Independent Banker - April 2017 - 66

Risks & Rules
MYTH: Customers can't withdraw
money from a certificate
of deposit (CD) at all.
FACT: Federal Regulation
D-Reserve Requirements of
Depository Institutions-provides the
definition of time accounts (CDs),
including the terms and conditions
that must be present to support the
account, in Section 204.2(c)(1). Under
Regulation D, a " time deposit means
... a deposit that the depositor does
not have a right and is not permitted
to make withdrawals from within six
days after the date of deposit unless
an early withdrawal penalty of at least
seven days' simple interest [is
imposed] on amounts withdrawn
within the first six days after deposit. "
So, during the first six days, if a
bank allows a customer to withdraw
any amount from his or her CD, it
must impose a penalty of at least
seven days' simple interest on the
amount withdrawn. If the bank hasn't
imposed early withdrawal penalties
under those conditions, the account
ceases to be a time deposit and the
bank must classify it as another type
of account, such as a savings deposit
or transaction account.
Whether the bank allows depositors
to withdraw funds from time
deposits and whether it imposes
an early withdrawal penalty after
the first six days of the deposit are
generally matters of bank policy, the
account contract and the discretion
of management.
MYTH: Some customers want
to pay bills with direct debits
from a savings deposit account.
That's not allowed, is it?
FACT: The law does not
prohibit it. However, there are
rules about the number and types of
debits allowed, based on the
definition of savings deposit in
Regulation D (Section 204.2(d)(1)).
Savings deposits include statement
savings accounts, passbook savings
accounts and money market deposit
accounts. To be considered a savings
deposit, under the terms of the
deposit contract or by practice of the
bank, the depositor can make up to
six transfers and withdrawals, or a
combination of such transfers and
withdrawals, per calendar month or
statement cycle of at least four weeks
to another of his or her accounts at
the same institution, or to a third
party. He or she can make these
The most successful
banks [use] laws
and regulations as
guidelines and to
provide a framework
for their activities.
transfers or withdrawals using a
pre-authorized or automatic
transfer; a telephonic (including
data transmission) agreement, order
or instruction; or a check, draft,
debit card, or similar order made
by the depositor and payable to
third parties.
For compliance, the bank
must either prevent transfers or
withdrawals to ensure that no more
than the permitted number are
made, or it must adopt procedures
to monitor those transfers on an ex
post basis and contact customers
who exceed the established limits
on more than an occasional basis.
If the bank doesn't enforce these
transaction restrictions, it may need
to classify the account as another
type of account.
MYTH: We'd like to offer a
no-fee checking account to fit
low- and moderate-income customers
and small businesses,
but it's prohibited.
FACT: Fees on deposit
accounts are primarily at the
bank's discretion, as long as they are
66 ICBA IndependentBanker April 2017
disclosed and advertised accurately
and in compliance with the
requirements of Federal Regulation
DD-Truth in Savings Act. This
prohibits misleading or inaccurate
advertisements, specifically the use of
terms like " free " or " no cost " if the
bank imposes any maintenance or
activity fee on the account.
That said, even if there is no maintenance
or activity fee for a checking
account designed to meet the needs
of low- and moderate-income customers
and small businesses, it's wise
to avoid using terms that could trigger
regulatory scrutiny, such as " free "
or " no cost, " while still describing
accurately and clearly the terms and
conditions of the account.
MYTH: We haven't explored
online or mobile banking
because those types of products
can't be offered safely.
FACT: " Online banking and
mobile banking have very
similar risk profiles, " explains
Christina Churchill, principal, RSM
US LLP and ICBA Community
Banker University instructor.
" As mobile phones have become
handheld computers, customers
are often accessing online sites via
their mobile devices versus traditional
PCs across unsecured Wi-Fi.
Mobile apps are somewhat safer
than mobile-enabled websites, as
additional security is inherent in the
applications; they were simply built
specifically for this technology. "
Churchill says the best protection
for financial institutions includes
these best practices:
»Development of any customer-facing
product or service should involve
the IT and compliance departments
to ensure the bank identifies and
addresses strategic, reputational,
operational, and compliance risks.
» Institutions need systemic
controls to reduce the potential
for unauthorized account access
and prompt identification of
Independent Banker - April 2017

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