Legal Ease is the weekly Q&A from the IBAT Bottom Line. Go to the Legal Ease Archive.
Latest Additions to Legal Ease:
Is there a time limit in which they can dispute charges? We are fully aware of the “60 day” rule, in which bank could be responsible for charges, but was unsure if consumer could dispute charges, let’s say 1 year after they occurred, and, bank could be liable for those charges that occurred within the “60 day period” but not those from that 61st day until they were actually reported to bank a year later. Any clarification is much appreciated.
The first thing to remember is that there is no timeframe in EFTA that excuses you from investigating a claim. However, because the accountholder did not give timely notice, you are not bound by the provisional credit and final resolution time frames set forth in §1005.11
b) Notice of error from consumer--(1) Timing; contents. A financial institution shall comply with the requirements of this section with respect to any oral or written notice of error from the consumer that:
(i) Is received by the institution no later than 60 days after the institution sends the periodic statement or provides the passbook documentation, required by Sec. 1005.9, on which the alleged error is first reflected.
Second issue - the late notice from the accountholder. From §1005.6.
3) Periodic statement; timely notice not given. A consumer must report an unauthorized electronic fund transfer that appears on a periodic statement within 60 days of the financial institution's transmittal of the statement to avoid liability for subsequent transfers. If the consumer fails to do so, the consumer's liability shall not exceed the amount of the unauthorized transfers that occur after the close of the 60 days and before notice to the institution, and that the institution establishes would not have occurred had the consumer notified the institution within the 60-day period. When an access device is involved in the unauthorized transfer, the consumer may be liable for other amounts set forth in paragraphs (b)(1) or (b)(2) of this section, as applicable.
So, yes the accountholder may make a claim after 60 days for an unauthorized EFT and your bank may still be liable for the initial transactions in that original 60 day reporting window - but, and this is important, any transactions that have taken place after that initial 60 day reporting window (60 days from the statement on which the first unauthorized EFT occurred) may be the liability of the accountholder.
Finally - If these involve the theft of an access device such as an ATM/Debit card, or ACH withdrawals you may need to consider the network operating rules, the ACH operating rules, as well as Visa/MasterCard Zero liability rules.
Our bank operates under the name XYZ bank. We opened a new branch in another town and named it ABC Bank branch of XYZ Bank. The marketing department is in the process of releasing a new website for the new branch where everything is titled ABC Bank. At the bottom of the website, we have the phrase “ABC Bank, branch of XYZ Bank”. Do marketing materials and disclosures need to reference ABC Bank, ABC Bank, branch of XYZ bank, or just XYZ Bank.
There is some interesting guidance in an Interagency Statement on Branch Names. The issue is really about confusion and the need to tread carefully - even more so today with UDAAP being such a major concern. While the guidance is specifically dealing with FDIC insurance, the logic would hold for any marketing materials and disclosures, especially #1 and #4. All marketing materials and disclosures, including any web presence, should be clear, concise, and consistent that ABC Bank is in fact a branch of XYZ bank.
- Disclosing, clearly and conspicuously, in signs, advertising, and similar materials that the facility is a branch, division, or other unit of the insured institution. The institution should exercise care that the signs and advertising do not create a deceptive and/or misleading impression.
- Using the legal name of the insured institution for legal documents, certificates of deposit, signature cards, loan agreements, account statements, checks, drafts, and other similar documents.
- Educating the staff of the insured depository institution regarding the possibility of customer confusion with respect to deposit insurance. The Agencies recommend that the insured depository institution instruct staff at the branch and any other facilities operating under trade names to inquire of customers, prior to opening new accounts, whether they have deposits at the depository institution's other facilities or branches. In addition, during the time period soon after one institution acquires or combines with another, staff should be reminded to call customers' attention to disclosures that identify a particular branch or facility as part of an institution.
4. Obtaining from depositors opening new accounts at the branch a signed statement acknowledging that they are aware that the branch and other facilities are in fact parts of the same insured institution and that deposits held at each facility are not separately insured.
In the memo releasing the Interagency Statement, the FDIC stated the following: "Although there may be valid business reasons for this practice, the agencies are concerned that it has the potential for confusing depositors about their deposit insurance coverage." It seems reasonable that a bank should document the "valid business reasons" when it elects to operate a branch under a different trade name.
We have had two questions this week with the same answer: Question 1: When we remove a depositor’s account from our overdraft protection program, may we keep the account opted-in for ATM and one-time debit card transactions? Question 2: If we stop offering an overdraft protection program, may we keep customer accounts opted-in for ATM and one-time debit card transactions?
The answers are no and no. The final rule on opting in to ATM and one-time debit card transactions is an opt-in to your bank’s “overdraft service” for ATM and one-time debit card transactions. “Overdraft service” is a defined term meaning “a service under which a financial institution assesses a fee or charge on a consumer’s account held by the institution for paying a transaction (including a check or other item) when the consumer has insufficient or unavailable funds in the account.” (The definition also excludes a line of credit or linked accounts.) See 12 U.S.C. §1005.17(a). You may otherwise sign a customer up for your bank’s overdraft service, unless they opt-out, but customers must affirmatively opt-in to charge a fee for paying ATM and one-time debit card transactions into overdraft.
If your bank doesn’t have an overdraft service or if you have removed a customer from your overdraft service, the customer choosing to opt-in wouldn’t be opting into an overdraft service. The customer’s opt-in would merely opt into paying a fee when your bank is required to pay an ATM transaction or a one-time debit card transaction into overdraft. The regulators do not approve of this practice and, in addition to citing your bank with a violation of Reg. E, Section 1005.17, they may cite it is as a UDAAP violation. If your bank has accounts that are opted-in, but aren’t signed up for an overdraft service, your regulator may make your bank reimburse the fees collected. I’ve heard of it happening.
An executive officer of our bank wants to borrow money to purchase a second home. The loan will be secured by a first lien on the second home. Since he is subject to Regulation O lending restrictions, can we make this loan?
There are two parts to answer this question - and you may or may not be able to make this loan.
First part - a bank may make a loan to an executive officer in any amount to purchase a residence provided it's a first lien and owned by the executive officer. It does not have to be his or her primary residence.
§ 215.5 Additional restrictions on loans to executive officers of member banks.
(c) A member bank is authorized to extend credit to any executive officer of the bank:
(1) In any amount to finance the education of the executive officer's children;
(2) In any amount to finance or refinance the purchase, construction, maintenance, or improvement of a residence of the executive officer, provided:
(i) The extension of credit is secured by a first lien on the residence and the residence is owned (or expected to be owned after the extension of credit) by the executive officer; and
(ii) In the case of a refinancing, that only the amount thereof used to repay the original extension of credit, together with the closing costs of the refinancing, and any additional amount thereof used for any of the purposes enumerated in this paragraph (c)(2), are included within this category of credit;
Second part - You can only finance one residence of an executive officer. So if you have financed his or her primary residence, a loan to finance the purchase, construction, maintenance, or improvement of the second home would subject to the "other purpose" limits of Regulation O.
4000 - Advisory Opinions
With regard to your first question, the extension of credit would be authorized under Reg O for any amount pursuant to 12 C.F.R. § 215.5(c)(2) if the second home is the only residence of the executive officer which the bank has financed and secured by a first lien. If the executive officer has already financed a first home through the bank, the loan for the second home would be subject to the "other purpose" limits of 12 C.F.R. § 337.3(c).