Topic: Unfair, Deceptive, and Abusive Acts and Practices (UDAAP)
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If a customer comes into our bank and requests that we match another bank’s higher interest rate for a certificate of deposit (CD), we generally comply with the request, within reason. However, we do not offer the higher interest rate to customers who do not request it. Could this be a UDAAP violation?
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We note that the characterization of an act or practice as an unfair, deceptive or abusive act or practice (UDAAP) is highly subjective and sometimes unpredictable. We believe that agreeing to match a competitor’s CD interest rate for customers who request the match presents a relatively low risk of being considered a UDAAP violation, provided…
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We are a national bank, and we recently moved our wealth and farm management groups into a separate, state-chartered trust company that will be regulated by the IDFPR and the Federal Reserve. Which compliance regulations apply to a trust company? Do the following apply? BSA, OFAC, AML, CIP, USA Patriot Act, FACT Act, Elder Financial Abuse, UDAAP, and GLBA.
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Trust companies are subject to all the laws mentioned in your question. Broadly speaking, there are no exemptions for trust companies in the laws and regulations that generally apply to banks, bank holding companies, and their subsidiaries. Also, you mention in your question that the trust company will be regulated by the IDFPR and the…
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Our bank offers a rewards checking account that provides certain benefits for using the product, including a reduced fee on consumer loans. When we originate a consumer loan, are we required to review the customer’s checking accounts to see if they are eligible for this benefit, or can we include language in our TISA disclosure that puts that burden on the customer to inform us that they are eligible for the benefit when applying for the loan?
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We recommend that your bank institute a process to check whether consumer loan applicants are eligible for this benefit, rather than placing the burden on the customer to alert your bank about the benefit at the time of loan application. We believe that a failure to provide a stated benefit of the rewards checking account…
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We received a child support payment for a customer whose deposit account was closed and charged off due to overdrafts. Can we apply the child support payment to offset the unpaid overdraft fees?
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No, we do not believe that your bank may exercise a right of setoff in this situation. While your deposit account agreement likely provided for a right of setoff relative to funds your former customer had on deposit, that customer no longer has a deposit account or funds on deposit, precluding a right of setoff.…
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We would like to combine the paper statements for our customers’ deposit accounts. We currently charge paper statement fees. If a customer currently pays multiple paper statement fees, can we continue charging multiple fees when we issue a single combined statement for the accounts? Also, if we have multiple joint accounts with a single common member, do we need to obtain all of the parties’ consents to a combined statement? For example, say John owns a joint account with his wife and another joint account with his daughter. Does John have the authority to request a combined statement, or would we need his wife and daughter’s written consents?
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We do not recommend charging multiple paper statement fees when providing a single combined paper statement covering multiple accounts. Even if this practice appears to be permitted by the language in your account agreements, we believe it could raise UDAAP issues as to the fairness and business justification for charging multiple paper statement fees for…
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We are using ChexSystems to review customers before they open a checking account. If a customer receives a “declined” rating from ChexSystems, we will not decline the customer’s request to open an account but will offer a different type of checking account designed for that rating. Do we need to obtain customer authorizations before using ChexSystems? Do we have any UDAAP concerns here?
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No, we do not believe that you need to obtain a customer’s authorization before obtaining a report from ChexSystems. Under the Fair Credit Reporting Act (FCRA), your bank has a permissible purpose to pull a consumer’s credit report when it has “a legitimate business need for the information in connection with a business transaction that…
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We are offering a new savings account where we disclose that we will automatically send electronic account statements unless the customer opts to pay a small fee for paper statements. Some customers have indicated that they don’t want either electronic or paper statements. Can we honor that request? The savings accounts can receive electronic funds transfers.
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No, we do not believe that it would be appropriate to honor a customer’s request to not send statements for a deposit account, due to federal and state laws pertaining to electronic fund transfers, as well as checks. For any account that allows electronic fund transfer (EFT) activity, Regulation E requires monthly periodic statements for…
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If we have charged off and closed an account, can we re-open the account to use a direct deposit (a non-government deposit) to offset the amount of the charge off?
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No, we do not believe that your bank may re-open the account to exercise a right of setoff in this situation. While your deposit account agreement likely provided for a right of setoff relative to funds your former customer had on deposit, that customer no longer has a deposit account or funds on deposit, precluding…
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We are looking into providing a financial incentive for borrowers to timely provide us with their loan documentation (financial statements, tax returns, etc.). For example, a borrower would receive $500 (or a $500 reduction in the loan principal) for providing their rent roll by a certain date. If a borrower fails to meet this deadline, then no incentive would be provided. Are there any regulations that we should consider?
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We are not aware of any statutory or regulatory limitations on paying incentives to borrowers who provide certain loan documents by timelines set by the bank, assuming that this program is applied equally to all customers for a particular loan product. We do recommend providing the terms of this program in writing and reviewing those terms…
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How should we disclose fees that do not appear on our note or a separate fee schedule, such as a flat fee for payments made by phone? If a customer service representative informs a customer about the pay-by-phone fee, does that satisfy any disclosure requirements?
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We do not recommend charging fees that are not disclosed in your loan agreement or in another document that is incorporated by reference, such as a fee schedule or “rules and regulations.” A verbal disclosure of a fee not previously disclosed would not suffice. If you are contemplating a new fee, such as a pay-by-phone…