I was updating the flood and HMDA CMPs. Did you notice in last week's FDIC penalties that they cited two banks for overdraft programs/disclosures? But they didn't cite them under Reg E, they used Reg AA - UDAP.

GreenBank, Greenville, TN $132,000
MarkleBank, Markle, IN $82,500

I had heard there were CMPs for overdraft programs, but was unable to locate them. Thanks for sharing.

I have not reveiwed the CMPs, but do you suppose these are violations under FDIC guidance, vs Reg. E?

MarkleBank -- "...the Bank established and followed procedures for the resolution of errors involving the use of automated teller machines and/or debit cards, and payment transactions serviced through its automated clearing house that were contrary to the Bank’s disclosures concerning error resolution for these products and in violation of Regulation E, 12 C.F.R. Part 205."

Not as much in the write- up with GreenBank but, "the Bank violated the prohibition against unfair and deceptive acts or practices found in Section 5 of the Federal Trade Commission Act (15 U.S.C. § 45(a)(l)) and Regulation E of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 205, in the Bank’s marketing and implementation of its overdraft program.
After taking into account the Stipulation, the appropriateness of the penalty with respect to the financial resources and good faith of the Bank, the gravity of the conduct of the Bank, the history of previous conduct by the Bank, and such other matters as justice may require..."

MarkleBank:

Mike Marhenke, president and CEO of Independent Alliance Banks Inc., said the issue revolved around whether bankers could require customers to file a police report before giving temporary credit for unauthorized withdrawals from their accounts.

Staff at both banks under his watch required police reports because they simply missed that provision in the detailed regulations banks are required to follow, Marhenke said. Independent Alliance Banks is a two-bank holding company that owns Grabill Bank and MarkleBank.

“The last compliance exam, we were doing the same thing, and (inspectors) didn’t say a thing,” Marhenke said.

Just goes to show, that just because you get a pass one year - it means nothing. This would be a good one to show management when they respond that we have always done it this way and the examiners have never commented on it. It normally boils down to that they just didn't look at it.

Gee-- You can't require a police report? Mr. Marhenke, you're not alone. A lot of bankers seem to think that it's OK to mandate a police report. We've been getting that question here in the Threads for years. Maybe, just maybe, this will help get the word out.

This should make the point. A good teaching tool!

Does anyone have a link to this so I can share with my mgmt team, please?

Link to the interview with the president:

http://www.journalgazette.net/article/20111029/BIZ/310299939

Link to the consent agreement:

http://www.fdic.gov/bank/individual/enforcement/2011-09-32.pdf

Thanks Randy

Just an FYI on a related matter, a regional FDIC Compliance manager advised that they are considering that if a no pay bank (meaning no overdrafts allowed) seeks opt-ins for pre-authorizations that come in as force pays, the FDIC considers this a UDAAP violation. Their reasoning was that all you are opting them in for is the fee because you would have had to pay these anyway. This doesn't impact us, but I thought I would pass it along.

Good info.

UDAP seem to be the big arrow in the enforcement quiver these days.

"Just a technicality."

For those of you who may question the "friendly fraud" situation cited in the article as it related to asking for police reports, here's how to handle the situation and remain in compliance.

1. Cardholder makes a claim of unauthorized activity.
2. You investigation determines that junior is the culprit.
3. Instead of calling the parent and requiring a police report, remember that the bank is the victim as you are out the money. You've already given provisional credit.
4. Contact the parent and advise them that as the victim, the bank will be filing a police report to recover the money from junior.
5. At this, the parent may choose to withdraw their claim and handle the situation internally.
6. Ask the parent to write a letter requesting that the claim be withdrawn and consenting to the removal of the provisional credit.
7. Send the parent written notice that their credit has been revoked due to their withdrawal of their claim and state that the bank has completed its investigation.

Under Reg E, all the customer is obligated to do is provide enough information orally or in writing to any bank employee that allows you to identify the transaction they're disputing. Often this can be as little as a name and an amount, and maybe a date. You can ask for, but not require additional information.

Even more nice, to take this further based on a posting in the Deposts Forum,it seems they are working this into a nice catch-22. If you are not a no pay bank and you charge customers for force pay transactions if they have opted in and don't charge those that have not opted in, it seems that other parts of the same agency are suggesting that you are treating those that have opted in unfairly. Does it ever end! I guess the only solution would be to be a no pay bank that doesn't charge for forced pay transactions.

Which provision is being referenced (missed that provision in the detailed regulations) that doesn't allow you to condition the provisional credit on a police report, but does allow you to rescind the provisional credit if a police report is not filed?

Doug,
No aspect of the bank's compliance with Regulation E can be conditioned on the customer's filing of a police report.

Randy,

From the article you linked:



There are reasons why CEO's should not talk to the press about enforcement actions. If someone from the Indianapolis office of the FDIC reads that they will put it straight down his throat.

Brian's reference is to a rescission related to the bank filing a police report and the customer saying "do not pursue" and giving up the provisional credit.

A fine line.

I can't find it, but a couple of years ago one of the regulators had a release that reminded banks that they could not condition an investigation or provisional credit on Reg. E claims based on a police report, similar to those found in the commentary to Reg. Z.

How about banks not paying any excessive balance debits that would overdraw the account period. Most states have a "worthless check" law on the books already, so it would seem the natural thing to do in this economy. A bank would not permit overdrafts. The loss in income would lead to layoffs, but the desired effect of demonizing a bank's income stream by those in the beltway would be realized.

Anybody, like BoA, think a debit card fee is a good idea? Nope, I didn't think so.

Andy, just love your cavalier attitude.
____________________________________________________
Community Banks=Overly regulated soon to be extinct.

For the record, I agree with this, but which region? I was told the exact opposite by my regional EIC last week.

PS--I REALLY wish all the examiners would get on the same page!

I have banks that pay no overdrafts. Either the customer comes in and makes a deposit prior to the return deadline or back they go. They have very few ODs.

Dallas. I don't disagree with it either, it is just that we are a auto overdraft bank so it is not really relevant to us.