Deposit Reconciliation Practices (Letter to Credit Unions 16-CU-04)
Written by Eliott C. Ponte, Regulatory Compliance Counsel
Last month, the NCUA, and four other regulatory agencies, issued interagency guidance on member account deposit reconciliation practices. See Letter to Credit Unions 16-CU-04. The guidance states that some financial institutions are not appropriately reconciling credit discrepancies. These credit discrepancies arise when a consumer inaccurately records the amount of money being deposited on a deposit slip (or mobile app when using Remote Deposit Capture) and the financial institution fails to properly reconcile the discrepancy. For example, if a consumer deposited $110 into an account, but indicated on the deposit slip that only $100 was deposited, it is the regulators expectation that $10 is credited to the consumer's account.
While not specifically stated, the guidance comes after regulators took action against Citizens Bank for improper deposit reconciliation practices. In the consent order, the CFPB and other bank regulators alleged that Citizens Bank engaged in an unfair deposit practices because it failed to credit consumers the full amount of their deposits when the deposit slip stated an amount that was less or greater than the actual amount of cash and checks deposited. The regulators also asserted that Citizens practices were deceptive because the bank's account agreements stated that consumer deposits were subject to verification, thereby implying that Citizens Bank would take steps to ensure consumers were credited with the correct deposit amount. In practice, however, discrepancies were corrected only if the amount indicated was over or under a certain dollar threshold ($50.00 prior to September 2012, and $25.00 thereafter). Over a six-year period, the CFPB alleged that Citizens Bank under credited consumers accounts by approximately $12.3 million.
This guidance does not change existing law, but rather emphasizes that financial institutions should ensure deposit reconciliation policies and practices are compliant with existing law. The guidance highlights that failing to properly implement and carry out proper deposit reconciliation practices, financial institutions may be violating the Expedited Funds Availability Act, which is implemented by Regulation CC, Unfair and Deceptive Acts and Practices, which is enforced under the FTC, and Unfair, Deceptive, Abusive Acts or Practices, which is enforced by the CFPB.
With regard to Regulation CC, the guidance points out that financial institutions are required to make funds available in transaction accounts within prescribed time limits. For example, under Regulation CC certain check deposits must be made available for withdrawal the business day after the banking day on which they were received. Failure to reconcile credit discrepancies within these time limits may violate Regulation CC, as consumers are unable to access the correct amount of funds that they are entitled within the time period outlined by the regulation. The guidance acknowledges that under limited circumstances items cannot be reconciled. With the exception of an item being severely damaged, the guidance fails to provide examples of these limited circumstances.
Going forward, credit unions should ensure that deposit reconciliation policies and practices are designed to reconcile discrepancies within regulatory timeframes. Furthermore, disclosures made to members about the credit union's deposit reconciliation policies and practices should be accurate. Credit unions may want to consider implementing effective compliance management systems that include appropriate policies, procedures, internal controls, training, and oversight and review processes to ensure credit discrepancies are identified and corrected within a timely manner.