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Jan 1, 2011, big day for banks, from compliance perspective!

Banks may not accept tax deposit coupons after Dec. 31, 2010

On Dec. 7, 2010, the IRS announced that effective Jan. 1, 2011, it is discontinuing the federal tax deposit program that allows taxpayers to present paper coupons and checks to bank branches for federal tax payments. Beginning Jan. 1, 2011, all payments more than $2,500 must be made via electronic funds transfer. Payments less than $2,500 may still be made via paper check through a new lockbox program established by the IRS. Beginning Jan. 1, banks must not accept payment coupons or checks. The final day for processing coupons via the program will be Jan. 3, 2011. The final day to submit an adjustment request will be Feb. 28, 2011. After Jan. 1, 2011, most businesses will be required to use the Electronic Federal Tax Payment System (www.eftps.gov) to pay their taxes.

FDIC insurance coverage changes effective Jan. 1, 2011

We covered important changes in FDIC insurance coverage that are effective at the end of this year in the October 2010 Legal Update. Since then, the FDIC published its final rule implementing insurance coverage changes on Nov.15, 2010, at 75 F.R. 69577. There a couple of minor changes from the interim rule. In addition, the U.S. Senate passed a bill backed by the American Bankers Association (H.R. 6398) on Dec. 22 that would provide temporary unlimited deposit insurance for IOLTA accounts beginning Jan. 1, 2011. It is expected that President Obama will promptly sign this bill, enacting into law in time to be effective Jan. 1. The FDIC has also stated that they will issue a clarifying financial institution letter within days of this bills enactment into law. Here is a summary of the provisions and requirements that affect all Oklahoma banks:

  1. The standard maximum deposit insurance amount (SMDIA) is permanently raised to $250,000.
  2. For banks that are participating in the TAG program, this special unlimited coverage will end effective Dec. 31, 2010.
  3. The FDIC Guaranty for Non-Interest Bearing Transaction Accounts is raised to UNLIMITED , through Dec. 31, 2012. This coverage is separate from and in addition to the SMDIA of $250,000. Importantly, NOW accounts are excluded from this unlimited coverage. Upon H.R. 6398's enactment into law, this temporary unlimited coverage will also be extended to IOLTA accounts.
  4. The Final Rule imposes 3 Notice Requirements on banks:
    • All banks offering non-interest bearing deposits must post the following notice in the lobby of its main office, in each branch and if it offers Internet deposit services, on its Web site by Dec. 31, 2010 [Note: This notice is not identical to the version published in the interim proposed rule. If your bank has published the original version of this notice, please make sure it is revised to match this version]:

All funds in a ''noninterest-bearing
transaction account'' are insured in full by
the Federal Deposit Insurance Corporation
from December 31, 2010, through December
31, 2012. This temporary unlimited coverage
is in addition to, and separate from, the
coverage of at least $250,000 available to
depositors under the FDIC's general deposit
insurance rules.
The term ''noninterest-bearing transaction
account'' includes a traditional checking
account or demand deposit account on which
the insured depository institution pays no
interest. It does not include other accounts,
such as traditional checking or demand
deposit accounts that may earn interest,
NOW accounts, money-market deposit
accounts, and Interest on Lawyers Trust
Accounts (''IOLTAs'').
For more information about temporary
FDIC insurance coverage of transaction
accounts, visit www.fdic.gov.

NOTE: Presumedly, the referenced to IOLTA accounts will be removed between now and the end of the year.

Insured depository institutions currently participating in the TAG Program must notify NOW account (who are currently protected under the TAG Program) that beginning Jan. 1, 2011, their NOW accounts will no longer be eligible for unlimited protection. The final regulation provides that this notice may be in the form of notice that is required to be posted in banking branches and online. This notice must be mailed or otherwise provided to the customer by Dec. 31, 2010. Assuming H.R. 6398 is signed into law, it is expected that the FDIC will clarify that no such notice will be required for IOLTA account holders.

Insured depository institutions must notify customers of any action they take to affect the deposit insurance coverage of funds held in noninterest-bearing transaction accounts. This notice requirement is intended primarily to apply when banks begin paying interest on demand deposit accounts when allowed under Section 627 of the Dodd-Frank Act (beginning July 22, 2011). Thus, if your bank modifies its deposit agreement such that interest is payable after July 22, 2011, such a notice would be required. This notice requirement would also apply when a bank uses a sweep account to sweep funds from a non-interest bearing account to an interest bearing account.

Jan. 3, 2010 is the deadline for banks to display the updated FDIC official signage, reflecting the permanent increase to $250,000 coverage. To order signs, go to: https://vcart.velocitypayment.com/fdic/.

Regulators increase HMDA, CRA thresholds effective Jan. 1, 2011

Federal Regulators have issued two new final rules on Dec. 20 and Dec. 21 related to increases in HMDA and CRA threshold amounts that are tied to changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPIW), which increased by a rate of 2.21 percent for the period ending November 2010. As a result, the following thresholds have been changed:

  1. HMDA threshold raised to $40 million — The Federal Reserve has issued a final rule that raises the asset-sized exemption for depository institutions from $39 million to $40 million. Banks with assets of $40 million or less as of Dec. 31, 2010, are exempt from collecting HMDA data in 2011.
  2. CRA small bank thresholds raised — The federal regulators have issued a joint final rule raising the thresholds for banks that are considered “small banks” and “intermediate small banks” under the Community Reinvestment Act. In general, these banks are subject to more streamlined recordkeeping and CRA evaluation standards. Under the final rule, these definitions are changed as follows:
    • “Small bank” or “small savings association” means an institution that, as of Dec. 31 of either of the prior two calendar years, had assets of less than $1.122 billion; and
    • “Intermediate small bank” or “intermediate small savings association” means a small institution with assets of a least $280 million as of Dec. 31 of both of the prior two calendar years, and less than $1.122 billion as of Dec. 31 of either of the prior two calendar years.

Don't forget these other regulatory changes that effective Jan. 1, 2011

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