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OCC Bulletin 2015-36
August 4, 2015
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Chief Executive Officers of All National Banks and Federal Savings Associations, Department and Division Heads, All Examining Personnel, and Other Interested Parties
The Office of the Comptroller of the Currency (OCC) is issuing this guidance to outline safety and soundness measures that national banks and federal savings associations (collectively, banks) should follow if they offer tax refund-related products. This guidance replaces OCC Bulletin 2010-7 (February 18, 2010), which transmitted the "OCC Policy Statement on Tax Refund-Related Products," but does not supersede or amend any other OCC issuances.
This guidance applies to all OCC-supervised banks that offer tax refund-related products.
The guidance outlines safety and soundness measures banks should follow if they offer tax refund-related products. Those measures include
The term "tax refund-related products" encompasses credit products, deposit products, and settlement services to transmit tax-related funds. Tax refund-related products present particular safety and soundness and compliance risks, because of (1) their unique repayment and cost structures and (2) banks' reliance on third-party tax return preparers who interact with customers. With appropriate consumer protections and risk management controls that address safety and soundness concerns, however, these products may provide reasonable options for customers.
Tax refund-related products may include some or all of the following features:
There are three main types of tax refund-related products:
Tax refund-related credit products currently in the marketplace include the following:
Tax refund-related deposit products currently in the marketplace involve the transmittal of a tax refund by the applicable tax authority1 to (1) a limited or special-purpose deposit account that a bank establishes to issue a check to the customer 2 or (2) a bank-issued prepaid access card.3
Tax refund-related settlement services involve the transmittal of a tax refund by the applicable tax authority to a bank-controlled account. The bank typically releases funds to the customer after payment to the tax preparer for its tax preparation services.
This guidance addresses sound underwriting and program management practices for banks that offer tax refund-related products and is based on the premise that banks should provide products and services that meet customers' financial needs on a nondiscriminatory basis and without subjecting customers to unfair treatment.
Banks' risk management policies, procedures, and practices for tax refund-related products should be (1) commensurate with the complexity and nature of such activity; (2) consistent with safe and sound banking practices and relevant reporting requirements; and (3) undertaken with an appreciation of and capacity to address all applicable consumer protection and reputation risk considerations, as well as legal compliance obligations, associated with the activity.
The risk management principles set forth in this guidance are divided into three categories: (1) risk management for all tax refund-related products; (2) supplementary risk management for tax refund-related products involving an extension of credit (tax refund-related credit products); and (3) supplementary risk management for tax refund-related products or services for transmitting a refund (tax refund-related deposit products).
Banks should incorporate the following elements into their risk management practices when offering any tax refund-related product. These risk management elements are foundational in nature. Depending on the characteristics of a particular product, additional risk management practices may be appropriate.
In addition to the risk management expectations outlined in section I for all tax refund-related products, banks should incorporate the following supplementary elements into their risk management practices when offering tax refund-related credit products.
In addition to the risk management expectations outlined in section I for all tax refund-related products, the OCC expects all banks offering tax refund-related deposit products to comply with all applicable federal and state laws and regulations. In particular, any prepaid access cards must meet the requirements of 31 CFR 210.5(b)(5) involving account requirements for federal payments. The requirements include the following:
Please contact Kimberly G. Hebb, Director for Compliance Policy, at (202) 649-5470, or Kenneth Lennon, Assistant Director for Community and Consumer Law, at (202) 649-6350.
Jennifer C. Kelly
Senior Deputy Comptroller and Chief National Bank Examiner
1 Applicable tax authorities include the IRS and any state tax authority.
2 The industry commonly refers to this product as a refund anticipation check.
3 See OCC Bulletin 2011-27, "Prepaid Access Programs" (June 28, 2011).
4 See OCC Bulletin 2013-29, "Third-Party Relationships: Risk Management Guidance" (October 30, 2013).
5 See OCC Bulletin 2004-20, "Risk Management of New, Expanded, or Modified Bank Products and Services" (May 10, 2004) (national banks) and OTS Examination Handbook 760 (federal savings associations).
6 The OCC and other banking agencies have stated that providing low-cost savings and checking accounts that meet consumer needs can be appropriate community development services. See "Interagency Questions and Answers Regarding Community Reinvestment," 12 CFR __.12(i)-3, 75 Fed. Reg. 11,642, 11,651 (March 11, 2010).
7 See OCC Bulletin 2013-29, "Third-Party Relationships: Risk Management Guidance" (October 30, 2013), which provides expectations for third-party risk management processes, including risk assessment and strategic planning, due diligence in selecting third-party providers, and contracting and oversight issues; and OCC Advisory Letter 2003-3, "Avoiding Predatory and Abusive Lending Practices in Brokered and Purchased Loans" (February 21, 2003). See also the "Related Issuances and Publications" list in this guidance.
8 A mystery shopping program should include an appropriate sampling methodology (see the "Sampling Methodologies" booklet of the Comptroller's Handbook) of tax preparation firms, as well as a sample of tax preparation personnel identified as high risk because of such factors as length of experience, resources devoted to compliance oversight, complaints, or other red flags identified through exception reports and other means.
9 For a discussion of fraud and money laundering risks, including "red flags" for possible tax refund-related fraud, see Financial Crimes Enforcement Network, "Refund Anticipation Loan Fraud," SAR Activity Review: Trends, Tips, & Issues, issue 7, pp. 15–20 (August 2004).
10 See, for example, the FFIEC Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual, "Office of Foreign Assets Control—Overview," pp. 142–151 (2014).
11 See the "Management Information Systems" booklet of the Comptroller's Handbook for the OCC's foundational MIS expectations.
12 The definition of an originator channel depends on the nature and scope of a bank's activities.
13 For example, MIS reports should reflect matters such as CIP exceptions or potential fraud in a similar manner.
14 See OCC Bulletin 2012-16, "Guidance for Evaluating Capital Planning and Adequacy" (June 7, 2012).
15 See, for example, 12 CFR Part 30, Appendix A, II. D.
16 Banks that enter into cross-collection agreements with other lenders that offer tax-refund related credit products must comply with all applicable laws and regulations.
17 See OCC Bulletin 2000-20, "Uniform Retail Credit Classification and Account Management Policy" (June 20, 2000).
18 See also 12 CFR 330.5, "Recognition of Deposit Ownership and Fiduciary Relationships."
19 Bureau of the Fiscal Service, U.S. Department of the Treasury, "Electronic Funds Transfer: Direct Deposit of IRS Tax Refunds Resource Page."