Special Reg DD Audit Edition

Auditing For Truth-In-Savings
by Phil Gay

Phil Gay is a Senior Vice President and Director of Compliance and CRA for the Bank of North America in Florida. He is a frequent speaker for ABA, BAI, and other trade associations, and U.S. Government Agencies on the subject of bank compliance. Phil has also authored many publications addressing compliance issues. He recently participated in the latest ABA "Bank Compliance Symposium" Satellite teleconference.

Regulation DD has been read, digested, translated, studied, installed, implemented, and is a fact of life for all of us. Now comes the "fun" of checking and double-checking to be sure the examiners will be satisfied with what we've done.

This regulation, like Reg CC, affects many parts of the financial institution-operations, tellers, customer service, marketing, personnel, savings, data processing, management, and audit-just to name some.

The information and checklists that follow will provide you with a way of being sure all your bases are covered and ensure that you are in compliance with the many details connected with the Truth-In-Savings Act (TISA) and Regulation DD.

One person may want to do the complete audit, or you may choose to delegate and specialize. There are no shortcuts, but these checklists will at least make your job easier.

The three major areas of concentration on are:
Disclosures & Notices (Checklist A & B and additional information below)
Advertising (Checklist C)
Calculations, Accrual/Payment of Interest (Checklist D)
The latter two are set forth in checklist format.

Additional Information on Disclosures And Notices:

Fact finding and information gathering begins with a review of your Regulation DD deposit policy for general inclusion of:
Account disclosures (content, delivery, and timing)
Provision for advance notice of any change in terms
Periodic statement enhancements (content, treatment of fees, balance methodology, calculations).
Advertising concerns, including trigger terms
Record retention
Interview front line personnel and key contacts to determine their proficiency and familiarity with the location of Regulation DD disclosures (and their general content), along with related timing (either before opening or given upon specific request). Do they know where to refer questions or complaints?
Review the TISA disclosure form itself. See that it's in writing and is clear and conspicuous, that it represents the legal obligation, and that it's in a form the consumer can keep. If applicable, disclosures combined with those of other regulations (Reg CC, Reg E) should be checked for consistency and accuracy.
Proper account disclosures may be verified for both new accounts (prior to opening or providing of a service) and "requests" (immediately, if in person-otherwise, mailed within a "reasonable" time). In addition to sample disclosures, phone calls to front line people could "test" for proper responses.
Delivery of notice to at least one consumer on joint or multiple-consumer accounts may be verified for both the one-time notice to existing account holders and those given prior to new account opening.
The account disclosure notice should be reviewed for content. An Account Disclosure Checklist could be developed to this end (See Checklist A). Each account type may warrant a separate review.
Checking for any change in terms for any product since the last audit is prudent. This includes systems application of intended product change. Thirty-day advance notice of any change in terms should be reviewed (with the exception of variable-rate accounts and changes in check printing fees.)
As provided for in the regulation, subsequent disclosures carry additional obligations and must be scheduled for audit scrutiny. These may include notices of change in terms, advance notice of time deposit maturity, and disclosures.

A review of consumer time deposit renewal and maturity notices is warranted. Content, accuracy, and timing of these notices should be reviewed. Length of maturity will prompt varying degrees of information. Determine that a sample of pre-maturity notices for time deposits are proper and contain all required information (See Checklist B)
The audit should determine if the institution's procedures provide for subsequent disclosures of any change in terms (for example, rates, compounding/crediting, minimums, balance computation methods, interest accruals, fees, transaction limits, time deposit features, or bonuses) Confirm that any adverse changes, including APY reduction, were mailed or delivered at least 30 calendar days in advance.
Only three exceptions to the change in terms notice are permitted:
Variable rate accounts with changes to rate and APY
Changes in third party check printing fees
CD's with maturities of one month or less.
Determine on which type accounts the institution sends periodic statements and select a sample of each. Review for existence and accuracy of:
Annual Percentage Yield Earned (APYE) calculated in accordance with Appendix A of the regulation.
The dollar amount of interest earned during the statement period.
Any fees imposed that are required to be disclosed, itemized by amount and type.
The total number of days in the statement period or the beginning and ending dates of the period.
NOTE: If using the average daily balance method and calculating interest for other than the statement period, ensure that the APYE and interest earned are based on that period and not the statement period.
Verify total number of days disclosed for both the interest accrual or interest earned period as well as the statement period.

Miscellaneous
Several miscellaneous areas of scrutiny may be warranted in the audit program. For example, accounts closed prior to the crediting of the interest should be tested to determine that interest is not forfeited unless this is set forth in the initial account disclosures.

Also, the audit should review record retention practices to see that the institution has maintained evidence of compliance for at least 2 years after disclosures are required to be made, including rate information and advertising.

Copyright © 1993 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 4, No. 4, 9/93