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Robin was spot on with her answer. Many examiners would answer your question of whether to close the accounts by saying: “It depends on your bank’s BSA risk profile”. I never found that too helpful or comforting when I was the BSA Officer at a bank but it gave me plenty of wiggle room when I was an examiner. It didn’t sound like FinCEN provided a magic bullet either.
The first issue (October 2000) of the SAR Activity Review Trends, and Issues provided the following guidance on page 27: The closure of a customer account as the result of the identification of suspicious activity is a determination for an organization to make in light of the information available to the organization. A filing of a SAR, on its own, should not be the basis for terminating a customer relationship. Rather, a determination should be made with the knowledge of the facts and circumstances giving rise to the SAR filing, as well as other available information that could tend to impact on such a decision. It may be advisable to include the organization’s counsel, as well as other senior staff, in such determinations.
Well, that didn’t help too much but the bottom line is that this customer is now on your High-Risk list and likely will continue to stay there because of their inability to cooperate with your due diligence efforts which might lower the perceived level of risk.
Somewhere in the BSA exam manual there is reference to banks having written procedures within their BSA Policy for the methodology the bank would use for closing accounts for continuing suspicious activity. If your BSA Policy doesn’t currently address your methodology for closure due to repeated SAR filings, then I suggest you add this language first, get the Board to approve it, and then take action to close the account. However, if you feel strongly about the issue and your BOD is BSA risk adverse, I can see where you might want to take action first (close the account) and not let the red tape of waiting for the next BOD meeting delay the process.
I was one of those examiners that liked to see processes (such as closure methodology) first laid out in writing in the policy followed by bank personnel acting upon the written policy rather than vice versa. In my discussions with bankers, I believe many would vote to close this account and provide a generic letter to the customer indicating that the account does not meet the bank’s standards and is being closed or perhaps the letter would simply state that the account was not maintained in a manner appropriate with the bank’s BSA risk profile. Unlike, Reg B and Adverse Action notices you don’t have to provide any specific reasons.
Not all SARs create equal risks for the bank and I hope your BSA Policy addresses a methodology on which SARs – e.g. terrorist financing, fraud, money laundering – are higher risk and deserve more scrutiny and are documented as higher risk.
First of all I would make sure that I have well documented closure procedures in my BSA Policy that address the risk rating of the SARs being filed for continuing activity. Your policy should state that such decisions are made on a case-by-case basis by the SAR or BSA Review team. The policy would address what documentation, such as a Continuing SAR Customer Closure form, is expected to be completed by BSA staff along with what comprehensive supporting documentation should be presented for review. I would bring key stakeholders into the discussion such as Deposit Ops and ensure the internal closure form is signed by all key departments or employees such as Deposit Ops, BSA Officer, Compliance Officer, etc. I would also make sure that any personnel which might speak with the soon-to-be disgruntled customer knew that any reference to a SAR was taboo.
Prior to the arrival of your examiner, document all discussions, issues, customer conversations, FinCEN and police contacts, etc. These will go a long way in meeting the expectations of your examiners.
Perhaps we have some members that might be willing to share sample language out of the letters they use when closing accounts for continuing SARs.
Great question.
The relevant Commentary in Reg DD states that “banks offering a grace period on CDs that automatically renew need not state whether interest will be paid if the funds are withdrawn during the grace period. Most banks handle this situation by disclosing in their initial disclosures: “If you close your CD during the grace period, accrued and unpaid interest will not be paid”
Unfortunately, the Commentary didn’t provide any clarity regarding payment of interest during the 10-day (for your bank) grace period if the funds were NOT withdrawn and did roll-over. There seems to be different practices among banks as to whether they pay interest or not during the grace period on accounts that are rolled over.
Payment of interest during the grace period would likely relate back to language, if any, you might have in your Agreement with your CD customer. The catch-all requirement in Reg DD is that account disclosures be: “reflective of the terms of the legal obligation of the account agreement between the consumer and the depository institution.” If your Agreement say says you will pay interest during any grace period you have to disclose this, and pay interest, but if the Agreement doesn’t address the issue then no disclosure and no payment of interest during the grace period is required. My guess is that your Agreement and disclosures indicate that interest will cease to accrue at the end of the original maturity date.
However, your main question dealt with UDAAP concerns regarding risk of not disclosing that interest will not be paid during the grace period. You also queried whether any potential risk could be mitigated by the payment of interest during the grace period. Both are good questions.
Rule #1 from Reg DD is that the disclosures be clear and conspicuous and reflect the legal obligation between the parties. My guess is that you currently meet that standard.
I do not think the issue of non payment paying interest during a grace period, when neither the bank’s Agreement nor its disclosures called for the payment of such interest, would meet the Unfairness standard of UDAP which is an act which causes or is likely to cause substantial injury to consumers, which is not reasonably avoidable by consumers themselves and is not outweighed by countervailing benefits to consumers or to competition. Neither do I think it meets the Deceptive test regarding a representation, omission or practice that mislead, or be likely to mislead, a reasonable consumer or is material in nature.
While I believe there are is minimal UDAP (I didn’t address the Abusive standard in the full UDAAP since that standard technically is applied to banks with greater than $10B in assets) risk in this situation, risk is usually lowered when a bank’s actions, such as paying interest when it isn’t required to such as during a grace period, are in the customers favor.
If your bank does decide to pay interest during the grace period, I would align my bank’s Agreement and account disclosures with this practice.
I see nothing wrong with your proposed youth savings account where rates are tiered based on account balances and other criteria.
Most banks with such a program reclassify the minor account as a regular savings account when the youth reaches the age of 18.
I’m not completely sure what you mean by “minimum automatic deposit of $20 into the account” but assume you are envisioning an EFT from a parents or other adults account at account inception. This would need to be clearly spelled out.
Be careful about saying that e-statements are required as ESIGN allows anyone receiving an e-statement to revoke that option at any time. However, your plan is sound as you are offering the same product to those that do not, or can not, receive e-statements, albeit at a lower APY. A better way to spin this might be to say “sign up for online statements to receive our highest rates and earn greater interest” rather than making it appear that online statements are required and that those that don’t have internet access are being penalized.
You would also need to deal with the Joint Tenancy vs UTMA ownership issue.
It’s usually easier to CIP a minor as you can use a student ID card, get a teacher’s confirmation, birth certificate, immunization card, social security card, etc but make sure your method of satisfying CIP requirements is clearly spelled out in your bank’s BSA Policy before you offer this product and also make sure that any training or written procedures also support what is added to your CIP policy for these accounts.
Other possible issues deal with whether you allow ATM or debit card access and whether this account has an overdraft component. Also be cognizant of pointing out any transfer or withdrawal limitations associated with this type of account that might differ from other savings accounts.
Make sure you disclose what will happen when the minor turns 18 such as “Minor Savings Accounts convert to a regular savings account and applicable fees will apply when the minor turns 18”.
Finally, if you are limiting this account to students who are U.S. citizens or permanent residents or those with a Social Security Card say so.
Nice, unusual question mcarey.
A bank must perform CIP when opening a new “account” for a “customer”. In my opinion there is no requirement to CIP the broker or the commercial borrower since the loan your bank purchased does not meeting the definition of an “account”.
31 C.F.R. 1020.100(a) provides a definition of an account which states in (a)(2) that “for purposes of §1020.220 (CIP rule)” that “(2) Account does NOT include: …… (ii) An account that the bank acquires through an acquisition, merger, purchase of assets, or assumption of liabilities.” Therefore the purchase of a loan would be exempt from CIP requirements. However, if you renewed the loan then CIP might apply since your bank was not the entity that performed the initial CIP.
Furthermore, the definition of a customer speaks of a “new account” which would not be applicable here as you are not originating a new loan.
The April 28 2005 CIP FAQs contain a question on page 2 which addresses purchased loans and the answer is that CIP exclusions cover loans purchased from third parties such as car dealers and mortgage brokers. Loan participations are also excluded from CIP requirements. If the commercial loan broker is serving as your agent you must make sure the broker is performing the bank’s CIP but in all likelihood the broker is not your agent.
The non-bank entity from which you are purchasing loans likely is subject to its own CIP requirements as there are 10 different types of entities that are subject to the CIP rule.
Kristin,
An excellent question as I have not heard this issue discussed anywhere previously. I know of no law or regulation that would prevent your bank from sharing summary information that might include the originator’s account number from an incoming wire transfer payment order.
Regulation E is out of the discussion since wire transfers are exempted from the definition of an EFT and even if not exempted the Remittance Transfer rules only apply to the sending financial institution.
UCC Article 4A and FRB Regulation J do not specify what information from an incoming payment order can be transmitted to the beneficiary other than the amount and date of receipt.
I also see no issues relating to Regulation P and the sharing of NPPI. First, the sender of the wire is not your customer or consumer. Second, the re-disclosure of the account number appears to be Ok through the use of the Section 14 exception for processing and servicing transactions.
Good question. Reg E’s 1005.9(b) requires a bank to send a monthly statement when an EFT has occurred and the statement should include transaction information such as date, amount and name of any third party from which the funds were transferred.
Your question mentioned that the electronic payment might be from your bank or another bank. If the payment was intra-bank (within your bank) there would not be a third party to name for an incoming EFT on your monthly statement and the regulation is very forgiving as to how you can identity this transaction on your DDA periodic statement such as Intra-bank car loan payment of $.
Reg E’s requirements pertaining to 1005.10 will not apply as that portion of Reg E only applied to a preauthorized EFT TO a consumer’s ACCOUNT. I emphasize the words TO and ACCOUNT to point out that the transaction you mention would be an incoming credit to a loan account versus an outgoing debit from a DDA account. For Reg E purposes, “account” is defined as a DDA, Savings Account or other consumer asset account and would not include a loan account. Therefore, the receipt of a third party EFT in order to satisfy a loan payment would not trigger any Reg E 1005.9 or 1005.10 notification requirements other than the reflection of the EFT transaction if it were indeed debited from the customer’s DDA or savings account at your bank.
If you drafted the loan payment from another financial institution the burden would be upon the other financial institution to either provide positive or negative notice of the EFT or to disclose a phone number, in the initial disclosures and on their periodic statements, which would allow their customer to call and determine if the draft took place. As mentioned above, the disclosure burden, such as whether an EFT was made, is on the entity that holds the account (DDA, Savings, etc) from which the funds were drawn.
