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#1601349 - 09/08/11 09:25 PM Consumer HELOC Sweep
RGS Offline
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RGS
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Home of the 8 time NCAA Champ ...
Our Deposit Officer wants to create a consumer HELOC sweep. This account would establish a target balance in the checking account with the excess swept to the customer's HELOC at the end of the day. If the customer needed funds to get back to the target balance after paying checks the HELOC would be drawn upon. There is some discussion about what the target balance will be, could be $0, could be $500, $1,000 - whatever.

The intent is customer oriented - interest rates are low, customers are earning nothing on their deposits, so they might as well use their balances to pay down their HELOCs.


I've found nothing to forbid this type of account, however the FDIC's guidance on overdrafts has me concerned that this type of account could be frowned upon. We would not charge a fee for paying any checks, but technically if the customer had checks presented that were greater than their target balance it would create an "overdraft" until the HELOC funded the account back to the overdraft limit.

Am I being too paranoid of the guidance? Any comments, suggestions, or hints on places to search for suggestions on this?

TIA
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Operations Compliance
#1601412 - 09/09/11 05:01 AM Re: Consumer HELOC Sweep RGS
rlcarey Offline
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Galveston, TX
Illegal in Texas. However, I see nothing wrong with it as long as it is properly disclosed and allowed under State law.
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#1601477 - 09/09/11 01:11 PM Re: Consumer HELOC Sweep rlcarey
RGS Offline
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Gracias.
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#1601627 - 09/09/11 03:06 PM Re: Consumer HELOC Sweep RGS
J Hunt Offline
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Phoenix, AZ
I believe this type of sweep arrangement would also have an impact on FDIC insurance coverage and fall under the "Sweep Rules" [FDIC Part 360] which require initial and annual disclosures.
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#1602187 - 09/12/11 01:39 PM Re: Consumer HELOC Sweep J Hunt
RR Joker Offline
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Good point, J Hunt...but I'm thinking since it's going into a loan and not a non-insured or limited insurance deposit account, it might not fit the rules?
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#1602335 - 09/12/11 04:43 PM Re: Consumer HELOC Sweep RR Joker
J Hunt Offline
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Phoenix, AZ
But the funds are sweeping from a checking account [FDIC insured] to a HELOC [not FDIC insured], so the notification that in the event of bank failure the FDIC will establish coverage based on where the funds actually are at the end of the processing day [covered vs. not covered]
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#1602347 - 09/12/11 04:59 PM Re: Consumer HELOC Sweep J Hunt
Dani York, CRCM Offline
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TN
JHunt, I don't know that the FDIC coverage notice would apply. The funds aren't actually being held in the HELOC as a deposit. The sweep to the HELOC is repaying a debt owed to the bank so the customer doesn't own those funds anymore, the bank does. Any "sweep" back to the checking account is a loan draw (new indebtedness) under the open HELOC plan.

I assume you will be executing AFT/sweep agreements for these sweeps under this account. I'm not sure if anything would affect your HELOC plan disclosures regarding repayment or not, but you may want to research that aspect as well.
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#1602359 - 09/12/11 05:05 PM Re: Consumer HELOC Sweep Dani York, CRCM
J Hunt Offline
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Phoenix, AZ
Dani - it could be I am mis-interpreting the following, but if the sweep is set up with ceilings and floors in the checking account I believe it would apply.

FDIC FIL 39-2009 [Sweep Account Disclosure Requirements, FAQ]
2. Q: What are the most common sweep arrangements covered by the disclosure requirements?

A: The three most common sweep arrangements involve:

a. A Eurodollar deposit (typically a Cayman Island or Nassau branch deposit) or an International Banking Facility (IBF) deposit.

b. Repurchase agreements.

c. Money market mutual funds.

The FDIC also is aware of sweep arrangements that transfer funds into Fed Funds and holding company commercial paper. Another arrangement uses the swept funds to pay down the customer's loan with the depository institution. This type of loan sweep is not an arrangement used to amortize a loan; rather, excess funds in the deposit account are swept daily to pay down the loan balance and the following day the swept funds are made available to the customer's deposit account. [my emphasis]
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#1602490 - 09/12/11 07:08 PM Re: Consumer HELOC Sweep J Hunt
Dani York, CRCM Offline
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TN
I missed that part. It does look like the annual disclosure would be required in this type of arrangement.
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#1602491 - 09/12/11 07:04 PM Re: Consumer HELOC Sweep J Hunt
RR Joker Offline
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Now that you pasted that out there...I remember reading that a long time ago and agree with you (even tho it's silly really if you ask me).
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#1602515 - 09/12/11 07:32 PM Re: Consumer HELOC Sweep RR Joker
J Hunt Offline
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Phoenix, AZ
Silly? yes --- but what else is new
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#1602520 - 09/12/11 07:41 PM Re: Consumer HELOC Sweep J Hunt
RGS Offline
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Thanks to all for the suggestions. I was going to have the sweep verbiage in the disclosures no matter what. While the FDIC has said (in so many words) that they're no applying the guidance to ad-hoc programs or lines of credit, I don't believe/trust that in the long run and am establishing a contingency.
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#1602531 - 09/12/11 07:43 PM Re: Consumer HELOC Sweep J Hunt
RR Joker Offline
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Originally Posted By: J Hunt
Silly? yes --- but what else is new


I knew as soon as I hit 'submit' that was coming! laugh
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