On May 18, 2016, the federal financial institutions regulatory agencies—the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Consumer Financial Protection Bureau—served official notice, titled “Interagency Guidance Regarding Deposit Reconciliation Practices,” on all financial institutions (regardless of size) under their supervision that those institutions are expected to adopt, manage, implement and maintain policies and practices with regard to so-called “credit discrepancies” that ensure both compliance with applicable laws and regulations and fair treatment of customers.
A “credit discrepancy” arises when a customer’s deposit account is credited for less than the aggregate amount of the items comprising a deposit. It can result from inaccuracies on a deposit slip, encoding errors, poor image capture, damaged items and a variety of other reasons. Unless and until it is reconciled, a credit discrepancy is a detriment to the customer and a benefit to the financial institution.
The Interagency Guidance notes that technological and other processes exist that allow financial institutions to fully reconcile credit discrepancies in nearly all instances (an exception could be when an item is so severely damaged that its true amount cannot be determined). It emphasizes that financial institutions are expected to use those processes effectively and diligently to minimize the occurrence of credit discrepancies and to reconcile them promptly and accurately when they arise. The Interagency Guidance notes that deficient deposit reconciliation practices could subject to a financial institution to civil liability and possible agency action for violations of the Expedited Funds Availability Act, the Federal Trade Commission Act and/or the Dodd-Frank Act.
Financial institutions would be well-advised to examine—and revise as appropriate–their own deposit reconciliation policies and practices and to expect future examinations by their respective supervisory agencies to pay particular attention to the content and effectiveness of those policies and practices. They should also review Appendix C: Item Processing of the FFIEC IT Examination Handbook, which can be found at http://ithandbook.ffiec.gov/it-booklets/operations/appendix-c-item-processing.aspx
The full text of the Interagency Guidance can be found at https://www.fdic.gov/news/news/financial/2016/fil16035a.pdf
Clyde H. Foshee
Clyde H. Foshee practices in the areas of banking and finance law, with concentration in negotiable instruments, letters of credit, secured transactions and regulatory compliance. His experience of more than 30 years as an in-house attorney at a large bank has provided Clyde with a deep understanding of the practical impact of legal issues on a bank’s operations. He is of counsel in the firm’s Louisville office.