coupled with directions from virtually every state and federal regulator, to enable banks, lenders, and other financial institutions to take steps to help further reduce the financial burden on affected consumers. In particular, regulators have issued requests, guidelines, and emergency regulations geared toward reducing costs and increasing credit available to consumers. Congress even approved economic assistance on a scale not seen since the economic recession of 2008, which provided direct payments to cover payroll, housing, and other living expenses through the Paycheck Protection Program. Against this backdrop, what financial institutions do to assist their consumers during this crisis likely will face private and public scrutiny through lawsuits and investigations.
This pandemic has turned the entire world upside down. We are not operating in normal times, and to continue routine operations as if nothing is different (or making marginal changes) increases the risk of public relations issues and, more importantly, of potentially violating the intent or the letter of the emergency regulations intended to assist consumers. For example, businesses that do not adjust their practices to account for the pandemic risk allegations of engaging in unfair, deceptive (or abusive) acts or practices (UDAPs/UDAAPs). To reduce this risk, institutions should ensure that any fees that it typically charges—including overdraft fees, fees for insufficient funds, or late fees—do not conflict with guidance statements, other informal representations, or regulations regarding COVID-19 assistance. Additionally, an institution waiving fees or otherwise providing consumer relief must offer such relief fairly and equitably. Institutions may also want to consider the reputational risks that may be associated with continuing to charge certain fees during the COVID-19 emergency.
Considering the extraordinary nature of the pandemic and the ever-changing regulatory guidance, financial institutions should exercise caution regarding undisclosed or atypical fees that may be paid with money from the CARES Act stimulus package. Consumer advocates, the media, Congress, and regulators appear to be giving extra attention to anyone who appears to be using stimulus money to benefit rather than merely get by until the end of the crisis. The Treasury Department is also reported to be reviewing its authority to prohibit the garnishment or similar seizure of stimulus payments.
UDAP/UDAAP risks may be especially prominent coming out of the public health crisis. The exigent circumstances, combined with complicated messaging reaching consumers from regulators, financial institutions, and consumer advocates (a collection of statements regarding what industry participants can do, should do, or must do), create inherent risks of consumer confusion and misunderstanding. Some consumers may not understand whether a financial institution is offering relief, or what options may be available to them. Financial institutions will need to review and revise automated standard practices to make sure that the fees charged by the institution—and all consumer-facing communications or notices—reflect the institution's COVID-19 response. Fees and other activity that is contrary to state or federal guidance or other "encouragement" risk attracting unwanted attention in the aftermath of the crisis. This is especially important in the following areas:
Overdraft, NSF, and Late Fees: Reductions in or losses of income mean that many consumers are operating on tighter budgets with little or no flexibility. Many of their expenses, however, remain or may even have increased. Without regular income, these consumers are at risk of overdrafting their accounts and incurring overdraft or NSF fees. Waiving such fees or deferring them until a future date is likely consistent with regulatory encouragement; the failure to do so—particularly when such fees may be paid out of a consumer's economic impact payment—could result in reputational risks and increased regulatory attention post-crisis.
ATM Fees and Access Penalties: The OCC has encouraged banks to waive fees charged to consumers to access their funds (such as ATM fees and early withdrawal penalties on time deposits). Financial institutions that have closed offices or branches that now necessitate withdrawal via ATMs should consider this action to reduce the risk of regulatory scrutiny. Consumers may find themselves needing to access more funds, or different funds, than they would on an ordinary basis.
Undisclosed or Underdisclosed Fees: Some financial products may have annual fees or discretionary fees that consumers could inadvertently trigger. To the extent that financial institutions charge fees associated with the use or maintenance of an account or services, institutions should closely examine how such fees are disclosed, and consider reminders, warnings, or simply waiving such fees. Sending or publishing fee schedules, reminders, and notices can assist consumers in avoiding discretionary fees and preparing for others.
Credit Limits and Payment Deferrals: In addition to addressing certain fees, regulators have requested that financial institutions consider expanding credit limits to reduce/eliminate monthly payments to allow consumers to access credit or forgo regular payments to address COVID-19-related shortfalls. Industry participants should review eligibility criteria for such options and evaluate the options that may be consistent with COVID-19 relief policies and regulatory encouragement.
- Review and comply with mandatory regulatory requirements that apply to your business.
- Evaluate the fees that may be waived, or other steps taken to assist consumers during the COVID-19 crisis, consistent with regulatory guidance, technical capacities, and safety and soundness considerations, and document all steps taken to comply.
- Provide any fee waivers and relief efforts fairly and equitably to all consumers.
- Prepare for increased requests for relief related to the COVID-19 crisis.
- Address challenges that may arise from resetting or manually overriding automated systems.
- Review your terms of service with every change made to the business or user experience flow.
- Consider relief efforts from a post-crisis standpoint – industry participants can take steps now to avoid legal and regulatory risks coming out of the crisis.