Each depositor insured to at least $250,000 per insured bank

I am pleased to present the latest in our series of online reports to the financial services industry about issues and concerns raised to the FDIC Office of the Ombudsman (OO). This report covers the period July 1, 2009, through December 31, 2009.

During the second half of the year, 362 industry representatives contacted the OO requesting assistance. In addition, OO staff spoke about banking matters with 47 financial industry representatives through outreach visits, telephone calls and industry-sponsored conferences. Bankers generally expressed overall satisfaction with the FDIC. Their major area of concern continued to be the struggling economy and its impact on the Deposit Insurance Fund (DIF); however, the Ombudsman saw an increase in inquiries concerning changes in regulations.

The OO also spoke to 1,526 members of the public about the FDIC and banking matters.

We welcome suggestions and concerns about the FDIC in its supervisory role. The OO summarizes these comments for FDIC senior management review – without attribution – to eliminate the possibility of reprisal. In addition to regional ombudsmen, OO specialists in Washington, D.C., provide assistance, regardless of your location. Please visit our Web site (www.fdic.gov/regulations/resources/ombudsman) for more information.

The economy continued to be the greatest individual concern of bankers who spoke to the OO during the second half of 2009; however, many bankers also shared their concerns and sought help with changing regulations. Of particular interest to bankers was an alternative to special assessments for ensuring the continued liquidity of the Deposit Insurance Fund (DIF). The FDIC Board ultimately asked for prepayment of three years of deposit insurance premiums.

Changes in Banking Laws and Regulations

While numerous regulations changed during the reporting period, bankers called the Ombudsman with issues regarding a specific few.

Changes to FRB Regulation Z (Truth-in-Lending) prompted the most questions among bankers contacting the OO. Many had concerns regarding the delivery of periodic statements at least 21 days before the payment due date for certain open-end credit, such as home equity lines and overdraft protection lines. This concern was eliminated after November 6, 2009, when President Obama signed the Credit CARD Technical Corrections Act of 2009, which narrows the scope of application to credit card accounts. The following URL links to Financial Institution Letter FIL-74-2009 which provides more information www.fdic.gov/news/news/financial/2009.fil09074.html

Bankers were concerned with the effect of new regulations prohibiting acts and practices associated with higher-priced mortgage loans -- specifically, that the regulation effectively prohibited loans with a balloon payment due in less than 7 years. To dispel this concern, the Board of Governors of the Federal Reserve System issued a letter on November 9, 2009, addressing short-term balloon loans and FRB Regulation Z repayment-ability requirement for higher-priced mortgage loans on November 9, 2009. Here is a link to the letter on the Federal Reserve website http://www.federalreserve.gov/boarddocs/caletters/2009/0912/caltr0912.htm.

The OO also received questions about changes in the Federal Reserve check processing regions and whether these changes triggered new disclosure requirements. The Federal Reserve consolidated all check processing to the Federal Reserve Bank of Cleveland as of February 27, 2010, eliminating non-local checks for purposes of Regulation CC. As a result, some banks had to amend availability schedules and related disclosures, and provide their customers with notice of these changes. Vendors may have added to bankers' confusion about what was required for the notice of changes; and the Ombudsman, with input from FDIC specialists, assisted with clarification. Here is a link to a press release from the Federal Reserve explaining the consolidation and its consequences: www.federalreserve.gov/newsevents/press/bcreg/20091231a.htm

Bankers sought clarification on Part 360 of the FDIC's Rules and Regulations concerning processing of deposit accounts in the event of an insured depository institution failure. Most of these questions were technical clarifications concerning sweep accounts, which the OO referred to the appropriate subject matter experts. The following is a link to Financial Institution Letter FIL-9-2009 concerning the final rule: http://fdic.gov/news/news/financial/2009/fil09009.html

On May 29, 2009, the FDIC Board of Directors approved a final rule making certain revisions to the interest rate restrictions applicable to less than well-capitalized institutions under Part 337.6 of the FDIC Rules and Regulations. The final rule redefined the "national rate" as a simple average of rates paid by U.S. depository institutions as calculated by the FDIC. The national rates and rate caps for various deposit maturities and sizes are provided on the FDIC's website at the following link www.fdic.gov/regulations/resources/rates, which includes a link to the Financial Institution Letter FIL-25-2009 discussing the changes. These "Weekly National Rates and Rate Caps" were also the subject of inquiry. Bankers sought clarification from the OO regarding deposit accounts that did not appear to fit the categories available on the FDIC website, particularly sweep accounts.

Some community bankers expressed concern about the termination of the Transaction Account Guarantee program (TAG) on June 30, 2010, and sought clarification on the coverage of the program. The OO also received questions from consumers about the program and whether their bank participated. For some community banks, the concern is the end of TAG. As the CEO of a small bank described the situation, almost all of the valuable public funds have migrated to NOW accounts, currently protected by TAG. When TAG ends, the banker fears those accounts may leave the bank. This is also a concern for business deposits in noninterest bearing transaction accounts at community banks.

The TAG program is one of two parts to the FDIC's Temporary Liquidity Guaranty Program (TLGP), which is an initiative to counter the current system-wide crisis in the nation's financial sector. The TAG guarantees certain noninterest-bearing transaction accounts at insured depository institutions. For more information on the TLG program, including TAG, visit www.fdic.gov/tlgp

Bank Customer Contacts

Bank customers contacted the OO for various reasons, two of which follow.

Some borrowers were frustrated in obtaining loan modifications from their servicer and note holder. Although the FDIC has no authority to force a modification, even at FDIC-supervised institutions, the FDIC encourages efforts to prevent avoidable mortgage foreclosures.

Depositors were frustrated when institutions assuming deposits from the receivership of failed institutions drastically lowered rates, typically on time deposits such as a certificate of deposit. While the OO is unable resolve these complaints, we gently remind customers that they received their deposits to FDIC insurance limits (and in whole deposit transactions, their entire deposits) in the failed institution, as well as the benefit from having accounts automatically transferred to another financial institution.

Deposit Insurance

Generally, bankers contacting our office were satisfied with prepaying three years of FDIC insurance premiums rather than potentially paying special assessments. Some bankers expressed a preference that the FDIC use its lending lines with the Treasury, but understood the FDIC's rationale to continue funding the FDIC with premiums from the industry.

Bank customers continue to contact our office complaining about institutions charging depositors for deposit insurance assessments. When asked about these charges, the OO reiterates that the FDIC does not impose deposit insurance assessments directly on depositors; rather, insured banks and savings associations are responsible for paying the assessments. The FDIC has no formal position on the practice of institutions passing the cost of these assessments to their customers through special fees; however, these institutions should not suggest that the FDIC is imposing the fee on the customer.

NOTE: If you have comments or suggestions about this semiannual report, please contact FDIC Ombudsman Cottrell Webster at (703) 562-6040, or by e-mail at cwebster@fdic.gov. To receive e-mail notifications of future OO semiannual reports as soon as they are posted to the FDIC's Web site, follow the instructions at E-Mail updates.