Topic: Unfair, Deceptive, and Abusive Acts and Practices (UDAAP)
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We recently discovered an error in the interest calculations for some of our deposit accounts. In most cases, we underpaid interest by just a few cents. Does Regulation DD provide a certain tolerance threshold for such “de minimis” errors?
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No, there is no de minimis threshold for interest calculation errors for savings accounts in Regulation DD. The Truth in Savings Act formerly required restitution to customers for errors, but that provision was repealed in 2001. We do recommend providing restitution to the affected customers, since a failure to pay interest as promised, even to…
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The latest FDIC quarterly newsletter for the Chicago Region includes an article on bill payment services offered by banks through third parties. The article states that banks “are permitted to characterize payments as ‘prohibited’ or as an ‘exception’” in their Terms and Conditions Agreements, but that when they decline to process those payments, “the failure to notify consumers that a payment has been declined” will “result in harm to the consumer.” What types of payments can we categorize as “prohibited” or an “exception”? Also, what notification if any is required if we decline a permitted payment for insufficient funds? Is particular wording required?
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We discussed this issue with a representative from the FDIC Chicago region, who told us that there is no law or regulation expressly governing the rejection of payments that are authorized through an online bill payment service. You may rely on your bill payment service agreement with your customer to define what types of payments…
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Under Illinois law, can we require home equity line of credit (HELOC) borrowers to use a non-affiliated title company? Does it make a difference if we are obtaining only a title search (as part of our due diligence), which we pay for ourselves, without requiring the borrower to purchase title insurance?
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Yes, we believe your bank may select third parties to perform title searches for HELOC applicants as part of its due diligence when the bank pays the search fees, with the provisos discussed below. Because your institution would be paying for the costs of the title searches, as opposed to the applicants, you have a…
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For our transactional and savings accounts, we automatically correct deposit errors only if they exceed $1. We don’t disclose that anywhere in the account documentation. Should we be disclosing the $1 threshold somewhere?
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Yes, we recommend disclosing that your institution does not investigate or correct deposit errors below the $1 threshold. As you noted, the CFPB recently found that a bank’s policy of leaving deposit errors uncorrected if under a $25 threshold (sometimes as high as $50) was unfair and deceptive. While the CFPB focused on a large…
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When a customer with multiple deposit accounts overdraws Account # 1, we charge an insufficient funds fee and place a hold for the amount of the overdraft on Account # 2. If the customer writes a separate check that draws against Account # 2, and the amount of the check draws against the funds that we have on hold, we charge an unavailable funds fee. Our account agreements permit us to place the hold and charge the fees. We also provide notice to the customer when the funds are held and before we charge the unavailable funds fee. Are you aware of any guidance as to whether this practice is deceptive or otherwise a UDAAP violation?
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We believe this practice should pass a UDAAP analysis, and also that the unavailable funds fee should not be considered a second overdraft fee for the same overdraft, even though it is indirectly related to the initial overdraft, for which an overdraft fee already has been charged. The facts are that: (1) both the hold…
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We are putting together a statement insert advertisement announcing our new mobile banking app. Other than the Member FDIC and Equal Housing Opportunity notices, are we required to include anything else with the ad?
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We are not aware of any rules or guidelines that directly address your question. Having said that, if the app is characterized as a free service offered by the bank (or even is characterized as a free app on the website from which it is downloaded), we would advise disclosing that mobile carrier fees may…
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When a business customer with multiple deposit accounts overdraws account #1, we charge an insufficient funds fee and place a hold for the amount of the overdraft on account #2. If the customer then overdraws account #2, we charge an unavailable funds fee. Our business account agreement permits us to place the hold and charge the fees. However, are you aware of any guidance as to whether this practice is deceptive?
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No, we are not aware of any guidance on this practice, particularly because it applies only to your business customers. The Dodd-Frank Act’s prohibition of unfair, deceptive and abusive acts or practices (UDAAP) applies only to consumers, not to business customers, and consequently the UDAAP risks are low. Provided that your fees and practices match…
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How are financial institutions able to offer special loan programs only to state employees? Wouldn’t that raise fair lending concerns or UDAAP issues?
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No, the fact that a special loan program is offered only to state employees, without any other facts, would not raise fair lending or UDAAP concerns. In fact, the federal banking regulatory agencies have encouraged banks to provide special assistance to borrowers affected by government shutdowns, most recently during the 2013 federal government shutdown. Because…