Branch Office Closings and Access to Financial Services in Low- and Moderate-Income Communities

By the Consumer Compliance Division of the Supervision and Regulation Department

Bank branches are an integral component of the financial infrastructure of a community. In low-and moderate-income communities, the presence of a bank branch might be one of only a few mainstream financial resources available to residents. Therefore, the impact of the closing of a bank branch must be carefully considered.

This brief essay explores the regulatory requirements of closing a branch and provides insights for customers and consumers as to what they can expect during a branch closing process.

Banks are required by the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) to take several steps before closing a branch office. Banks that choose to close branch offices must notify their primary federal regulator[1] and their customers at least 90 days in advance of the proposed closing; customer notifications may occur through any regularly-mailed account statement or in a separate mailing. Additionally, they must notify the public by posting a notice of the branch closure in the affected office at least 30 days before it closes. Banks must provide their customers with the location of the branch to be closed; the date the branch will close; and a list of alternative banking locations or a phone number where a list of alternative locations may be obtained.

In addition to the steps outlined above, interstate[2] banks that choose to close offices in low- and moderate-income neighborhoods are required to provide the affected consumers and community an opportunity to comment on the proposed closure[3]. Banks accomplish this by including the mailing address of the applicable regulatory agency in the notice and informing the affected customers that they may send written comments to the identified regulatory agency.

If customers or representatives of the affected community have concerns about the loss or potential loss of financial services in the affected neighborhood, they may send written comments to the applicable regulatory agency requesting a meeting to discuss the impact of the proposed closure on the affected community. The written request should include the specific reasons for the requested meeting and discuss the adverse effects of the branch closure on the availability of financial services in the neighborhood.

Once received, the staff of the regulatory agency will evaluate the comments and the request for a meeting. If the agency decides to convene a meeting, it may include participants from the neighborhood, depository institutions, community-based organizations, and other regulatory agencies, as appropriate. Together, the meeting participants will explore alternatives that would permit the community to retain access to financial services once the branch office is closed.

Facilities excluded from branch closure notification requirements include automated teller machines (ATMs); main offices and remote service facilities; loan production offices; insured branch offices of foreign banks; and offices closed or acquired by the FDIC to maintain the continued safe and sound operation of the financial institution.

All banks – both interstate and intrastate – are expected to maintain branch closing policies. Under the Community Reinvestment Act, bank management teams are encouraged to be responsive to community credit needs and concerns about the local banking environment, including the availability of services through branch offices.

Affected customers and representatives of a community may contact the primary federal regulator of the bank proposing to close an office to discuss the negative effect a closing may have on the community.  While, the agency is not required to take the same steps as in the case of an interstate institution, such comments may be taken into account during the bank’s next Community Reinvestment Act examination.

 

[1] Primary federal regulators are the Board of Governors of the Federal Reserve System (FRS), the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation.
[2] An interstate bank is an insured depository institution (bank or thrift) that operates branch offices in at least two states. By comparison, an intrastate bank is an insured depository (bank or thrift) that operates branch offices in one state.
[3] Section 42 of the Federal Deposit Insurance Corporation Improvement Act of 1991.
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