Exam 2 Flashcards
Regulation E does not cover all types of accounts offered by credit unions. What types of accounts are covered, and what accounts are not?
- Covered accounts include member asset accounts such as savings, checking, and payroll cards held directly or indirectly by the credit union and established primarily for personal, family, or household purposes
- The definition does not extend to business purpose accounts, accounts held under a trust agreement, or escrow accounts
What types of transactions are covered transfers, meaning electronic fund transfers (EFTs)? What kinds of transfers are not EFTs? In addition to reviewing the list of examples, understand the reasons why certain transactions are covered and why others are not.
*EFT is defined as “any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account”
*Point–of–sale (POS) transfers – including both PIN–based and signature–based;
*ACH transfers
*ATM transfers
*Direct deposit or withdrawal of funds
*Transfers initiated by telephone
*Transfers initiated by a debit card – regardless of whether conducted through an electronic terminal
*Electronic transfers using information from a check, such as a check processed via ACH
*Online bill payments
*To a Consumer asset account- shares, share draft, and share certificates- NOT LOANS
*Within the United States
Not covered
* Paper checks processed vis check channels, and certain automatic transfers occurring within the same credit union (between a member’s accounts, between family member’s account, to pay a loan)
* Transfers subject to UCC 4A- Wire transfers
3What is the timing requirement for sending periodic statements? Is there a difference in timing depending on whether an EFT occurred or not? If so, what is the difference?
The timing for when a periodic statement must be sent depends on whether or not an EFT has been conducted in the preceding months. If no EFTs have occurred, the credit union is only required to send periodic statements on a quarterly basis. However, if an EFT has occurred in the prior month, the rule requires the credit union to send a statement for that month.
What triggers a change in terms notification? If you must send one, what is the timing requirement? What are some of the ways a credit union may provide this notice?
Required if certain terms of the account are changed and notice must be given at least 21 days prior to the effective date of the change. Can be included on or with periodic statements or sent as a separate mailing.
If the credit union increases fees, increases potential liability for members, removes types of funds transfer options under the account, or increases the limitations on the frequency or dollar amount of transfers.
Not required if the credit union closes ATM or cancels a member’s debit card.
How does Regulation E define an unauthorized electronic funds transfer? Which transactions are not considered unauthorized transfers?
An unauthorized EFT is any EFT from an account “initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit.
i. This includes situations where a member’s account is accessed as a result of a robbery or fraud, as well as those where a member is forced to conduct a transfer against his/her will.
First, an unauthorized EFT does not include a situation where the member acts, alone or with another person, with fraudulent intent.
Second, if the member provides another person with authorization to make transfers from the account and they exceed the authority given by the member, those transfers are not unauthorized EFTs. However, once the member informs the credit union that this person no longer has authority to make transfers, then all future transfers are unauthorized EFTs.
What are the different liability levels for unauthorized transfers? For each, when does the member need to provide notice and how much is the member liable for?
- Members must provide notice (orally or in writing) of unauthorized EFTs within 60 days after the periodic statement showing the error was sent
- Member liability depends on the timing of the member’s notification to the credit union
- Loss or theft of an access device:
i. Unauthorized transfers reported within 2 business days of when the member learns of the loss or theft, liability cannot exceed $50
ii. If greater than 2 business days but within 60 days after the periodic statement is sent, liability can reach up to $500
iii. If greater than 60 days after the periodic statement is sent, liable for the full amount - No access device used:
i. If within 60 days after the periodic statement is sent, no liability
ii. If greater than 60 days after the periodic statement is sent, liable for the full amount
What are the timelines the credit union has for completing its investigation? What notice is the credit union required to provide after it completes its investigation?
Once a credit union has received a member’s notice of error, under section 1005.11(c), the credit union has 10 business days to complete the investigation. If a credit union is unable to complete its investigation within 10 business days, the rule permits the credit union to take up to 45 days to conduct its investigation provided it does the following:
* If unable to complete notify the member of the provisional credit, allow full use of the provisional credit during the investigation, correct any errors within 1 business from determining the error, and notify the member of the investigation results within 3 business days, Notifies the member within two business days of the provisional credit in their account.
* Credit unions must provide notice (orally or in writing) to the member within 3 business days of the conclusion of the investigation.
Can credit unions require members to repay a loan via an EFT in order to be approved for the loan? What can the credit union offer to incentivize its members that agree to repay using EFTs?
The credit union cannot create a product that forces the member to set up automatic electronic payments to repay the loan. However, the credit union can offer lower rates or fees on loans that have automatic repayment.
What types of transactions are covered by the Regulation E opt-in rule for overdrafts? What types of overdraft services are not included?
- Applies to ATM and one-time debit card transactions
- Excludes lines of credit (i.e., CLOCs) covered by Reg Z, and transfers between a member’s accounts, checks, ACH transfers, or recurring debit card transactions
- IMPACT: NO FEES WITHOUT OPT-IN
- What are the requirements for allowing members to opt in for overdraft protection? How long is an opt-in valid for? What is the process for revocation?
There are 4 parts to the opt-in process:
* The credit union provides the member an opt-in notice in writing (or electronically if agreed), which describes the credit union’s overdraft program and discloses the potential fees;
* The credit union provides the member with a reasonable opportunity to provide the opt-in (Consent)
* The member provides affirmative consent (i.e., opt-in); and
* The credit union provides a written confirmation (or electronic if agreed) of the member’s consent, which must include information about the member’s ability to revoke their consent in the future.
i. a member’s opt-in is effective until it is revoked by the member or the credit union ceases to offer the overdraft service.
ii. The member’s right to revoke this opt-in also extends throughout the account relationship. The credit union must provide the same methods for a member to revoke as it does to allow a member to provide the initial opt-in consent.
iii. CU CAN REQUIRE THE DECISION BE MADE AT ACCOUNT OPENING
Can credit unions offer different account terms or features to members who do not opt-in to overdraft protection? Can credit unions condition other overdraft services on the member’s decision to opt-in?
No, they cant. The credit union cannot treat its overdraft program as an all or nothing program.
The credit union must offer the same account terms, conditions and features to members who do not opt-in as the credit union offers to those that do opt-in (aside from the actual overdraft coverage)
What types of accounts are covered by Regulation E’s prepaid accounts rules?
- Employer-established payroll card accounts to which electronic transfers of salary or other employee compensation are made on a recurring basis;
- Government benefits accounts established by a government agency for distributing government benefits to a consumer electronically;
- Accounts marketed or labeled as “prepaid” and redeemable at multiple, unaffiliated merchants or usable at ATMs; or
- Accounts meeting the 3 following conditions:
i. Is either issued on a prepaid basis in a specified amount or is not issued on a prepaid basis but capable of being loaded with funds thereafter;
ii. Primary function is to conduct transfers with multiple, unaffiliated merchants, at ATMs, or for person-to-person (P2P) transfers; and
iii. Is not a checking account, share draft account, or negotiable order of withdrawal account - Does not include certain gift certificates and gift cards; loyalty, award, or promotional gift cards; general use prepaid cards marketed and labeled as a gift card or gift certificate; health savings accounts
What are the disclosure requirements for prepaid accounts?
The two main disclosure requirements, pre-acquisition and periodic statement disclosures, other required disclosures include: account opening disclosures required under section 1005.7, change in terms notices, access device disclosures and notices regarding unregistered prepaid accounts.
Pre-Acquisition Disclosure
Before a member acquires a prepaid account, section 1005.18(b) requires two disclosures: 1) a short form disclosure and 2) a long form disclosure. In general, a member acquires a prepaid account by purchasing, opening or choosing to be paid or receive wages via a prepaid account. There are specific content, placement and font size requirements for the short and long form disclosures. To assist credit unions in meeting these requirements, there are several model form disclosures that offer a safe harbor to credit unions that use them.
There are additional requirements for the disclosures if a prepaid account is acquired electronically, such as online or via a mobile app. Staff commentary explains credit unions must ensure the member is required to view the webpage displaying the pre-acquisition disclosures before accepting the prepaid account. Section 1005.18(b)(6)(i)(B) requires the electronic disclosures be viewable across all screen sizes, in a responsive form and using machine-readable text. For accounts acquired electronically, the pre-acquisition disclosures may be provided electronically without obtaining the consumer’s consent in accordance with the E-SIGN Act.
Periodic Statement Disclosures
The periodic statement disclosures outlined in section 1005.9(b) apply to all prepaid accounts. Rather than sending a periodic statement each month or quarter for prepaid accounts, section 1005.18(c)(1) permits credit unions to provide alternative disclosures. To meet the alternative disclosure requirement, the rule requires credit unions to provide all of the following:
* The account balance via phone
* An electronic history of account transfers for at least the past 12 months
* Upon request, a written history of account transfers for at least the past 24 months
The electronic and written histories must include all of the information required for periodic statements under section 1005.9(b) and must also disclose the amount of any fee assessed against the account, not just those fees associated with EFTs. A total of all fees assessed against the account must be included on each history for the previous calendar month and for the current calendar year to date.
What are the error resolution procedures for prepaid accounts? How are they different from the regular Reg E error resolution procedures?
- Prepaid accounts that are considered unverified, are fully exempt from the error resolution rules. For verified accounts, CU must investigate and resolve errors on same frequency as timely notice of error rules. “Timely Notice = within 60 days of when CU sent the periodic statement reflecting error”
read page 108 in full
What is a remittance transfer?
They are not considered EFT’s. The electronic transfer of funds requested by a sender to a designated recipient that is sent by a remittance transfer provider.”
A “sender” is the person requesting the remittance transfer be sent to the designated recipient for personal, family or household purposes. A “designated recipient” is the person receiving the remittance transfer. The designated recipient must be located in a foreign country and can be either an individual or a business.
How are the disclosure and error resolution procedures different for remittance transfers?
Remittance transfers requires two types of disclosures
i. pre-payment disclosure when sender requests the remit transfer, but before payment is mad
ii. receipt when the sender authorizes the payment
* They can be combined into a single disclosure if credit union can provide proof of payment when payment is made
Remittance errors includes:
1. an incorrect amount paid by a sender or
2. computational error made by the credit union or
3. failure to make funds available to designate recipient by the date disclosed
**an error does NOT include situations where the funds were sent to the wrong account because SENDER provided the CU with the wrong account number and/or routing number.
If a CU received a notice of error - the CU is required to complete the following for error resolution:
- Conduct a timely investigation
- Resolution depends on type of error
What are the funds availability rules? Expect to apply the rules to different fact pattern situations.
Next-Day Availability: cash, electronic payments, and certain check deposits (US Postal Service money orders, Federal Reserve Bank and Federal Home Loan Bank checks, state or local government checks deposited at an institution in the same state as the payor, on-us checks, and cashier/teller/certified checks); for local check deposits, the lesser of $225 or the aggregate of all check deposits not already subject to next-day availability; while the full amount must be available for check-writing purposes by 9:00am on the 2nd day, $450 of the amount must also be available for cash withdrawal by 5:00pm the 2nd day with the full amount available for cash withdrawal by the 3rd day
Second-Day Availability: local check deposits in excess of the first $225 discussed above; checks that do not satisfy the requirements for next-day availability
Fifth-day availability: cash or check deposits at nonproprietary ATMs must be made available no later than the 5th business day
When are funds considered deposited? Does anything change based on how something is deposited (i.e., by mail, lockbox, branch)?
YES
* Funds deposited at a staffed facility, ATM, or contractual branch are considered deposited when they are received at the facility, ATM, or contractual branch
* If funds normally are removed from the ATM not more than 2x each week, funds deposited at an ATM that is not on, or within 50 feet of, the premises of the depository bank are considered deposited on the day the funds are removed from the ATM
* Funds deposited in a drop box in the lobby of a credit union are considered deposited when placed in the box (unless there is a posted notice on the box stating otherwise)
* Funds mailed to the credit union are considered deposited the day they are received by the credit union (i.e., the day the mail is delivered to the credit union)
* Funds deposited in a night depository, lock box, or similar facility are considered deposited on the day on which the deposit is removed from such facility and is available for processing by the credit union
* Funds may be considered deposited on the next banking day in the case of funds that are deposited:
i. On a day that is not a banking day for the depository bank; or
ii. After a cut-off hour set by the depository bank for the receipt of deposits
What are the permissible cutoff times for the receipt of deposits? Do these timeframes change based on where an item is deposited?
Yes
* 2:00pm or later for branch office or head office (although not required to remain open until 2:00)
* 12:00pm or later for ATMs, contractual branches, and off-premise facilities (night depositories or lock boxes)
How does Regulation CC address indemnity for remotely deposited checks? When might a credit union need to indemnify another financial institution when a check is deposited both by remote deposit capture (RDC) and as a paper check? Note: There is no need to memorize specific indorsement language.
A credit union that permits remote deposit by its customer indemnifies a depository bank that subsequently accepts the original check for deposit and incurs a loss if the loss is due to the check having previously been paid.
What is the various check exception holds? What circumstances may they be invoked? When may a credit union invoke the exception for reasonable cause to doubt collectability and how long may a hold last?
- New accounts: account was opened within the last 30 days and member had no prior transaction accounts with the credit union
i. Next-day availability applies to cash, electronic deposits, and the first $5,525 of most other next-day items
ii. The remaining funds of the next-day items must be made available on the 9th business day
iii. Credit union may choose availability schedule for on-us checks and local checks - Large deposits: >$5,525 deposited by a member in any one banking day
- Redeposited checks: checks that were previously deposited and returned unpaid; does not apply to checks that were returned because they were post-dated and are no longer post-dated or to checks that were returned due to a missing indorsement and the indorsement is no longer missing
- Repeated overdrafts: if a member has repeatedly overdrawn his/her account (meaning the account balance is negative or would have become negative if checks/other charges had been paid on 6 or more banking days within the preceding 6 months, or if the account is negative or would have become negative in the amount of $5,525 or more on 2 or more banking days within the preceding 6 months), the availability rules for checks do not apply for 6 months after the last overdraft
- Reasonable cause to doubt collectability: belief must be based on a set of facts particular to the check and not on the fact that the check is of a particular class or is deposited by a particular class of persons
- Emergencies beyond the credit union’s control
- Except for new accounts and emergency holds, a “reasonable period of time” to extend a hold is generally as follows:
i. 1 additional business day for on-us checks
ii. 5 additional business days for local checks
iii. 6 additional business days for deposits at nonproprietary ATMs
What are the funds availability disclosure requirements (specific policy disclosures, initial disclosures and additional disclosures)? What is required to be preprinted on deposit slips versus lobby notices?
- Credit unions must provide members with a disclosure, before an account is opened, that describes the funds availability policy followed by the credit union in most cases
- Preprinted deposit slips must include a notice that deposits may not be available for immediate withdrawal
- Funds availability policy must be posted conspicuously in locations where employees accept consumer deposits, and a notice that deposits may not be available for immediate withdrawal must be posted at ATMs
- Funds availability policy must be provided to anyone upon oral or written request
- Changes to the funds availability policy must be provided to consumer account holders at least 30 days prior to the effective date of the change unless it expedites funds availability, in which case it must be provided no later than 30 days after the change
Where must a credit union post its funds availability policy?
In a conspicuous place at all locations where employees accept consumer deposits (not required at drive-through windows or night depository boxes)
What types of accounts are covered by NCUA’s Truth in Savings rule?
- Share or deposit accounts at a credit union held by or offered to a member or potential member
- Includes, but is not limited to, share, share draft, checking, and term share accounts
- Does not include mortgage escrow accounts, accounts opened by an executor in the name of a decedent’s estate, trust accounts opened by a trustee under a formal written trust agreement, accounts held by non-natural persons (i.e., business accounts), or accounts held for commercial purposes.
