deposit compliance: common violations and trends · online account opening online account opening...
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MEMBER OF ALLINIAL GLOBAL, AN ASSOCIATION OF LEGALLY INDEPENDENT FIRMS © 2010 Wolf & Company, P.C.
Deposit Compliance:
Common Violations and
Trends
Brian M. Shea, CRCM, CAMS
June 27, 2017
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• Today’s presentation slides can be downloaded at
www.wolfandco.com/webinars/2017
• The session will last about 45 minutes, and we’ll then
have time for Q & A.
• Our audience will be muted during the session.
• Please send your questions in using the “Questions Box”
located on the webinar’s control panel.
Before we get started…
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About Wolf & Company, P.C.
• Established in 1911
• Offer Audit, Tax, and Risk Management services to over
250 financial institutions
• Offices located in:
– Boston, Massachusetts
– Springfield, Massachusetts
– Albany, New York
– Livingston, NJ
• Over 200 professionals
As a leading regional firm founded in 1911, we provide our clients
with specialized industry expertise and responsive service.
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Financial Institution Expertise
• Over 60 Risk Management Professionals:
– IT Assurance Services Group
– Internal Audit Services Group
– Regulatory Compliance Services Group
– WolfPAC® Solutions Group
• Provide services to over 250 financial institutions:
– Approximately 90 FIs with assets > $1B
– Approximately 25 publicly traded FIs
– Constant regulatory review of our deliverables
• Provide Risk Management Services in 27 states and 2
U.S. territories
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Today’s Objectives
As part of today’s session we will:
• Learn about recent enforcement actions, penalties or
other high priority regulator concerns over deposit
compliance
• Identify possible issues and concerns with newer
products and services
• Learn about common audit and examiner issues on
deposit compliance areas
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Outline
1. Regulatory Hot Buttons
2. New Technologies, Products and Services
3. Common Audit and Exam Issues
4. Questions?
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REGULATORY HOT BUTTONS
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Enforcement Actions
September 2016 - Wells Fargo
• Penalties from CFPB, OCC, City of Los Angeles
• Unauthorized opening of accounts and other
products in order to meet sales goals
• Customers charged with fees for never authorized
services
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Enforcement Actions
July 2016 - Santander
• Penalized by CFPB
• Usage of telemarketing services to get customers to
opt into overdraft services, at times without consent
• Deceived customers about service being free, fees
involved
• Falsely characterized calls as not being sales related
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Enforcement Actions
October 2016 – TCF National Bank
• Penalized by CFPB
• Made overdraft services appear mandatory, pushed
service in misleading fashion
• Bonus strategy for staff on overdraft opt-ins,
employees feared termination if 80% opt-in goal not
met
• Existing customers opted in with limited explanation
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Enforcement Actions
November 2015 – Bank of Louisiana
• Penalized by FDIC
• Failed to investigate Regulation E error resolution
claims without police report, refused to accept oral
notification
• Insufficient documentation and disclosures missing
language
• Customers charged undisclosed debit card fee
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Lessons from Enforcement Actions
• Are sales goals, incentive programs, etc…
encouraging employees to break the rules?
• What is the institution’s culture with respect to sales
and compliance?
• Do we ensure processes and controls are in place to
ensure accounts opened are legitimate?
• Are we careful with how overdraft opt-in programs
are marketed, explained and run?
• Are we overtly requiring things from consumers that
the regulation does not in order to comply?
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NEW TECHNOLOGIES,
PRODUCTS AND SERVICES
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Rewards Checking Products
Rewards Checking are becoming increasingly popular
in the industry
Common features:
• High interest rate up to a specified dollar cap
• Refunds or waives ATM fees/surcharges
• Requirement to obtain e-statements, perform
specified number of debit card transactions each
qualification cycle
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Rewards Checking Products - Tiers
There are two ways a tiered rate account can be
structured under Regulation DD:
Tiering Method A
Account earns one single rate on entire balance,
depending on what tier the balance is in
Tiering Method B
The portion of the balance for each tier is paid the
interest rate applied to that tier
Rewards Checking products commonly use Method B
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Rewards Checking Products - Tiers
Improperly disclosing APYs for Tiering Method B is one
of the most common audit issues we run across.
Example:
$0.01 - $25,000.00 earns 1.99 interest rate
$25,000.01 and up earns 0.05 interest rate
The APY for the second tier must be disclosed as a
range (X.XX% APY – Y.YY% APY)
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Rewards Checking Products
Other Rewards Checking issues:
• Failure to reference that transactions must “post and
clear”
• Improper or confusing references to ATM
fee/surcharge waivers
• Confusion over “qualification cycle”
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Online Account Opening
Online account opening usage continues to increase.
In order to provide disclosures electronically, the
institution will need to ensure compliance with ESIGN
Prior to replacing paper disclosures, the institution must:
• Provide a disclosure identifying the consumer’s rights
relating to electronic disclosures
• Obtain consent in a manner that demonstrates the
consumer can access the electronic disclosures
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Online Account Opening
Common ESIGN issues:
• Consent is obtained after or at the same time the
account opening disclosures are provided
• Consent is not obtained in the required manner (ex.
signed paper form)
• ESIGN disclosure is missing certain required
language
Such issues can also be a concern for electronic
statements
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Online Account Opening
Other common online account opening issues:
• Specific Annual Percentage Yield, Interest Rate and
Maturity Date not provided as part of account
opening process
• Failure to timely update online versions of disclosures
when changes are made the paper versions
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Person to Person Transfer Services
Services that enable a consumer to
transfer funds between accounts at
different banks or to third parties
(ex. “Pop Money”).
Such services are considered
“Access Devices” under Reg. E
and subject to applicable
Protections.
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Person to Person Transfer Services
Issues that arise include:
• Disclosure either not provided, or lacking Reg. E-
required content
• Disclosed terms fail to consider inconsistent state law
(ex. MA liability cap)
• Limits either not disclosed or can fluctuate, causing
Reg. E changes in terms issues
• Failure to properly disclose fees
• OFAC considerations
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COMMON AUDIT AND EXAM
ISSUES
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Account Disclosures
Common issues:
• Missing transaction limitations in Reg. E disclosure
• Not providing Reg. E disclosure in close proximity to
triggering event (ex. new access device)
• Referencing that there are fees, but not providing
specific fee details (amount, conditions)
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Changes in Terms
Issues include:
• Failure to provide proper explanation of changes (ex.
sending new disclosure only)
• Not capturing all changed fees or terms
• Failure to provide notice of beneficial changes under
Regulation CC
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Consistency of Terms
Regulation DD requires all account titles, fees and
terms to be consistent
What should be an easy to comply with requirement is
nonetheless seen all the time as an issue
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Consistency of Terms
Causes of issues:
• System restrictions/limitations
• Updates not carrying over to all applicable
documents
• Multiple people involved in creation of documents
• Failure to have control to review advertisements and
materials back to relevant disclosures
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Overdraft Issues
Areas of concern:
• Improperly assessing overdraft fees based on memo
post holds
• Opt-in issues
• Continuous overdraft fees
• Failure to have monitoring over excessive users
• Improper advertising
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Deposit Advertising
Advertising issues include:
• Failure to state that rate can
change after the account is
opened
• Not identifying minimum tier
balance to earn APY in equal
prominence/proximity as
disclosed APY
• Including bonus in ad, but not
including required disclosures
• Improper segregation of insured
deposits and uninsured NDIP
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Error Resolution
Common issues:
• Failure to provide final notification for ACH error
resolution claims
• Failure to resolve ACH error resolution claim by 45th
day due to lack of signed notice
• Failure to apply error resolution protections to less
commonly disputed transaction types (ex. online
banking, bill pay, foreign remittance)
• Providing dispute notification letters with incorrect
language
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Error Resolution
More issues:
• Requiring the consumer to provide a police
report before moving forward with the
investigation
• Accepting notification/investigating only when
notification is provided in writing
• Mixing up Reg. E rules and Mastercard/VISA
rules
• Not refunding all fees impacted by error
• Other timing issues
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Regulation D
Issues include:
• Failing to track wire transfers not performed in person
• Turning off certain features but permitting consumer
to violate Reg. D limits through other means
• Treating all checks subject to Reg. D while not
removing those written as a withdrawal by the
account holder
• Improper “excessive transfer fee” application
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Funds Availability
Common issues:
• 24 hour hold at ATM resulting in failure to provide
availability by start of next business day
• Actual funds availability schedule does not match
disclosure
• Hold notice completion
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Identity Theft Red Flags
Service provider oversight is one of our most commonly
seen issues in an Identity Theft Red Flag Program
audit.
Requirement:
Whenever a financial institution or creditor engages a
service provider to perform an activity in connection with
one or more covered accounts the financial institution or
creditor should take steps to ensure that the activity of
the service provider is conducted in accordance with
reasonable policies and procedures designed to detect,
prevent, and mitigate the risk of identity theft.
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Identity Theft Red Flags
Common Service Provider Issues:
• Failure to have any relevant documentation
• Documentation or contracts on file, but solely speak
to GLBA privacy or non-Identity Theft Red Flag
related Fair Credit Reporting Act rules
• Failure to have formal process to identify relevant
service providers
• Failure to identify closing attorneys as applicable
service providers (based on nature of services)
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Brian M. Shea, CRCM, CAMS
Regulatory Compliance Senior Manager
Phone: (617) 261-8133
Email: [email protected]
Today’s Presentation can be downloaded at:
www.wolfandco.com/webinars/2017
Questions?