DEPOSIT RECONCILIATION PROCEDURES

On May 18, 2016 the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (FRB), the Consumer Financial Protection Bureau (CFPB), the National Credit Union Administration (NCUA) and the Office of the Comptroller of the Currency (OCC) (collectively, the Agencies) issued guidance to ensure that financial institutions are aware of the Agencies’ supervisory expectations regarding deposit-reconciliation practices that may be detrimental to customers.

Summary

This guidance addresses a set of situations in which customers make deposits to accounts and the dollar amount that the financial institution credits to that account differs from the total of the items deposited. Such discrepancies may arise in a variety of situations, including inaccuracies on the deposit slip, encoding errors or poor image-capture. The result may be a detriment to the customer and a benefit to the financial institution if not appropriately reconciled.

Various laws and regulations may be relevant to deposit-reconciliation practices. Among them, the Expedited Funds Availability Act, as implemented by Regulation CC, requires that financial institutions make funds deposited in a transaction account available for withdrawal within prescribed time limits. In addition, a financial institution’s deposit-reconciliation practices are subject to Section 5 of the Federal Trade Commission Act, which prohibits a financial institution from engaging in unfair or deceptive acts or practices.

The Agencies expect financial institutions to adopt deposit-reconciliation policies and practices that are designed to avoid or reconcile discrepancies, or designed to resolve discrepancies such that customers are not disadvantaged.

The guidance was effective upon publication. A copy of the guidance is available at: https://www.fdic.gov/news/news/financial/2016/fil16035a.pdf

Background

On August 12, 2015 the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) took action against Citizens Bank for failing to credit consumers the full amounts of their deposited funds. The CFPB investigation found that from January 1, 2008 to November 30, 2013, Citizens Bank engaged in the unfair and deceptive practices. The consent order requires the bank to provide approximately $11 million in refunds to consumers and pay a $7.5 million penalty for the violations.

For the period at issue, the bank generally required its customers making a deposit to fill out a slip listing the checks or cash being deposited, and their total. The customer then turned the deposit slip over to the bank and got a receipt reflecting the amount on the deposit slip for the transaction. The bank scanned the deposit slip and deposit items at a central location.

In cases where the bank’s scanner misread either the deposit slip or the checks, or if the total on the deposit slip did not equal the total of the actual checks, Citizens Bank did not take action to fix the mistake if it fell below a certain dollar amount. From January 2008 to September 2012, the bank only looked into discrepancies greater than $50. From September 2012 to November 2013, the bank only looked into discrepancies greater than $25.

Over the years, by ignoring the discrepancies the bank shorted consumers millions of dollars. Although some consumers benefited by this policy, others lost money that rightfully belonged to them. The CFPB concluded that many of those consumers were harmed by this unfair and deceptive practice.

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