As I am sure we are all aware, regardless of a bank’s regulator or state jurisdiction, there are certain notice requirements that apply when a bank will be closing a branch under Section 42 of the Federal Deposit Insurance Act (Section 42). To be exact, for any closure that would be 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, to meet the applicable notice requirements. Further, the bank must also ensure that a notice is physically posted at the branch site at least 30 days prior to the intended date of closure to be in compliance with Section 42.
However, while this may seem straightforward, with the ever-evolving landscape of the banking industry and the different types of exemptions under Section 42, figuring out when notice is required is not always expressly clear. As such, 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 (Joint Policy Statement) to ensure that they are meeting the applicable notice requirements.
First, it is important to discern what exactly is considered a “branch” under the guidelines to trigger the notice requirements. Specifically, for the purposes of the branch closing rules, a “branch” is considered to be 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,” and notice is required whenever any facility meeting this definition is intended to be closed. However, the Joint Policy Statement clarifies that when closing other facilities that do not meet the requirements to be considered a “branch,” such as “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.
Further, it is important to note that even if the facility would be 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, it seems evaluating the proximity of any intended moves may prove valuable in understanding the application of the branch closing rules in varying situations.
Additionally, in general, there’s 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 simply 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 to not be considered the “closing” of a branch which 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, in certain situations, 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 when a reduction in services may trigger the notice requirements, suggesting that they would generally apply if a bank were to “replace a traditional brick-and-mortar branch with an ATM.” As 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 money lent” and would effectively have the same consequence for consumers as a branch closure would.
Understanding the nuances of branch closing regulations is essential for banks to remain compliant and maintain customer trust. While the guidelines may seem straightforward, there are complexities that require careful consideration, and branch closings can implicate rules beyond just those contained in Section 42, such as the Community Reinvestment Act as one example. Therefore, it’s crucial for banks to proactively review the federal and state-specific branch closing rules with legal and compliance experts when planning any changes to branch operations. This ensures that all necessary notifications are provided, customer disruptions are minimized and the bank remains in compliance with all applicable regulations. Remember, transparency and clear communication are key to maintaining positive relationships with both customers and regulators.
Erin serves as associate general counsel for Compliance Alliance. Erin graduated magna cum laude from Loyola University New Orleans with a bachelor’s degree in psychology and a bachelor’s degree in English. She earned her Juris Doctor from Saint Louis University School of Law. While obtaining her law degree, Erin geared her studies towards business and financial subjects within the law, such as transactional drafting, bankruptcy and securities trading.
