R OPERATIONS & TECHNOLOGY Branch Closings REQUIREMENTS AND NUANCES BY ERIN BUSSE, COMPLIANCE ALLIANCE Regardless of a bank’s regulator or state jurisdiction, there are certain notice requirements that apply when a bank plans to close a branch under Section 42 of the Federal Deposit Insurance Act.* For any closure subject to Section 42, the bank must provide 90 days prior written notice of any branch closing to its primary Federal regulator as well as to all branch customers, as well as a notice physically posted at the branch site at least 30 days before the intended date of closure to be in compliance with Section 42. While this may seem straightforward, figuring out when notice is required is not always expressly clear, given the ever-evolving landscape of the banking industry and the different types of exemptions under Section 42. It is critical that banks understand the nuances of the notice requirements, as discussed within the Joint Policy Statement of the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Office of Thrift Supervision, “Concerning Branch Closing Notices and Policies” (the “Joint Policy Statement”), to ensure they are meeting the applicable notice requirements. First, it is important to discern what is considered a “branch” under the guidelines to trigger the notice requirements. For the purposes of the branch closing rules, a branch is a “traditional brick-and-mortar branch, or any similar banking facility other than a main office, at which deposits are received or checks paid or money lent.” Notice is required whenever any facility meeting this definition is intended to be closed, but the Joint Policy Statement clarifies that when closing other facilities that do not meet these requirements (i.e., “an ATM, remote service facility, or loan production office, or of a temporary branch,” which are, instead, classified as “non-branch facilities” under the rules), notice is not explicitly required under Section 42. Even if the facility is considered a branch, not all closures will require notice. For example, the Joint Policy Statement suggests that certain branch relocations and consolidations would not be considered a closure under Section 42. To be considered a “relocation” or “consolidation,” the guidance seems to indicate that the change must be one which is within the branch’s “neighborhood and does not substantially affect the nature of the business or customers served.” Considering this, evaluating the proximity of any intended moves may prove valuable in understanding the application of the branch closing rules in varying situations. In general, there is not a specific notice requirement for customers or regulators for just a temporary or emergency closing under the federal regulations. Nonetheless, it’s typically considered an industry best practice to post information pertaining to the temporary closure on the front door or in another location where the public can view it, even if only for informational purposes and general customer service considerations. The Joint Policy Statement outlines an exception from the branch closing requirement for temporary closures, so long as the bank “plans to restore branching services at the site in a timely manner.” Moreover, if a bank is reducing the hours of operation for a branch but not closing the branch entirely, while notice is still generally recommended – and may be required under other federal regulations or specific Federal regulator guidelines – this also tends not to be considered the “closing” of a branch that triggers the branch closing notification requirements of Section 42. It is important to clarify that while the reduction of a branch’s hours will not generally be considered the “closing” of a branch, the reduction of the services offered by a branch may constitute a branch closure. Namely, as the Joint Policy Statement states, “[w]here, after a reduction in services, the resulting facility no longer qualifies as a branch, section 42 would apply.” The Joint Policy Statement also offers an example of if a bank were to “replace a traditional brick-and-mortar branch with an ATM.” Following this type of service change, an ATM would no longer qualify as a “branch bank, branch office, additional office, or any branch place of business . . . at which deposits are received or checks paid or SEPTEMBER/OCTOBER 2024 53
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