Legal Ease is the weekly Q&A from the IBAT Bottom Line. Go to the Legal Ease Archive.
Latest Additions to Legal Ease:
A local law enforcement agency is asking for information about one of our customers and checks that may have cleared their account. Can we provide that information without a subpoena? Would it make a difference if it was an out of state law enforcement agency?
While it is reasonable to want to assist law enforcement agencies in a criminal investigation, without either the customer's specific written consent to the release of the information or a subpoena, the information should not be released. If there is a legitimate criminal investigation it should not be difficult to obtain a subpoena. If the request is from an out of state law enforcement agency, they should provide you a subpoena as well - but by going through a Texas court. As a general rule, subpoenas issued by courts outside of Texas suffer from jurisdictional issues. The exception to that would be grand jury subpoenas issued from outside the state which could be complied with without those same jurisdictional issues.
If the request is in connection with a SAR that your bank filed, there is a safe harbor for the SAR itself and for "...all supporting documentation related to the filed SAR...". However only documentation or information directly related to the SAR could be released without a subpoena.
We have individual TUTMA accounts for three minor children with the mother being the custodian on each account. The mother came in and withdrew $6,000.00 from each of the accounts receiving a total of $18,000.00 in cash. In doing the CTR, I assume that we would do it on all four people – the minors and the mother who took the money. Since we do not know the circumstances of what the money is going to be used for, does the mother benefit from the transaction or was she just the person who took the money out and the children are the only three who benefit?
Since the mother has control of the accounts in her role as the custodian you would have to assume she is making the withdrawals for the benefit of the minor children. Under what is known as the "essential benefit" rule, unless you had knowledge to the contrary that the transactions were being conducted to benefit the minor children, you would not be required nor prohibited from listing the custodian in a second Part 1 on the CTR. The proper way would be to list each child in Part I - Section A Person(s) on Whose Behalf Transaction(s) Is Conducted, and to list the mother in her role as the custodian in Part I - Section B Individual(s) Conducting Transaction(s) checking the box for multiple transactions but not checking the box for conducted on own behalf. In Part II - Amount and Type of Transaction(s) each of the three accounts would be listed. If there is information to the contrary, still file the CTR noting the custodian as the person "conducted on own behalf" and then, also a SAR if applicable.
When filling out the signature card, is it required for the bank to put the individual’s legal name on the signature card or can it be tailored to the customer’s liking? I thought it had to be a certain way for FDIC insurance coverage, but I can’t seem to put my hands on where I read that. For example, Sally Jane Smith walks in and that is her legal name. Should we put Sally Jane Smith or can we put Sally J. Smith or S.J. Smith if she prefers to go by S.J.?
If you allow accounts to be opened in anything other than the full name of the depositor, you might get multiple deposit and credit accounts opened by the same person in more than one name. Without going into detail, this could cause issues with garnishments, levies, subpoenas, setoff, FDIC insurance, etc…. For consistency throughout the bank, it would be a best practice to use the name on the drivers license. A "best practice" is using the drivers license for two reason. First, the full name on the drivers license is required for UCC filings. See UCC §9.503(a)(4). Secondly, most people do not carry (and should not carry) their Social Security cards. If the depositor doesn’t have a drivers license, they can easily get a state ID. There are certainly times when you’ll need to make exceptions, but that goes beyond the scope of this question and answer. Be sure that your board approved CIP and procedures are consistent with your practice.
And for the person who doesn’t want their full name on their account, you can certainly print checks in their preferred name and, if possible, have mail sent to their preferred name.
Follow-Up Question: But what happens when the IRS uses the social security names to match the 1099s? If they don’t match, the bank gets hit financially. Kind of a tough situation I guess.
Answer: The bank will receive a "B" notice (Notice of Incorrect Taxpayer Identification Number) from the IRS. For the small number of potential mismatches that you will receive, you will need to contact the accountholder and have them either correct the name or TIN and certify that the amended version is correct or must certify, under penalty of perjury, that the original furnished information was correct.
We have discovered that we have underpaid interest on some money market accounts. Do we need to reimburse? If we reimburse, how far back do we have to go? Is it longer than a year if it was incorrect for that long?
That is an interesting question. Unlike the Truth in Lending Act (TILA), the Truth in Savings Act (TISA) lacks a reimbursement or cure provision. That does not mean you don't have a problem - you violated the terms of your contract and you could run afoul of both state law and face UDAAP issues.
Depositors could seek to recover underpaid interest through private lawsuits. Claims would most likely involve breach of contract and would seek the recovery of damages (i.e. what was contracted for versus what was actually paid - the underpaid interest). The risk of that is relatively low because the amounts of money are probably very small. Certainly there is reputation risk as well, so that should be considered in how you are going to handle this as well.
Additionally, just because TISA does not have a reimbursement or cure provision, that does not mean your regulator is not free to enforce Regulation DD in any manner they wish, including requiring depositor restitution.
Under 12 CFR §1030.9 TISA record retention is two years after the disclosures were provided - but that does not really address the contractual issue that is the most problematic in this situation. It's worth noting that the statute of limitation in Texas for contractual obligations is four years, and the four years doesn’t begin to run until the customer knew or should have known about the cause of action. Currently, the customers do not know that there is an issue. If you elect to go back and reimburse, go back to when the problem started. Document your work, and be prepared to explain to your examiner what happened and why it will not happen again.