As promised, we’re back this week with Part 2 of our spring audit season spotlight, turning our attention to several additional areas where banks should be watching for weeds. The observations below continue our roundup of findings collected through Assurance Services’ recent engagements – each one a timely reminder to stay rooted in your procedures and review where things might need “pruning.”
Deposit Compliance: Getting the Details Right
Several core deposit compliance issues continue to surface. Under Regulation CC’s 12 CFR 229.13(g), the exception hold notices that must be provided to customers have specific content and timing requirements; though they can be nuanced in their application (depending on what type of notice is being provided specifically), this is an area where banks benefit from getting back to basics, referring to the regulatory language, and applying the rules consistently.
Similarly, mismatches between what’s disclosed (or advertised) online and what’s provided at account opening under the Truth in Savings Act (TISA) can result in compliance violations. Disclosures and advertisements regarding minimum balance requirements or tiered service charges must align with the bank’s actual product terms, regardless of the medium. Under Regulation DD, consistency between online marketing and account disclosures is essential.
Another area to monitor is Regulation E’s provisional credit. In most cases, unless the bank has completed its investigation into a customer-reported error within 10 business days of receiving notice of that error, it must credit the customer’s account within 10 business days of receiving notice of an error (barring one of the applicable exceptions). Delays beyond this 10-day timeframe, even for small-dollar claims, may cause a violation of § 1005.11(c).
ACH Stop Payments: Time Limits That Don’t Belong
A common misstep involves how systems handle stop payments on ACH transactions for consumer accounts. For example, core systems might be configured to apply a six-month expiration to all stop payments – but this explicitly conflicts with Nacha Operating Rules for consumers. According to Article Three, Subsection 3.7.1.4, stop payments on consumer ACH entries remain in effect until either the consumer revokes the order, or the relevant debit entry is returned. Essentially, this means stop payments for consumer ACH transactions must remain active indefinitely unless withdrawn. Applying a six-month expiration across the board could result in premature expiration (and potential consumer harm.)
Lending: Accuracy in Notices and Disclosures
Lending documentation should also be reviewed with care. Pre-repossession notices sometimes included the wrong collateral description or misstated the outstanding balance. These details not only confuse the borrower (a UDAAP/UDAP concern in and of itself) but can present significant legal and regulatory risk.
Banks were also observed using the Closing Disclosure (CD) form for all real estate-secured loans – even for those in which TRID does not apply. While perhaps well-intentioned, applying TRID disclosures outside of allowances in Reg Z can mislead borrowers and suggest protections that do not exist (or, potentially worse, create them as a matter of contract).
As audit season blossoms, there’s no better time to dig into the details. Whether you’re proactively tending to these areas or just beginning to see them “sprout” up, Assurance Services is here to help you stay grounded – and ready – for whatever regulatory weather audit season brings your way.