In the Wake of Disaster

a BOL Team Report

As the devastation from Hurricane Katrina continues to grow and we watch, horrified and transfixed, as photojournalists struggle to help communicate the magnitude of the disaster, we are mindful of the great need the survivors will have for the services of their financial institutions and of the special challenges presented to those institutions in trying to accommodate customers and protect them, and the institutions themselves, from fraud and identity theft.

People lucky enough to escape with their lives are emerging from the debris, some without eyeglasses or dentures, most without wallets or purses, left with only the clothes they were wearing, staring at cars crushed down to the size of refrigerators. The death toll is, at this point, unknown, but Louisiana Governor Kathleen Blanco said, "We have no counts whatsoever, but we know many lives have been lost." Thousands have undoubtedly been injured, many seriously. Countless individuals have been displaced from their homes. Businesses have been damaged and destroyed. Families have been ripped apart by the force of rushing water. The devastation is unfathomable.

In the storm's aftermath, entire neighborhoods are little more than piles of rubble. Over 2 million households and businesses are without electricity and downed power lines pose great danger. Water is as high as 20 feet in some areas and still rising in others. Roads and bridges have been washed away. The Coast Guard spent the day plucking stranded individuals from the rooftops of their submerged homes. Some financial services from the Federal Reserve have been impacted.

There's not a banker on the planet who can look at the flood waters without realizing how vitally important the flood insurance requirements really are, and we can't help but hope that on every loan where flood insurance should have been procured, it was actually put into place.

What we've learned from past disasters -- and what you can do
FEMA Coordinating Director Bill Lokey says "This is the most significant natural disaster to hit the United States." While the magnitude and scope of the property damage and loss of life from this disaster exceed what our country has faced, we can still draw parallels to, and learn lessons from, the aftermath of previous natural disasters, and from those lessons offer suggestions for actions you can take.

Attend to the needs of your employees. Your first order of business must be taking care of your employees. If employees can't function, the institution can't function. Employees and their families need to be cared for. The human element is, unfortunately, the most often-overlooked part of any business continuity plan.

Verify funds when you receive legitimate calls. Yep, you read that right. If your customers are among those affected and you get a call, particularly from another financial institution, asking you to verify that a check would be good, take appropriate precautions and then provide the information. We're getting reports about refugees streaming into surrounding states and communities, some without working ATM or debit cards, who desperately need to utilize another financial institution to cash a check. If your employees are answering those calls with "I'm sorry, for privacy reasons we can't divulge that information" without even attempting to determine if the call is legitimate, shame on you!

Implement your disaster recovery plan. Financial institutions in the disaster area need to implement, to whatever degree is needed, their disaster recovery plan. and assist the community, following much of the same guidance you outlined for yourself.

Help with identification documents. Many customers fled to storm shelters, hotels, and higher ground without pausing to grab wallets, purses or important papers. Afterwards, those in the heavily affected areas will find that the National Guard and police will not let them in to the neighborhoods without proper identification showing an address. In other cases, there will be no homes to go back to. If your institution had a policy of making copies of drivers licenses or other pieces of identification when deposit accounts were opened or loans made, you may be able to supply copies that customers can use until they replace their identification.

Facilitate safe deposit entry. Many safe deposit box keys have also been lost and some customers will have an immediate need to access the contents to locate wills, life insurance policies, trusts, and deeds to burial plots for perished loved ones or insurance policies covering damaged property. Confirm identity to the best of your ability and consider drilling the boxes at no charge.

Provide new checks. Along with other possessions, many customers have lost checkbooks. Consider providing temporary checks for immediate use and ordering new permanent ones for your customers with the charges waived.

Increase the acceptance of your customers' checks. Because some merchants have longstanding policies against accepting temporary checks, you may want to provide each customer a business card of a bank officer along with the packet of temporary checks and encourage them to have merchants call to verify out how long they've had the account.

Guard against fraud. Some customers who lost purses or wallets will be adamant about their desire to keep their existing accounts, typically because they have direct deposits or automatic debits tied to those accounts. In those instances, one concern is fraud, particularly with the looting that has taken place. It's possible that in some instances your customers' unused checks (and perhaps their IDs) will fall into the hands of crooks. If you allow those customers to maintain their existing accounts, you may want to protect them against fraud by applying a "post no debits" order so you can check with the customer before the checks are paid. In other instances, it may be more appropriate to close the account and open a new one. If that is the case, you may wish to develop a "Switch Kit" to assist customers in altering their direct deposits and ACH debits to the new accounts.

Hold statements. While displaced customers struggle to get settled after their homes or businesses were damaged or destroyed, encourage customers to obtain a post office box for their mail or, at the very least, arrange to have their account statements held for pick-up.

Review your change of address policies. There will be many requests for address changes. Inevitably, some will be fraudulent. Review your change of address procedures to ensure they contain adequate safeguards.

Grant deferrals. For existing borrowers who are adversely affected by the disaster, work with those who need deferrals. The regulatory agencies have issued guidance, such as FDIC's FIL-85-2005, to outline supervisory practices regarding financial institutions and borrowers affected by Hurricane Katrina and associated severe storms. Take some comfort in the fact that the regulators are urging you to engage in prudent efforts to adjust or alter terms on existing loans in affected areas.

Waive ATM fees. If customers in the affected areas use ATMs not owned by your institution, consider waiving the foreign ATM charges you might ordinarily apply.

Be flexible about late payments. Customers whose homes or businesses were wiped out won't be getting mail for a while. If credit card payments are late, it may be because the statement was never delivered. Within the bounds of safety and soundness, be flexible enough to avoid heaping additional harm on already damaged customers.

Remember your customer have the option to waive the right of rescission. Customers may have a need for emergency funds. If a loan is one covered by Reg Z that would ordinarily be subject to the right of rescission, remember that the rescission period may be waived if a bona fide personal financial emergency exists. Be sure you document the waiver with a written, signed statement from your customer that details the financial emergency.

Funnel information to your employees, so they can share it. Make it part of your mission to keep on top of what benefits are available and know the sources customers can go to for help. Share that information with customers.

Listen. In past tragedies, bankers have told us that of all the services bank employees have performed, perhaps none has been more important than lending an ear. Particularly in the early days, many customers may have a need to relive their experiences by telling others about them. Listening to one tragic story after another takes an emotional toll on your compassionate employees. The greatest challenge and opportunity for management will be in helping to keep the employees pumped up and positive while dealing with an overwhelming amount of human tragedy relating to both customers and some of their fellow employees.

Utilize your Web site. Obviously, many customers will be without electricity, much less Internet access. For those who do have access, however, your Web site can be a valuable tool for disseminating information about your hours, your locations, special arrangements you're making for customers, as well as links to resources for the customers. Be vigilant about posting status updates.

Open up your meeting rooms. Institutions in affected areas that survived without significant damage to their buildings should consider allowing community-based groups to use bank meeting rooms where possible. Nothing brings people together like disasters, but they need a place to meet and plan and pray and simply connect.

Review your overdraft policies. Delays in mail, disruptions in payroll processing, and a variety of other factors may cause some of your customers to inadvertently experience NSFs. Work with them to minimize the negative impact.

Exercise caution when opening fundraising accounts. Consult our BOL article on Fundraising/Donation Accounts.

Accommodate new community members. One of the outcomes of this disaster is that families will be displaced permanently. Many have by now decided that it's time to cut their losses on the Gulf Coast and put down new roots anywhere else. It may be with relatives, or in a community with relatives or friends, or just anywhere. Some of these folks won't have ID and won't be able to conform to the norms expected by depository institutions in their new hometowns. Is it time to dust off that CIP and reassess the ID verification process?

Watch out for scammers. Disasters also bring out the worst in some people, and scam artists will be re-energized by the "low hanging fruit" presented by disaster victims. While many financial institutions will be loosening their ID procedures somewhat to accommodate honest people with ID problems, the institutions still need to be aware of the increased potential for ID theft in this environment. It will be a tough balancing act. Keep in mind that with the proliferation of 419 scam emails (aka Nigerian letters), we'll probably see a new version of these sickening messages crop up - with the theme of millions of dollars left behind by victims of Katrina. Employees will want to be alert to customers who appear to be falling for these leeches.

Evaluate the need to adjust daily ATM cash limits. Daily cash limits on customer ATM withdrawals may need to be adjusted to allow more cash to more customers. Customers may need to use cash instead of checks to make purchases away from home, and access to larger amounts of cash may be helpful. If you are able to set withdrawal limit on an individual machine that is not as accessible for replenishment, you might consider lowering the maximum withdrawal there to serve more individuals. On the other hand, a reason to lower ATM withdrawal limits is to protect customers and the institution if authorizations are being handled in "stand-in" mode without reference to current balance information. Each card issuer and ATM owner will need to assess this issue based on evolving circumstances.

Document your efforts to assist. Aside from being good, caring corporate citizens, there may be CRA credit available in the aftermath.

Review your plan. Financial institutions not affected should use this as an impetus to review their disaster recovery/business resumption plans. Based on the lessons learned, are they adequate? Do they address what can be done for the community?

Be prepared to deal with the aftermath. The same types of coping skills that are involved in dealing with the aftermath of a bank robbery come into play in dealing with the aftermath of a critical incident such as this type of natural disaster. The following resources from our Bank Robbery section may be of benefit to you and your staff:

Financial institutions play an essential role in helping communities, businesses and individuals recover. In the days ahead, you will have many opportunities to make a difference in the lives of those in the affected communities. Our thoughts and good wishes are with you as you go about this important business.

First published on BankersOnline.com 8/31/05