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Decisions on payment order

Answered by: 
Patricia Cashman

Question: 
Management recently hired a consulting firm to assist in finding ways to improve profitability. One of their suggestions was to change the order for posting debits to deposit accounts, from smallest-to-largest to largest-to-smallest. Marketing wants to emphasize that we would be the good guys by assuring that the customer’s mortgage payment would be paid ahead of the check at the dry cleaners. Are there any specific regulations that state a specific method that financial institutions must use in posting debits?
Answer: 

While there is no specific order required, you must look beyond the law for this one. There have been numerous class action litigation cases stemming from the “Largest-to-Smallest” method. Additionally, the FDIC 2010 Guidance advises institutions to avoid posting transactions in a manner that would maximize overdraft revenue. Re-examine the reason for changing the posting order. If the primary purpose is to increase revenue, be certain that the BOD and senior management read some of the recent costly fines.

Learn more about Patricia’s webinar UDAAP & Truth in Savings: 10 Common Errors .

First published on 05/01/2016

Filed under: 
Operations
Filed under operations as: 
Operations
TISA

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