I. INTRODUCTION
The federal banking agencies (Agencies) have issued guidance to ensure that financial institutions are aware of the supervisory expectations regarding customer account deposit reconciliation practices. The guidance states that banks should avoid or reconcile, or resolve discrepancies between the amount they credit to a consumer’s account and how much was actually deposited.
II. BACKGROUND
When a customer makes a deposit to an account, the amount that the financial institution credits to that account may differ from the total of the items deposited. This kind of discrepancy arises in a variety of situations, including inaccuracies on the deposit slip, encoding errors, or poor image capture. For example, the customer may deposit $110 to an account, but may indicate on the deposit slip that only $100 has been tendered. In this case, the financial institution may credit $100 to the customer’s account as indicated on the deposit slip without reconciling the $10 discrepancy. This discrepancy is referred to as a “credit discrepancy.” It is a detriment to the customer and benefits the financial institution, if not appropriately reconciled.
Technological and other processes exist that allow financial institutions to fully reconcile discrepancies in deposit accounts. The Agencies acknowledge, however, that under limited circumstances, items cannot be reconciled, for example, when an item is damaged to the point that its true amount cannot be determined.
The Agencies have observed that financial institutions use a variety of approaches to handle credit discrepancies. In some instances, financial institutions do not research or correct all variances between the dollar value of items deposited to the customer’s account and the dollar amount that is credited to that account, resulting in the customer not receiving the full amount of the actual deposit.
III. APPLICABLE LAWS
Various laws and regulations may be relevant to deposit reconciliation practices. Among them, the Expedited Funds Availability Act (EFAA), as implemented by Regulation CC, requires that financial institutions make funds deposited in a transaction account available for withdrawal within prescribed time limits. Financial institutions’ policies or practices that do not appropriately reconcile credit discrepancies within the prescribed time frames may raise Regulation CC concerns if such discrepancies leave customers without timely access to the correct amount of funds. Failure to comply with the funds availability requirements in the EFAA and Regulation CC may subject the financial institution to civil liability and possible action by the appropriate Agency.
Further, Section 5 of the Federal Trade Commission Act (FTC Act) prohibits a financial institution from engaging in unfair or deceptive acts or practices. In addition, sections 1031 and 1036 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) prohibit unfair, deceptive, or abusive acts or practices. A financial institution’s deposit reconciliation practices for transaction and non-transaction accounts may, depending on the facts and circumstances, violate the FTC Act or Dodd-Frank Act when practices result in credit discrepancies.
IV. SUPERVISORY EXPECTATIONS
The Agencies expect financial institutions to adopt deposit reconciliation policies and practices that are designed to avoid or reconcile discrepancies, or designed to resolve discrepancies such that customers are not disadvantaged. Financial institutions are expected to effectively manage their deposit reconciliation practices to comply with Regulation CC and other applicable laws or regulations and to prevent potential harm to their customers. Information provided to customers about the financial institution’s deposit reconciliation practices should be accurate. Financial institutions should implement effective compliance management systems that include appropriate policies, procedures, internal controls, training, and oversight and review processes to ensure compliance with applicable laws and regulations, and fair treatment of customers. These actions will help minimize exposure to potential financial loss and supervisory action.
V. CONCLUSION
The guidance is related to the fact that some banks have established a de minimis practice to resolving account deposit discrepancies set at various amounts. The Consumer Financial Protection Bureau (CFPB) recently issued a consent order against a bank that had a system in place which provided that if the amount of a discrepancy fell below a certain threshold, the bank would not verify the discrepancy between the deposit slip and the amount of the item. The bank’s general ledger was then credited or debited with the difference between the amounts totaling $12.3 million. The CFPB further found that the bank’s advertising and account agreements either explicitly stated or implied that every deposit would be verified when they were not in practice.
If your bank has a threshold amount for deposit verifications, you should ensure that you have established appropriate checks to avoid under-crediting your customers and that you are accurately crediting customer deposits. In addition, disclosures and advertising related to deposit verification must be accurate.