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Currently, we reconcile all deposit discrepancies. Our consultants have recommended that we establish a $5 threshold for reconciling out-of-balance deposits. Is that an acceptable threshold? What if we apply the threshold only when the error is in the customer’s favor?

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We believe that you should resolve all deposit discrepancies that could harm a consumer, without applying a $5 threshold.

We read the Interagency Guidance on Deposit Reconciliation Practices as recommending that banks resolve all deposit discrepancies that would harm consumers. The guidance does not sanction applying a threshold before reconciling a deposit discrepancy; in fact, it does not even discuss thresholds. Instead, the guidance asserts that “technological and other processes exist that allow financial institutions to fully reconcile discrepancies in deposit accounts” and conveys an expectation that financial institutions will take advantage of those tools to fully reconcile all discrepancies (except when an item is damaged beyond recognition).

The guidance points to two laws in its reasoning, neither of which appears to permit the use of a threshold before reconciling deposit discrepancies. First, the Expedited Funds Availability Act and its companion Regulation CC require banks to make deposits available within certain time frames, and a failure to resolve a discrepancy would violate that requirement by “leav[ing] customers without timely access to the correct amount of funds.” Even a threshold as low as $5.00 would risk violating Regulation CC by leaving customers without timely access to the correct amount of their funds — potentially by as much as $4.99 per deposit.

Second, the guidance states that reconciliation practices may violate the prohibition on unfair, deceptive or abusive acts and practices (UDAAP) “when [those] practices result in credit discrepancies.” Even a threshold as low as $5.00 would risk violating the UDAAP prohibition, because it could result in uncorrected credit discrepancies of up to $4.99 per deposit.

Also important is the CFPB’s 2015 consent order concluding its enforcement action against Citizens Bank related to its deposit reconciliation practices. In that case, the bank applied very high thresholds of $25, and even $50, before reconciling deposit discrepancies. (The CFPB’s order also notes in passing that Citizen Bank’s internal policies set a lower threshold of $5.00, which it failed to apply in practice. However, we would caution against interpreting the CFPB’s mention of the $5.00 threshold as condoning the use of a $5.00 threshold.)

The CFPB concluded that the bank’s failure to resolve deposit discrepancies was an unfair act and practice because it “resulted in consumers receiving less than full credit for their deposits,” causing “substantial injury” to its customers. A threshold of $5.00 also would create the same result, albeit not to the same extent as a $25 or $50 threshold. We believe that even a $5.00 threshold risks being viewed as an unfair practice because it would result in consumers receiving less than full credit for their deposits — again, by as much as $4.99 per deposit.

On the other hand, it arguably would be acceptable to use a $5.00 threshold if it applied only to errors that are in the customer’s favor, while continuing to investigate and resolve all discrepancies that could harm customers. This practice would not carry the same risks as a universal $5.00 threshold, because simply put it would not harm consumers. The risks identified by the Interagency Guidance and the CFPB would be mitigated, as customers would have timely access to their deposited funds and would receive full credit for their deposits.

Another possible alternative would be to automatically credit customers for errors below $5.00, instead of investigating those discrepancies, which could result in overcredits to some customers but also could lower operational costs.

For resources related to our guidance, please see:

  • Interagency Guidance — Deposit Reconciliation Practices (May 18, 2016) (“The Agencies expect financial institutions to adopt deposit reconciliation policies and practices that are designed to avoid or reconcile discrepancies, or designed to resolve discrepancies such that customers are not disadvantaged.”)
  • Interagency Guidance — Deposit Reconciliation Practices (May 18, 2016) (“Technological and other processes exist that allow financial institutions to fully reconcile discrepancies in deposit accounts. The Agencies acknowledge, however, that under limited circumstances, items cannot be reconciled, for example, when an item is damaged to the point that its true amount cannot be determined.”)
  • Interagency Guidance — Deposit Reconciliation Practices (May 18, 2016) (“Financial institutions’ policies or practices that do not appropriately reconcile credit discrepancies within the prescribed time frames may raise Regulation CC concerns if such discrepancies leave customers without timely access to the correct amount of funds. Failure to comply with the funds availability requirements in the EFAA and Regulation CC may subject the financial institution to civil liability and possible action by the appropriate Agency.”)
  • Interagency Guidance — Deposit Reconciliation Practices (May 18, 2016) (“A financial institution’s deposit reconciliation practices for transaction and non-transaction accounts may, depending on the facts and circumstances, violate the FTC Act or Dodd-Frank Act when practices result in credit discrepancies.”)