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#615794 - 09/20/06 07:50 PM Payment order of items
mstark Offline
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mstark
Joined: Mar 2006
Posts: 336
Bank
My first question is it required to disclose to the customer the payment order of items?

My second question, we currently do smallest first however we want to now start doing largest first do we have to inform the customer about this change?

Thanks.
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Deposits and Payments
#615795 - 09/20/06 08:47 PM Re: Payment order of items
BrianC Online
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BrianC
Joined: Nov 2004
Posts: 6,694
Illinois
1. Generally this would be stated in your account agreement.

2. Any changes to the account agreement which may advesely impact the customer (such as more overdrafts resulting from your policy change) must be disclosed to the customer at least 30 days prior to the change. You can do a mass customer mailing, statement stuffer or message, etc.

From Reg DD:
a) Change in terms--(1) Advance notice required. A depository institution shall give advance notice to affected consumers of any change in a term required to be disclosed under Sec. 230.4(b) of this part if the change may reduce the annual percentage yield or adversely affect the consumer. The notice shall include the effective date of the change. The notice shall be mailed or delivered at least 30 calendar days before the effective date of the change.
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#615796 - 09/20/06 09:01 PM Re: Payment order of items
John Burnett Offline
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John Burnett
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The ordre of check payment is not a required disclosure under Regulation DD, and Regulation DD does not require an advance notice if you elect to change the order in which you pay items.

There is, in fact, no federal rule requiring you to disclose the order of payment. Some states have a disclosure rule, but none has a requirement that you use one method or another, as far as I know.

The UCC (standard, non-state-specific) language allows for payment in any order of the bank's choosing, and does not require a disclosure of the order or whether there is an order.
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#615797 - 09/20/06 11:58 PM Re: Payment order of items
J-me Offline
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Joined: Nov 2004
Posts: 72
Gosh....I have never read this in our account agreements and was kinda' concerned with this conversation. I am glad to see your response (John). This was my understanding as well. It is a bank's choosing.

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#615798 - 09/21/06 03:47 AM Re: Payment order of items
rlcarey Online
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rlcarey
Joined: Jul 2001
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Galveston, TX
However, history will say that the banks that do this and don't disclose this in their depositor's agreement are the ones that have been subject to lawsuits.

It also has gained the ire of some in congress as witnessed by the introduction of the Consumer Checking Fairness Act (H.R. 4415) although it never made it out of committee.

Subsequent to the last rash of lawsuits, the OCC has opined (Interpretive Letter #997) that under 12 CFR 7.4002 national banks are allowed to determine the method of posting. However, they did say that:

"We note further that a relevant factor in evaluating good faith may be whether a bank’s actions were inconsistent with the practices it had represented to its customers that it would follow. The Banks have represented that their deposit account agreement accurately describes the high-to-low posting order that the Banks use."

If you do it, I would suggest that you fully disclose it.
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#615799 - 09/21/06 01:39 PM Re: Payment order of items
Andy_Z Offline
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The only downside to putting it in your disclosure is that if you change it, you'll need to redisclose. Many will opine that you'd want to redisclose anyway as a customer service issue. I can see it both ways.

I think you mitigate a greater risk by determining your policy, disclosing it and standing by your decision. You either want to pay what are the presumably more important items first (mortgage) or want to pay the most checks by going small to large. Each has its merits. The motivation should not be to receive the greatest amount of fee income.
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#615800 - 09/21/06 02:48 PM Re: Payment order of items
John Burnett Offline
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If you decide to disclose (and I don't argue against disclosure), be sure you explain how ATM and ACH transactions, POS payments, loan payment transfers, bill payments, home banking transfers, and other non-paper-check items will be included in your posting hierarchy. And that checks that are converted to ACH transfers (RCK, ARC, POP, BOC) will get posted in the same order as other ACH transfers, rather than the order in which paper checks are posted.

This is the sort of challenge that often dissuades banks from making a total disclosure of their posting orders.
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#615801 - 09/21/06 03:03 PM Re: Payment order of items
Andy_Z Offline
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Quote:

This is the sort of challenge that often dissuades banks from making a total disclosure of their posting orders.




Absolutely. I think the term our Ops officer used was a nightmare. The other term would be censored here. But I agree it should be covered as best you can. As the flavor of this thread goes, this is as much for litigation mitigation as it is for customer knowledge, so have counsel bless off on it.
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