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Avoiding Common Deposit Compliance Violations

By Carl Pry

The competition for deposits has been heating up for several years. With the rush to liquidity after the financial crash, banks more than ever have been doing whatever it takes to attract new deposits and keep those they have. But with aggression comes risk; compliance risk, in particular. Examiners have stepped up the intensity of deposit exams in response, so it’s in your best interest to make sure your compliance programs are up to speed.

So that you can learn from others’ mistakes, here are a few of the more common violations seen on the deposit side of the house.            When renewing a consumer time account (CD) with a term of over one year, make sure a new account disclosure is provided to the consumer; providing a renewal notice alone is not enough.
When advertising consumer deposit accounts, make sure the words “annual percentage yield” are spelled out at least once in the ad; using only the abbreviation “APY” throughout is not sufficient.
If you’re advertising both FDIC-insured and non-insured deposit products (such as annuities, insurance, etc.), be sure the ad clearly differentiates between those that are insured and those that are not. Don’t just place the “Member FDIC” logo at the bottom of the ad, leaving the impression that everything is covered by FDIC insurance.
This will change in the coming years due to the Dodd-Frank regulation reform legislation, but make sure you’re not allowing any corporate or partnership customers to have a negotiable order of withdrawal (NOW) account or otherwise pay interest on their transaction account balances. It’s an easy catch – look at your NOW account list and make sure there are no ineligible customers on it.
Allowing excessive transactions from checking or money market accounts has been a continuous problem for banks. Particularly with Internet bill-pay and similar arrangements, it is easy to go over the six per-month limitation imposed by Regulation D.  Checks and drafts have been bumped up from three to six monthly, but in aggregate, transactions out of a savings account (subject to exceptions including ATM and over-the-counter transactions) cannot exceed six in a month or statement cycle, whichever is longer.
Regulation Q prohibits excessive “premiums” (which really are the same as bonuses) to checking account customers. If you’re giving something worth more than $10 if the required balance in the account is less than $5,000 or more than $20 if the amount is $5,000 or more, it’s a violation. The amount is unlimited only if the premium is not dependent on the balance in the account or the amount of time the funds remain on deposit. Given the fact that many giveaways have these types of strings attached, it’s an easy rule to violate.
Regulation E (Electronic Funds Transfers) is a very consumer-friendly regulation, and most violations here are due to banks taking too long to resolve disputes. Any unauthorized transaction must be treated as an error until proven otherwise (guilty until proven innocent, if you will), and it must be resolved within 10 business days (20 if it is a new account). If you can’t resolve it, you must provide a provisional credit to the account, and many times this is not done in a timely manner. Final resolution, one way or the other, must occur within 45 calendar days (not business days), and if you go over that time limit, you just bought the transaction. The limit is 90 calendar days for new accounts and debit card transactions, but these are easy time limits to exceed.
Make sure also that you understand that the 10- and 45-day clocks start when the customer notifies you of the error, whether by phone, email or otherwise. You may request something in writing to back it up, but the duty to investigate begins once you are notified, however that happens.
When providing an exception hold notice under Regulation CC (Funds Availability) and using the large deposit reason, the hold applies only to the amount exceeding $5,000, not the entire deposited amount. The first $5,000 must follow
your normal availability schedule, which may be the next business day. Don’t
hold the entire amount if you’re using
this reason on the notice.
These are but a few of the more-common deposit violations banks commit. They seem simple enough and the rules aren’t new, but rest assured, your examiners know these as well, so make sure you are checking for these issues.

Carl Pry is senior vice president in KeyBank N.A.’s Compliance and Control Department.

Posted on Wednesday, October 20, 2010 (Archive on Tuesday, January 18, 2011)
Posted by Scott  Contributed by Scott


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