May 2021 OBA Legal Briefs

• Dot your i’s, cross your t’s (employer workplace notice rules)
• Foreclosures and evictions after a pandemic

Dot your i’s, cross your t’s

By Andy Zavoina

We, in the compliance and legal fields make it a habit of dotting our i’s and crossing out t’s because we are nitpickers. We look for little details and we agonize over potential terms like “the bank may…” If your mother said you “may” eat all your brussels sprouts does that seem like “may” means it is an option to do so or you must do so? And different people may interpret that statement differently, but we all need to know and follow the rules as best we can. Doing so is a risk issue. Sometimes that risk issue is of a regulatory nature and at others it may be a litigation issue.

Now let’s address one of those often-forgotten rules addressing signage. As nitpickers we periodically walk through our branches and we look for signage. There are funds availability notices near the teller line, equal lending posters near the loan area and a Customer Information Program notice near new accounts. We are very familiar with the signage requirements that are well defined in the regulations we deal with every day. But it is the odd requirements we could fail on because we are not well versed in personnel compliance matters, nor are our examiners who may or may not be checking them. These are signage requirements involving the bank as employer and its employees. These may be of little “importance” on day-to-day matters because it is not a consumer protection issue, but it may be an employee information issue. In my bank, I would include these human resource signage requirements in my compliance signage audits because as a bank officer, it was my job to protect the bank in all matters, extending beyond consumer compliance.

Has your bank ever been involved in litigation with an ex-employee? It might be like many marital divorces as the name calling and mudslinging begins. Signage could be an issue in these instances, because the bank never posted “that sign advising me of my rights, so the bank was negligent.” That may be heard from the ex-employee’s lawyer as they ask for back pay or some other compensation they feel they are now entitled to, or when the employee’s gripe may lead to a monetary penalty from a government agency like the Department of Labor.

When you do that walk-through (annually or at some other frequency based on your compliance audit program) in the branches with your signage checklist, you may be looking for the 5-in-1 Employment poster. On the BankersOnline Tools section for Signage Audits, this is noted as “Required to be visible to job applicants and employees, 42 USC 2000e-10(a). This poster should include five parts, and if not in a combined poster, individual signs must be posted in the manager’s office or lobby. The five laws are: Equal Employment Opportunity Act, Fair Labor Standards Act, Employee Polygraph Protection Act, Family Medical Leave Act, and OSHA’s Plain Language ‘It’s the Law’.”

There is also a Notice of Employee Rights poster under the National Labor Relations Act, the primary law governing relations between unions and employers in the private sector. See 29 CFR Part 471. Banks need this sign because they have FDIC deposit insurance, complete savings bonds transactions, and perhaps have government contracts. Post the notice conspicuously in offices where employees covered by the NLRA perform contract-related activity, including all places where notices to employees are customarily posted both physically and electronically.

Generally, there are several requirements your bank may need to follow from the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), the Employee Polygraph Protection Act (EPPA), or the Service Contract Act (SCA). The SCA is also referred to as the McNamara-O’Hara Service Contract Act, a federal law controlling service contracts entered into between individuals or companies and the federal government, for the contractors to engage “service employees” to provide services for these government agencies. Most banks don’t have SCA concerns.

Sometimes these signage requirements are met with notices in a Human Resources area, where staff hiring and training is common, and perhaps in a breakroom where employees frequently gather for meetings and breaks. But how many times have employees seen these required notices since the pandemic sent them to work from home?

Many employees have been working from home for twelve months or more. While some staff may be returning to the branches to work, others may be rotating back and forth from a home office to the bank every other week or with some other frequency, and still others may be shifting to a home office on a permanent basis for any number of reasons. Many banks and other employers have ignored signage requirements because there were more pressing issues, and the home office was a temporary assignment. No regulators were asking about signage and it has not risen to being a formal issue, yet.

But as a nitpicker, part or your job assignment is to mitigate risk – and to avoid it when possible. As it pertains to compliance with federal employment laws, let’s talk about risk avoidance. Be sure to include Human Resources in this discussion both to ensure they are aware of what can be done, as well as to avoid duplicative efforts and to know that anything that has been done meets all the legal requirements. Two heads are better than one.

The Department of Labor (DOL) has provided some assistance in its Field Assistance Bulletin No. 2020-7 (FAB 2020-7). This bulletin was published last December and provides guidance explaining what can be done with electronic postings.

Early in FAB 2020-7, it separates the federal requirements of these notices which require continuous availability from those which are considered individual notices. The former includes FLSA, FMLA, and the EPPA. The latter group requires the bank to provide one-time, individual notices includes Section 14(c) of the FLSA. According to FAB 2020-7, the bank may meet posting and disclosure requirements for the first group by always making them available to home office workers on a website; the latter may be delivered by email. There are conditions for these substitutions and the bank may still have to keep those paper versions posted in the branches.

For laws or regulations which require a bank to “post and keep posted” certain signage “at all times” the Wage and Hour Division of the DOL says that it will consider electronic posting an acceptable substitute where three conditions are met. (1) All of the employer’s employees exclusively work remotely; (2) all employees customarily receive information from the employer via electronic means; and (3) all employees always have readily available access to the electronic posting. Let’s break down some of this and immediately clarify some points.

Like E-SIGN, the idea is that accessibility matters. Unlike E-SIGN there are no demonstrable consent requirements. If you have employees working remotely, it is assumed technology is not a problem and the employee can send and receive, view, and respond to all these work-related items. The requirement is that electronic postings and notices be as effective as the hard copy notices you have in branches. Next, when it says “all of the employer’s employees” it does not mean the entire work force must be working from remote locations for these disclosures to be permitted, but rather it is referring to all of those who are working remotely. It is also separating those who may be remotely working from those in the branches. Remote workers can get these notices electronically while those in the physical branches could have it available electronically but must also have it available via the traditional means of physical posters, as an example. The FAB explains that “where an employer has employees on-site and other employees teleworking full-time, for example, the employer may supplement a hard-copy posting requirement with electronic posting and the Department would encourage both methods of posting.” It also says “In most cases, these electronic notices supplement but do not replace the statutory and regulatory requirements that employers post a hard-copy notice. Whether notices are provided electronically or in hard-copy format, it is an employer’s obligation to provide the required notices to all affected individuals,” referring to EPPA and FMLA requirements.

The FLSA has a requirement for individual notices under Section 14(c) which pertains to subminimum wage provisions. I’m including some discussion here in the event Section 14(c) is applicable to some of our banks.

The FLSA provides for the employment at wage rates below the statutory minimum for certain individuals. These include students which could be high school vocational students, full-time students employed at the bank as well as college interns. Also included are individuals whose earning or productive capacities are impaired by a physical or mental disability. These may be related to age or injury. Employment at less than the minimum wage is authorized to encourage employment opportunities for this class.

Section 14(c) requires delivery of individual notices to applicable employees. Notice requirements may be met using email or something similar, such as through an intranet, but only if the employee typically receives communications from the bank in this same manner. So, this is not a channel exclusively used for these notices.

To meet the requirements of delivery via an electronic medium, the employee must have “access.” This means they must be able to readily see a copy of the required postings, and the electronic postings must meet the same requirements as worksite postings in the branches. This effectively means the employee must have access to the postings without first acquiring any special permissions such as links or passwords that they would not typically already have. It is not an effective substitute if the postings are in an unknown or little-known location. If this were the case the DOL might consider the disclosures to effectively be hidden from view. The bank would be required to inform employees how to access these notices and provide that employees easily be able to identify which postings apply to them. If the bank does not customarily post notices to affected employees electronically, then doing so just for these notices would not be considered an effective substitute.

Fair Labor Standards Act

The FLSA applies to employers whose annual revenues total $500,000 or more or who are engaged in interstate commerce. The interstate commerce sounds like it may be a disqualifier for some banks, but courts have ruled that this is a very low bar. In fact, some courts ruled that using the postal service to send and receive mail to and from other states qualifies and so can using bank telephones to make and accept calls from other states. There are exemptions for executive, administrative and professional workers in many cases, but it is unlikely everyone in the bank is exempt.

Banks with employees subject to the FSLA rules on overtime, minimum wage or Break Time for Nursing Mothers are required to have a disclosure continually available. This signage must be in a conspicuous place in each branch (or office) so the employees can easily see it.

When the three conditions described above are met, the bank can satisfy its posting requirements using electronic format.

Family and Medical Leave Act

The FMLA applies to all public agencies, all public and private elementary and secondary schools, and companies with 50 or more employees. In our case, it requires banks meeting the criteria to provide an eligible employee with up to 12 weeks of unpaid leave each year for various reasons including for the birth and care of an employee’s newborn, new adoption, or new foster child, to care for an ill immediate family member, and more.

Similar to the FLSA, a notice in the branches and offices must be posted and kept continually available with prescribed information for the employees. It must be in a prominent place to be seen, in this case, by existing employees and applicants for employment. It must be easily readable. In this case, having the FMLA notice in an area accessible by existing staff is not sufficient if the bank is hiring staff using a web site. Remember as these notices are placed, they must be where the applicable persons will see them. Again, review the three conditions above to satisfy the FMLA signage requirements when doing so electronically.

Employee Polygraph Protection Act

The EPPA prohibits the bank (and most private employers) from using polygraph tests for pre-employment screening and during employment. The bank cannot require that someone take a polygraph test, fire, discipline or discriminate against someone because they refuse to take one and exercise their rights under this law. But there are some exceptions to the rules. The bank may obtain a polygraph when that person is reasonably suspected of involvement in a bank incident (theft, embezzlement, etc.) that resulted in economic loss or injury to the bank. If one is done, it must be completed by an examiner licensed by the state where the test is done, they must be bonded and have professional liability coverage. Additionally, the test must include a pretest, test and posttest following strict standards.

This is a poster that must be continually available. It must be in a prominent and conspicuous place in every branch or office so employees will see it. The online EPPA poster specifically says in red, capitalized text, “THE LAW REQUIRES EMPLOYERS TO DISPLAY THIS POSTER WHERE EMPLOYEES AND JOB APPLICANTS CAN READILY SEE IT.” https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/eppac.pdf Note we have another instance of applicability to job applicants. While the DOL has these notices in English and Spanish, the latter is optional. The current required poster was revised in July/August 2016 and has a “REV 07/16” date in the lower right corner.

In the cases of the FLSA, FMLA and EPPA, if you have staff in a branch or office, those persons are not intended to rely on these electronic versions for notice. Do not remove the paper versions that should be posted already.

Section 14(c) of the Fair Labor Standards Act

The requirements of this section are described above. Of note, this is the only notice discussed here requiring that each worker (in this case with a disability) and, as applicable, the parent or guardian of the worker, be informed orally and in writing by the bank of the terms of the employment. These terms will be according to the DOL certificate allowing the subminimum wage. In addition, employers must display the Wage and Hour Division poster, Notice to Workers with Disabilities Paid at Special Minimum Wages described and available here –https://www.dol.gov/agencies/whd/posters/section-14c.

Generally, Section 14(c) notices are posted in a conspicuous place where it will be seen by the disabled workers and their parents or guardians, as well as other workers. If the bank feels the notice would be inappropriate to post, the regulations allow you to comply by providing the poster directly to all employees subject to its terms. Therefore, the bank can meet the Section 14(c) requirements by emailing or direct mailing the poster to the Section 14(c) workers, or their parents or guardians. For compliance here it may be necessary to have more than just the employees contacted and to inform others concerning where to find the disclosures required.

Action Steps: Some action steps the bank should take depend first on determining if electronic notices are needed based on where employees are working and how often they may have access to all required disclosures. Remember that electronic versions may be a substitute in some cases but can always supplement those in the branches.

• Based on applicable laws and regulations, which may apply? The DOL has a tool to assist all employers on this at https://webapps.dol.gov/elaws/posters.htm.
• To meet the needs of continuously available notices, the three conditions above must be met if they are to be made only in electronic form. Otherwise, paper type notices are required in the branches.
• For individual or one-time notices, consider how the bank normally communicates with employees. How are conference calls set up, or work assignments and pay stubs delivered and are those same channels appropriate for these notices?
• If a website or intranet is used, factor in how often the employee uses it and if it is commonly used for other notices and information the employee regularly accesses.
• If the bank is posting many items in the same area, ensure the employee will be able to readily determine which applies to them.
• Consider employing some positive acknowledgment of the required notices by the applicable employees. If the notices are available via links or in an online PDF manual, requiring a click-through affirmation helps the bank provide a virtual paper trail demonstrating compliance. Much the same way the bank uses non-bypassable disclosures to meet consumer compliance requirements where one item must be acknowledged to go to the next step, the same process may be used here.

The guidance provided in FAB 2020-7 will apply to these federal requirements controlled by the DOL. Much the same as HUD could not provide a legal interpretation of RESPA applicable to your bank, the FAB does not provide guidance on other federal or state laws not enforced by the DOL.

Foreclosures and evictions after a pandemic

By Andy Zavoina

The Consumer Financial Protection Bureau (CFPB) has proposed a ban on foreclosures until 2022. There are an estimated three million homeowners past due on mortgage payments of government backed loans. Evictions are in a similar holding pattern where rent is owed and there are COVID-19 hardships. Those who are owed mortgage and rental payments seem to have had their financial wellbeing put aside with few ways to take action and remedy the situation.

The inability to conduct evictions started when the Centers for Disease Control and Prevention (CDC) used its authority and issued orders limiting evictions. In short, anyone with the rights to evict a tenant is prohibited from doing so. The tenant must meet certain conditions.

1. The tenant must declare they have used their best efforts to obtain any available government rental or housing assistance.
2. In 2020 they did not earn more than $99,000 or $198,000 if taxes were filed jointly and they do not expect to earn more than that in 2021, or they did not have to file taxes or they received Economic Impact Payments – stimulus checks.
3.  They cannot pay the rent due to a loss of income due to a loss of work or extraordinary medical bills.
4. The tenant has made their best efforts to make even partial payments.
5. Eviction would likely make them homeless or force them to live in close quarters in a shared living environment. These seem to be low bars to qualify as a covered person. But the last qualification is a key to the medical justification and would likely apply to foreclosures as well.

Many people have sought to challenge the CDC order, but a recent study led by researchers at the University of Pennsylvania, Johns Hopkins University, and the University of Illinois at Urbana-Champaign found that local and federal eviction moratoria are in fact a “warranted and important component of COVID-19 control.” There was a recent article in phillymag.com that focused on this study, how it was being used and the article, while Philadelphia-centric, could be applicable to other cases, and in fact is being used in courts to justify the actions.

The City of Philadelphia was sued by the Homeowners Association of Philadelphia. Researchers determined that preventing the moves due to evictions (and presumably foreclosures) helped limit or delay the necessary lockdown measures many cities had to take and in fact, “likely prevented thousands of excess COVID-19 infections for every million metropolitan residents.” Researchers said, “defense lawyers ended up contacting us to provide evidence in support of the city’s efforts to stop the spread of infection.” And “When the CDC announced they were halting residential evictions nationwide from the beginning of September through December 31st (which was recently extended through the end of June), we got flooded with requests for an evidence-based model that would help show that such policies are warranted when it comes to epidemic control.”

Using real time infectious patterns, historic and predictive population movements the study determined that the displaced household could increase the risk to themselves as well as whomever they moved in with, be it at a residence or homeless shelter. “We also spent a lot of time assessing the transmission risk evictions might have on those who are not directly impacted by evictions and found that spillover impact was significant (a.k.a. increased infection rates). That helped demonstrate that eviction moratoria were in the interest of public health, not simply for a specific group, as they help reduce risk of infection for all residents.” As they modeled a study around Philadelphia demographics, eviction rates and anonymous mobile phone data, the study found, “that the greater the eviction rate, the greater number of cases that would likely result, highlighting that allowing evictions to resume would have substantially increased the number of cases among different socioeconomic populations in Philadelphia, including those experiencing a low number of evictions, by the end of 2020.”

The article also noted, “Much remains uncertain about what will happen to countless renters across the country when the federal eviction moratorium is lifted. Though, the federal government has committed significant resources to localities to develop rent relief programs aimed at keeping people housed. What we do know is that renters have amassed significant debt, as they have extended all other forms of savings and credit to remain housed. A survey of rent relief applicants in Philadelphia by the Housing Initiative at Penn found that almost 63 percent of survey respondents in Philadelphia delayed the payment of other bills to pay rent, and over 25 percent went without medicine or medical care in order to remain housed.”

Many people initially perceive these tenants and homeowners on forbearance plans as potentially abusing the system and taking advantage of the rules, and that is likely happening in some cases. But many are suffering genuinely difficult times financially.
Homeowners on forbearance and deferral programs should fare better than renters as they emerge from pandemic protections, whenever that may be. The homeowners should be able to resume payments without being excessively delinquent on payments seemingly impossible to catch up on. Much of the successes will depend on the forbearance programs and formal agreements the lenders and servicers have with the borrowers.

The CARES Act provided a 180-day forbearance period with an allowance for an additional period of 180 days upon request. The CARES Act also provides for interest during this period as it stated that interest would not accrue “beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract ….” The intent here seemed to be to control interest penalty or default rates by maintaining no higher rate than the contractual rate paid while the account was current. But some experts in the industry believe there is uncertainty as to how interest is calculated for an account that is paid off, reinstated or in a loss mitigation program.

The contention comes into play because there are two common ways interest is calculated when for example, an account that has not paid is paid off. One is very simple; the unpaid principal balance is multiplied by the daily rate of interest and that is applied for each day since interest was owed and unpaid. The second method is more common when mortgage loans are coming out of a modification program. Interest in this case is applied based on the amortizing balance as though the payments were made as scheduled.

During good times management may have considered the occasional loan where interest would be “eaten” based on a projected amortization example a cost of doing business, a preferred method to receive a return of the money before a return on the money, and not worth the time to dispute. Obviously, the income difference between these two methods could be significant, especially when multiplied by a large volume of accounts that have been on forbearance and deferral programs. Using the amortized payment method amplifies the lost income opportunity of the principal that was in fact outstanding and effectively not interest bearing.

An argument for the CARES Act says that the outstanding principal balance method is not justifiable because it is not, “as if the borrower made all contractual payments on time and in full.” But many servicers (and banks servicing their own accounts) use the actual principal balance method to calculate past due interest at payoff. The servicers and banks that use this method to calculate a payoff and do not change this method for borrowers in a CARES Act forbearance status may be in error. They run the risk of charging interest amounts greater than what the CARES Act allows and that may bring with it litigation and penalty if the methodology used cannot be justified.

Renters on the other hand may have a more difficult time as past due rents are, well, past due rents. Banks may want to help any landlord borrowers they have, ensuring they are aware of any rental assistance programs that are becoming available on a state and federal level. These programs may be a win-win as otherwise either the tenant goes, or some payment plans will be required potentially delaying cash flows many more months into the future.

The ongoing stimulus payments for eligible families may provide some relief beginning with the scheduled July payments. The same law providing the last round of $1,400 EIP stimulus payments is set to provide working families up to $3,300 per child. Half of that will come in the form of cash at $250 to $300 per month, per child, and the IRS said these will start in July 2021. The remainder will be a tax credit claimed when the next federal return is filed in 2022 for 2021. The latter is not a cash flow that will assist in rental payments, but the cash payments could.

Lastly, as it pertains to those renters, on April 19, 2021, the CFPB clarified in an interim final rule that debt collectors must provide written notice to tenants of their rights under the eviction moratorium, and this prohibits debt collectors from misrepresenting tenants’ eligibility for protection from eviction. Violators of this rule face prosecution at both the federal and state levels for violations of the Fair Debt Collections Practices Act (FDCPA). Further, an attorney representing a client in such an eviction is deemed a debt collector. Expect more i’s to be dotted and t’s to be crossed when it comes to evictions, and costs will increase. We know the CFPB will be taking aim at any violators it finds and if the target is clear in its sights, the CFPB will likely make an example of them to send a message.