Our core provider includes an Illinois Terms and Conditions disclosure in our new deposit account forms, in addition to a Truth in Savings Act (TISA) disclosure. The disclosure includes our account agreement, with provisions on account ownership, stop payments, the duty to report unauthorized transactions, setoff, and more. Is there a law or regulation that requires that this form be provided for every new account opened, including for new accounts opened by existing customers? We have reviewed the Illinois Consumer Deposit Account Act, which states that we comply with the law if we are in compliance with the TISA.

Jan 21, 2022

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We recommend providing your institution’s terms and conditions for every new account opened, including those opened by existing customers. While there is no law or regulation that specifically requires you to provide customers with an “Illinois Terms and Conditions” disclosure, it is important to provide the governing rules for accounts held at your institution to your customers so that you have evidence that your customers have agreed to be bound by your rules — which are unlikely to be contained in your TISA or other disclosures.

One example of an important provision to include in your account agreement (as contained in your terms and conditions) is the duty to report unauthorized transactions. Under the Uniform Commercial Code (UCC) a customer cannot be held responsible for an unauthorized item unless they have failed to notify their bank with “reasonable promptness.” The UCC and Illinois caselaw have established that your account agreement can specify a reasonable timeframe within which customers must notify you of unauthorized transactions. Without an account agreement specifying a reasonable timeframe, your customers could assert claims for unauthorized items for up to one year — as opposed to the shorter period contained in your Illinois Terms and Conditions.

Additionally, your account agreement can establish a contractual right of setoff allowing your institution to set off deposited funds against certain debts owed by your customer to your bank. In Illinois, a contractual right of setoff can provide for a broader right of setoff than the common law right of setoff. Also, a contractual right of setoff does not require mutuality of the parties.

For resources related to our guidance, please see:

Symanski v. First Nat’l Bank of Danville, 242 Ill.App.3d 391, 394 (“It is a fundamental principle of banking law that the relationship between a bank and its depositor is created and regulated by the express or implied contracts between them.”)

Illinois UCC, 810 ILCS 5/4-406(c) (“If a bank sends or makes available a statement of account or items pursuant to subsection (a), the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized. If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer must promptly notify the bank of the relevant facts.”)

Illinois UCC, 810 ILCS 5/4-103(a) (“The effect of the provisions of this Article may be varied by agreement, but the parties to the agreement cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However, the parties may determine by agreement the standards by which the bank’s responsibility is to be measured if those standards are not manifestly unreasonable.”)

Illinois UCC, 810 ILCS 5/4-406(f) (“Without regard to care or lack of care of either the customer or the bank, a customer who does not within one year after the statement or items are made available to the customer (subsection (a)) discover and report the customer’s unauthorized signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration. If there is a preclusion under this subsection, the payor bank may not recover for breach of warranty under Section 4-208 with respect to the unauthorized signature or alteration to which the preclusion applies.”)

Symanski v. First Nat’l Bank of Danville, 242 Ill.App.3d 391, 396–397 (4th Dist. 1993) (“There are two bases on which defendant could assert a right of setoff . . . . Under common law, a bank has the power to apply the deposit to the payment of such depositor’s indebtedness only when there are mutual demands and debts between the parties, and this right of setoff arises at the time the depositor’s indebtedness to the bank has matured . . . . As evidenced by our previous discussion, parties can contractually agree to a right to set off.”)

Fisher v. State Bank of Annawan, 163 Ill.2d 177, 181 (1994) (“Plaintiff argues . . . that the bank could not set off Robert’s indebtedness against the CDs because no mutuality existed. However, this inquiry into equitable setoff is irrelevant where a contractual basis for a setoff exists. The contract between plaintiff, his sons, and the defendant bank provides an independent basis for a setoff.”)

question, you stated that we can advertise the cost of an optional add-on checking account product that includes ID protection, among other benefits, as a “subscription” fee (rather than a “service” fee) if customers are not charged for services they do not receive. May we still refer to the cost of this product as a “subscription” fee if we do charge customers for services they do not receive but clearly disclose that customers who purchase this product may be charged for services they do not receive? The enrollment form customers must sign for this product indicates that they understand that registration or activation may be required for certain benefits and that they will be charged a monthly fee even if they do not register for or activate those benefits. The form also acknowledges that the customer has received a guide with information on how to activate and register for such benefits.