July 2019 Newsletters

Inflation Adjustment Amendments Issued to Regulation CC

CBD – Where Are We Now?

Final Rule Brings Call Reporting Relief to Smaller Institutions


Inflation Adjustment Amendments Issued to Regulation CC

by C/A Staff

On June 24, the Federal Reserve Board (Fed) and the CFPB issued joint amendments to Regulation CC to implement a statutory requirement to make adjustments for inflation. The adjustments will be made every five years to the amounts you must make available on funds deposited.  These amendments will cause adjustments to be made to the following amounts:

  • The $200 next business day availability for non-next day checks will increase to $225;
  • The $400 adjustment for withdrawal by cash or similar means will increase to $450;
  • The $5,000 aggregation of checks deposits on any one banking day that are subject to the next-day availability requirement for new accounts
  • The $5,000 threshold for exception holds for new accounts and large deposits will increase to $5,525; 
  • The $5,000 threshold for determining whether an account has been repeatedly overdrawn will increase to $5,525; and 
  • The $1,000 and $500,000 amounts for civil liability for failing to comply with Regulation CC will increase to $1,100 and $552,500, respectively.

These first adjustments will be effective July 1, 2020.  Future changes will occur every five years and amounts will be adjusted by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), as published by the Bureau of Labor Statistics, rounded to the nearest multiple of $25.  The second set of adjustments will be effective July 1, 2025 and will be based on underlying inflation from July 2018 through July 2023. The third and final set of adjustments will be effective July 1, 2030 and will be based on inflation from July 2023 through July 2028.

What do these changes mean to you? First, you will have to work with vendors to update software that determines availability.  You are also going to have to update your Funds Availability disclosures with the updated dollar amounts.  Then, at least 30 days prior to the effective date next July 1 (so no later than June 1, 2020), you will need to send a written notice to your consumer account holders notifying them of these changes to your funds availability policy.  You can provide the notice electronically, as long as you have complied with E-Sign or send it on or with the monthly account statement.  It can be an abbreviated notice, containing only these changes, or it can be a full blown Funds Availability Notice.  Remember, if you send a completely new funds availability schedule, you must direct the customer to the changed terms in the disclosure by use of a letter or insert, or by highlighting those changed terms.  

As a side note, these amendments also subject banks in American Samoa, the Commonwealth of the Northern Mariana Islands, and Guam to the Electronic Funds Availability Act’s requirements related to funds availability, payment of interest, and disclosures.  Those of you located in these territories will be able to take advantage of the one-day extension of the availability schedules permitted by the Electronic Funds Availability Act and Regulation CC.

CBD – Where Are We Now?

By C/A Staff

Marijuana, widely regarded as one of the hottest topics in banking at this moment, has had so much movement within the past year. Amongst the waves of change was the federal legalization of industrial hemp and new state provisions on both recreational use of marijuana and industrial hemp. So, where does Cannabidiol (CBD), the cousin of marijuana and hemp, fall on these sliding scales of legality? 

Before hashing a bit of that out, a little background: with the passage of the Agriculture Improvement Act of 2018 (Farm Bill), a great many substantial changes have been sparked in both the federal and state governments across the nation. For those of you who are unfamiliar with the 2018 Farm Bill, the Farm Bill was passed in December of 2018. It took industrial hemp out of the definition from the “marijuana” under the Controlled Substances Act. Said another way: the Farm Bill legalized industrial hemp, which is derived from the same plant (Cannabis) as marijuana. Unlike marijuana, that is consumed and has psychoactive components, industrial hemp does not produce the same effects due to its low concentration of THC. To that end, “industrial hemp” under the Farm Bill must contain 0.3% THC or less. 

I bet you’re saying to yourself something like: “Well, that means CBD – which is also made from Cannabis – that has a 0.3% concentration of THC or lower must be legal, right?” The short answer is: “Hold up. It’s more complicated than that.” As far as CBD is concerned, there has yet to be the express legalization that many have hoped for. In contrast to industrial hemp – which is governed by the Department of Agriculture – CBD falls under the Food & Drug Administration’s (FDA) purview. This presents a problem because of the FDA’s approval of Epidiolex, an FDA-approved drug for seizures. The 2018 DOJ Rule on this subject stated: 

“any material, compound, mixture, or preparation other than Epidiolex that falls within the CSA definition of marijuana set forth in 21 U.S.C. 802(16), including any non-FDA-approved CBD extract that falls within such definition, remains a schedule I controlled substance under the CSA.” 

This statement within the Rule, of course, presents confusion and issues. 

Thankfully, the FDA has recently spoken on this topic via its Statement of Policy published in late June. The agency indicated that, as of now, it is “currently illegal to put into interstate commerce a food to which CBD has been added, or to market CBD as, or in, a dietary supplement.” The FDA also noted that it is currently working on rules and regulations surrounding CBD, but it’s just going to be some time. In its Statement, regulations for CBD falling under the definition of “industrial hemp” should be streamlined, at the very least.

With all of that being said, the CBD industry is moving very, very quickly. Companies are constantly finding new ways to incorporate CBD. Reports of pilot programs have surfaced just recently in respect to payment processing for CBD companies. How this will play out – we still don’t know. What we do know is that the FDA has a fairly staunch stance and does have ultimate say over CBD in many respects.

In the meantime, we do have a marijuana banking toolkit: https://www.compliancealliance.com/find-a-tool/by-toolkit/marijuana-banking that contains, amongst other useful tools, a marijuana banking manual that speaks to CBD a bit. The FDA’s Statement of Policy can be found here: https://www.fda.gov/news-events/fda-voices-perspectives-fda-leadership-and-experts/fda-committed-sound-science-based-policy-cbd

Final Rule Brings Call Reporting Relief to Smaller Institutions

by C/A Staff

As you may remember, when President Trump signed the Economic Growth, Regulatory Relief and Consumer Protection Act last May, it included a provision that required the agencies to issue regulation that would lessen the requirements for reporting for first and third quarter Call Reports for “covered depository institutions.” While it has taken more than a year, the good news is that the agencies released the final rule on June 17 with an effective date of September 30, 2019. Let’s take a look at what the rule says.

Under the final rule, a “covered depository institution” is one that:

  • has less than $5 billion in total consolidated assets;
  • has domestic offices only;
  • is not required to or has not elected to use Subpart E (Internal Ratings-Based and Advanced Measurement Approaches) of the agencies’ regulatory capital rules to calculate its risk-based capital requirements (i.e. is not an advanced approaches institution); and
  • is not a large or highly complex institution for purposes of the FDIC’s deposit insurance assessment regulations.

For those of you who meet these requirements, you will be permitted to file a more streamlined version of the FFIEC 051 Call Report for the first and third quarter reporting periods. You will also have the option to file the FFIEC 051 Call Report for the other calendar quarters, if you are not already doing so. (The FFIEC 051 contains 882 fewer data items than the FFIEC 041 Call Report, so this would certainly be relief for some of you.) The regulation does have a reservation of authority should an agency determine that an institution no longer be allowed to take advantage of the relief.

For determining whether you meet the asset threshold, you need to look at the amount of the total consolidated assets you reported on your report of condition for the second calendar quarter of 2018. As long as that amount is below $5 billion, you meet the asset threshold. The other provisions require you to determine in each calendar quarter whether you continue to meet the criteria in order to qualify for the relief. If you cease to meet any of these other criteria at any time during that same quarter, then you would no longer be eligible for the reporting relief and could no longer file the modified FFIEC 051 Call Report.  

As for the actual changes, the rule reduces the frequency of reporting of approximately 502 existing data items (37%) from quarterly to semiannual. For covered depository institutions with total assets between $1 billion and $5 billion, the rule adds certain data items that are already being reported on a different report to the modified FFIEC 051 report, but with less frequent reporting requirements. These data items are being added to meet data needs of the agencies. The addition will also assist them in fulfilling their missions of ensuring the safety and soundness of depository institutions while allowing them to continue protecting consumer financial rights and administering federal deposit insurance.

You can read the final rule here:  https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20190617a1.pdf