On May 18, 2016, five federal banking agencies—the Board of Governors of the Federal Reserve System (“Board”), the Consumer Financial Protection Bureau (“CFPB”), the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration (“NCUA”), and the Office of the Comptroller of the Currency (“OCC”) (collectively, the “Agencies”)—issued a supervisory bulletin titled “Interagency Guidance Regarding Deposit Reconciliation Practices” (the “Guidance”).1 The Guidance outlines supervisory expectations for financial institutions’ investigation and resolution of “credit discrepancies” when customers make deposits in their checking and other deposit accounts.
Under the Guidance, a credit discrepancy arises when a customer makes a deposit to a deposit account and the amount that the financial institution credits to that account differs from the total of the items2 tendered for deposit. For example, a customer may tender $110 for deposit, but the financial institution will credit only $100 because, for example, the deposit slip incorrectly says $100. Common reasons for credit discrepancies include customer error or teller error in completing deposit slips, teller or back-office error in coding deposit transactions, and poor image capture. Per the Guidance, a credit discrepancy is a “detriment to the consumer,” and it “benefits the financial institution, if not appropriately remedied.”
The Guidance states that, through technological and other processes, financial institutions are capable of fully reconciling credit discrepancies, except in very rare cases (e.g., a check is damaged such that its amount cannot be determined). The Agencies “expect financial institutions to adopt deposit reconciliation policies and practices that are designed to avoid or reconcile discrepancies, or designed to resolve the discrepancies such that customers are not disadvantaged.”
As grounds for this expectation, the Agencies cite the Expedited Funds Availability Act (“EFAA”), 12 U.S.C. 4001 et seq., and the EFAA’s implementing regulation, Regulation CC, 12 C.F.R. part 229. Together, the EFAA and Regulation CC outline the timelines under which financial institutions must make deposited funds available in a demand deposit or other similar account. See 12 U.S.C. 4002; 12 C.F.R. 229.12. Funds availability timelines allowed by the EFAA and Regulation CC vary based on the type of deposit (e.g., cash or check) and the method of deposit (e.g., teller station or ATM).
To the extent a credit discrepancy leaves a customer without access to his or her funds as required by the availability timelines prescribed in the EFAA and Regulation CC, the credit discrepancy may subject the institution to an administrative enforcement action by its prudential regulator or possible liability. Moreover, the EFAA includes a private right action, which permits a customer aggrieved by a credit discrepancy to recover actual damages, a penalty, and attorneys’ fees.
In addition to citing the EFAA and Regulation CC, the Agencies note that failure to reconcile or resolve credit discrepancies may constitute an unfair, deceptive, or abusive act or practice. The Agencies (other than the CFPB) are authorized to take action against entities within their respective jurisdictions for violation(s) of the prohibition on unfair or deceptive acts or practices, as set forth in Section 5 of the Federal Trade Commission (“FTC”) Act. 15 U.S.C. 45(a)(1).3 Similarly, section 1036 of the Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the CFPB to take action against entities within its jurisdiction for violation(s) of the prohibition on unfair, deceptive, or abusive acts or practices. 12 U.S.C. 5531, 5536. Notably, in bringing the only major enforcement activity to date concerning credit discrepancy practices, the CFPB, OCC, and FDIC only used their UDA(A)P authorities. They did not allege specific violations of the EFAA or Regulation CC.4
The Guidance notifies financial institutions that they are expected to integrate credit discrepancy mitigation and reconciliation into their compliance management systems, including applicable policies and procedures and relevant control, training, and monitoring functions. The Guidance also notes that taking these actions will “help minimize” exposure to potential supervisory action (emphasis added).
The Guidance elevates what has historically been an operational issue to a legal and compliance issue for both consumer and business accounts. Financial institutions supervised by the Agencies will want to review their current policies and procedures for accepting deposits and, if necessary, take appropriate steps to come into compliance.