Yesterday, the Federal Reserve Board, CFPB, FDIC, NCUA and OCC issued guidance regarding the agencies’ supervisory expectations for deposit reconciliation on consumer accounts. The agencies summarized their observations on deposit reconciliation practices, and expressed particular concern about credit discrepancies—which occur when a customer deposits more than is ultimately credited to his or her account, resulting in a benefit to the financial institution.

The Interagency Guidance discussed the types of legal and regulatory issues that could arise if a financial institution’s policies or practices do not appropriately reconcile credit discrepancies. For instance, civil liability or agency action could result from failure to comply with the Expedited Funds Availability Act and Regulation CC which implements the Act. The agencies also noted that when ineffective deposit reconciliation practices cause credit discrepancies, they could be considered unfair or deceptive acts or practices under the Federal Trade Commission Act or the Dodd-Frank Act. The agencies did acknowledge, however, that under limited circumstances, proper reconciliation may be impossible, such as when an item has been damaged beyond recognition.

To minimize the risk of financial loss and supervisory action, the agencies suggest financial institutions do the following:

  • Adopt policies and practices designed to avoid discrepancies
  • Effectively manage deposit reconciliation practices to comply with applicable laws or regulations
  • Ensure that any information provided to customers about the institution’s deposit reconciliation practices is accurate
  • Implement effective compliance management systems
  • Above all, ensure consumers are not disadvantaged or harmed by the financial institution’s deposit reconciliation policies and practices

This guidance comes after bank regulators and the CFPB took action in August 2015 against Citizens Financial Group, Inc. and its bank subsidiaries for failing to credit consumers the full amounts of their deposited funds. In its Consent Order with the CFPB, Citizens Bank agreed to pay a total of $18.5 million—$11 million to compensate customers and $7.5 million in civil money penalties. In addition to the CFPB action, the OCC and FDIC separately ordered the banks to pay $10 million and $3 million in civil penalties, respectively.

Go online to view the entire Interagency Guidance.