Compliance Question of the Week

In today’s banking environment as soon as one big new regulation is implemented another pops up. Our compliance resources help your community bank stay one step ahead of the regulators.

Regulations and Guidance

Question: What are the typical overdraft protection practices that may be UDAAP concerns?

ANSWER: 

The following were typical overdraft protection practices analyzed by examiners and other FDIC staff for compliance with the FTC Act during this period:

  • Including the available balance of an overdraft line of credit (ODLOC) when disclosing a deposit account balance, particularly at automated teller machines (ATMs).
  • Failing to disclose accessibility of ODLOC via ATMs, point-of-sale (POS) transactions, online banking, or preauthorized transfers.
  • Erroneously disclosing inaccessibility of ODLOC via ATMs, POS transactions, online banking, or preauthorized transfers.
  • Promoting overdraft protection services without informing the depositor of (or overstating) the maximum dollar amount of protection or without disclosing fees associated with service.
  • Using the word "free" (when charges are imposed) and other misleading representations in overdraft protection advertisements.
  • Enrolling depositors in overdraft protection programs without their knowledge or consent and, subsequently, approving withdrawals at ATMs that overdraw a depositor's account, resulting in the imposition of fees.

Reference: FDIC Supervisory Insights Winter 2006

Q&A Archives

ANSWER:

The early withdrawal penalty is what differentiates a time account from other types of accounts.

The earliest withdrawal penalty must be at least seven days’ simple interest on amounts withdrawn within the first six days after deposit (or within six days after the most recent partial withdrawal).

If funds are withdrawn more than six days after the date of deposit or more than six days after the most recent partial withdrawal, no interest penalty is required under Regulation D.

These penalties are the minimum federal penalties required by Regulation D and the Federal Reserve Act. A bank may impose a greater penalty. If the bank fails to impose the early withdrawal penalty when required, the account may not be classified as a time deposit. The early withdrawal penalty language must be part of the account agreement with the depositor.

See 204.2(c)(1) footnote for information on when a time deposit may be paid during the early withdrawal penalty without a penalty being imposed.

Reference: 12 CFR 204.2(c)(1).

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



 

 

 

 

ANSWER:

Vendor risk management problems often involve one or more of the following issues:

Overreliance on third-party vendors. A common root cause of vendor problems is the overreliance, and sometimes complete reliance, on a third-party vendor. Third parties can provide staffing and expertise but do not assume ultimate responsibility for compliance violations involving products or services offered by an institution.

Failure to train new staff or retain knowledgeable staff. Institutions may believe they can avoid hiring, retaining, or training staff because of a vendor’s expertise. Although an institution may be leveraging a third party’s expertise, staff at the institution must be knowledgeable about vendor activities and the compliance requirements for that activity to facilitate monitoring. Specifically, proper staffing or specialized training for existing personnel may be required. Similarly, banks should consider evaluating activity at the vendor’s location to ensure that risks are understood, and that staff has sufficient knowledge of vendor processes and controls.

Failure to adequately monitor the vendor. Ongoing monitoring is necessary to ensure compliance and to prevent potentially costly regulatory violations.

Failure to set clear expectations. An institution must ensure that the information provided to third-party vendors is complete and accurate and that expectations for vendor performance are communicated clearly and included in the contract with the vendor. Vendor contracts should also include detailed consumer protection requirements to ensure that the vendor is aware of the applicable requirements.

Reference: Fed. Consumer Compliance Outlook, 4th Quarter 2012.


 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



 

 

 

 

ANSWER:

Closed end credit transactions will be subject to an adjustment if the violation resulted from a clear pattern of practice or gross negligence and is identified during the current examination.

Loans containing the violation which were consummated since the date of the preceding examination are subject to adjustment.

Open end credit transactions will be subject to an adjustment if the violation occurred within two years of the current exam.

Reference: https://www.fdic.gov/regulations/laws/rules/5000-300.html

ANSWER:

Under 1002.7(d)(5), a creditor may request a cosigner, guarantor, endorser, or similar party. The applicant’s spouse may serve as an additional party, but the creditor cannot require that the spouse be that additional party.

Official interpretation to 1002.7(d)(5) provides an explanation of using the income of another party (such a cosigner) when applicant applies for individual credit.

Our interpretation based on Regulation B and its official interpretations is that the spouse’s income may be used as part of the application, as long as:

The applicant does not qualify for credit on his or her own; 
The creditor does not require the applicant to rely on the spouse’s income, or put in another way, the applicant has a choice as to who to use as the additional party; 

The creditor adheres to all of the requirements of Regulation B when requesting information from the additional party.

Reference: 12 CFR 1002.7(d)(5).

ANSWER:

The term "military service" means:

in the case of a servicemember who is a member of the Army, Navy, Air Force, Marine Corps, or Coast Guard, active duty, as defined in section 101(d)(1) of title 10, United States Code,
in the case of a member of the National Guard, includes service under a call to active service authorized by the President or the Secretary of Defense for a period of more than 30 consecutive days under section 502(f) of title 32, United States Code, for purposes of responding to a national emergency declared by the President and supported by Federal funds;
in the case of a servicemember who is a commissioned officer of the Public Health Service or the National Oceanic and Atmospheric Administration, active service; and

any period during which a servicemember is absent from duty on account of sickness, wounds, leave, or other lawful cause.

Reference: Section 101; 50 USC 511.

 

 

 

ANSWER:

Under section 229.13(c), the depository bank may delay the availability of funds from a check if the check had previously deposited and returned unpaid.

The exception does not apply to:

To a check that has been returned due to a missing indorsement and redeposited after the missing indorsement has been obtained, if the reason for return indication on the check states that it was returned due to a missing indorsement; or

To a check that has been returned because it was postdated, if the reason for return indicated on the check states that it was returned because it was postdated, and if the check is no longer postdated when redeposited.

Reference: 12 CFR 229.13(c).

ANSWER:

Bank should have policies and procedures to evaluate the fair lending risk for marketing initiatives.

The fair lending review should not be limited to the content of the marketing but should also include a review of the geographic reach of the marketing. More specifically, banks should monitor and evaluate whether the marketing reaches the whole of the credit market area, including the minority areas.

Finally, banks should consider affirmative marketing in minority areas, especially if the bank’s lending record reflects a lack of lending in minority areas.

Reference: Fed. Outlook Live Webinar: 2016 Interagency Fair Lending Hot Topics.

ANSWER:

The Community Reinvestment Act was amended to no longer require financial institutions to maintain a copy of the disclosure statement as long as the HMDA disclosure statement is available on the CFPB website.

An institution that is required to report, must include in its public file, a written notice that the institution's HMDA Disclosure Statement is available on the Bureau's website at www.consumerfinance.gov/hmda.

Reference: OCC 12 CFR Chapter I FED 25.43; 12 CFR 228.43; FDIC 12 CFR 345.43

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