Thread Options Tools
#3529 - 08/08/01 02:17 PM Reg Z - Required Deposit
Jan94 Offline
Platinum Poster
Joined: Mar 2001
Posts: 828
USA
Could someone help me understand the requirement in 226.18(r) that deals with the existence of a required deposit. When would this disclosure actually be required? Our TIL disclosure includes a box to mark with the statement "Required Deposit. The annual percentage rate doest not reflect the required deposit" but I'm not clear when this is to be marked. The exclusions include "deposits that are immediately available to the consumer." Thank you.

Return to Top
General Discussion
#3530 - 08/08/01 02:43 PM Re: Reg Z - Required Deposit
De Vonne Offline
Member
Joined: Jan 2001
Posts: 84
One simple example is when you make a loan secured by a savings account. If you place a restrictive "hold" on the savings account to prevent the customer from withdrawing the funds until the loan is paid off, the deposit is not readily available to the customer. That is a required deposit and thus, the disclosure applies.

[This message has been edited by De Vonne (edited 08-08-2001).]


Return to Top
#3531 - 08/08/01 02:44 PM Re: Reg Z - Required Deposit
Tom Easterday Offline
100 Club
Joined: Oct 2000
Posts: 140
Orange County, CA
About 5 years ago the OCC cited my bank for not giving this disclosure on an straight savings secured loan where the rate paid to the account holder was less than 5% (even though all savings accounts were being paid less than 5% at that time). Don't know if the OCC has changed their stand on this, but we continue to give the disclosure on all savings secured loans.

This was also mentioned as a necessary practice at the ABA Compliance School that same year.

------------------
Tom Easterday, CRCM
Opinions stated are my own and not necessarily those of my employer!

_________________________
Tom Easterday, CRCM Opinions stated are my own and not necessarily those of my employer!

Return to Top
#3532 - 08/09/01 04:37 AM Re: Reg Z - Required Deposit
Jan94 Offline
Platinum Poster
Joined: Mar 2001
Posts: 828
USA
Would this also include loans secured by certificates of deposit? Thanks.

Return to Top
#3533 - 08/08/01 05:34 PM Re: Reg Z - Required Deposit
De Vonne Offline
Member
Joined: Jan 2001
Posts: 84
Yes, it includes any deposit account that meets the "not readily available" definition, provided that the interest rate is less than 5%.

Return to Top
#3534 - 08/13/01 02:55 PM Re: Reg Z - Required Deposit
Lucy Griffin Offline

Diamond Poster
Lucy Griffin
Joined: Nov 2000
Posts: 1,544
The 226.18(r) disclosure is triggered any time there is a deposit account required as a condition of the credit. This obviously includes savings account secured loans, whether the security is a passbook or a CD. The requirement would also kick in if the lender required the savings account be maintained but did not take it as security.

The disclosure is not triggered by voluntary accounts, such as one set up to make electronic payments to the loan. It also does not apply to escrow accounts.


Return to Top
#3535 - 10/02/01 03:32 PM Re: Reg Z - Required Deposit
Anonymous
Unregistered

Lucy, I'm interested in your opinion here:

I cited the lack of this disclosure in my recent compliance review. Senior Management disagrees and refuses to make the disclosure. How do you think this would be treated during a federal compliance examination? I'm curious if the bank will be cited for a violation or, since I intend to report this finding to the Board of Directors, would that prevent the Bank from being cited by the Feds?


Return to Top
#3536 - 10/02/01 03:34 PM Re: Reg Z - Required Deposit
Anonymous
Unregistered

Andy Z,

I'm interested in what you have to say also.


Return to Top
#3537 - 10/02/01 03:53 PM Re: Reg Z - Required Deposit
Lucy Griffin Offline

Diamond Poster
Lucy Griffin
Joined: Nov 2000
Posts: 1,544
You will definitely be cited for failure to make the required disclosure. The 18(r) disclosure is not a "material disclosure" and therefore doesn't have clear financial consequences.

However, if the examiner learns that management simply decided not to make the disclosure you may face problems in your exam overall as they deal with the bank's compliance program. It is never a good idea to choose to ignore a regulatory requirement.

If you write it up, you at least demonstrate to examiners that you know what you are doing.


Return to Top
#3538 - 10/03/01 04:11 AM Re: Reg Z - Required Deposit
Andy_Z Offline
10K Club
Andy_Z
Joined: Oct 2000
Posts: 27,485
On the Net
This is a top down issue. You have to have support from the top down or your program and authority can be questioned. A weak program would, in my opinion, cause examiners to dig deeper and questin more.

1) You clearly identify the regulatory requirement and show it to staff.
2) Obtain management's response.
3) Present your findings to sr. management and the board or a committee thereof.
4) The matter should be corrected immediately from that point forward.

You may also consider sending corrected disclosures to those who had errors. These aren't material, in my opinion. But it is good exercise to remind those who didn't do it correctly that it needs to be done.

As Lucy noted, if the matter is ignored, it creates a bigger issue with the regulators and your internal authority. If it is corrected, the examiners may still cite it, but I'd ask them to include the comment that you detected it and put in place the corrective measures.

The bottom line would be that there was a small problem and your program detected and corrected it. That is effectiveness.

------------------
Andy Zavoina
Opinions stated are not necessarily that of my employer.

_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

Return to Top
#3539 - 10/02/01 05:08 PM Re: Reg Z - Required Deposit
Anonymous
Unregistered

Thank you both for your input.

Return to Top
#3540 - 05/07/02 04:05 PM Re: Reg Z - Required Deposit
Love those Regs Offline
Gold Star
Joined: Apr 2002
Posts: 292
Southern State
Would the disclosure be required if the account serving as collateral was maintained at another institution?
_________________________
Opinions are mine and subject to change frequently

Return to Top
#3541 - 05/07/02 09:22 PM Re: Reg Z - Required Deposit
Compliance Poster Offline
Gold Star
Joined: Sep 2001
Posts: 407
Marshall, I believe intentional violations of the Truth In Lendng Act can carry a penalty of a year in the slammer. Sometimes managment may respond to knowledge of the possible penalties when all else fails. Good luck.

Patrick T. Hubbs, CRCM, CBCO

Return to Top
#3542 - 05/14/02 03:07 PM Re: Reg Z - Required Deposit
Anonymous
Unregistered

I apologize for the late reply. I was at a seminar last week and just read some of the posting. I have a situation where the TIL has a box marked under the security area of the TIL that states, "my deposit accounts and other rights to the payment of money from you". There is no collateral account number identified. Consumer lending is marking this box for recourse or collection purposes should the loan become delinquent and right of set off occurs. If there is not a specific account number identified and technically the note shows no collateral, does the marking of this box lend itself to the "Required Deposit" disclosure? Say, the borrower currently has deposit accounts with the bank or a year after the loan was originated and the borrower opens a savings account with a rate below 5%?

Return to Top
#3543 - 05/14/02 03:23 PM Re: Reg Z - Required Deposit
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 39,640
Cape Cod
Jackie S --

The key to the "required deposit" disclosure is that the borrower does not have use of the funds. In the scenario you've given, the borrower appears to have full use of the deposit balances, and the language appears to provide for set-off in the event of default.

So the required deposit disclosure would not apply.
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#3544 - 05/14/02 03:30 PM Re: Reg Z - Required Deposit
Jcountrygirl Offline
Member
Jcountrygirl
Joined: Dec 2001
Posts: 76
Norwood, OH USA
Thanks John! You make a good point. Borrowers would have control of their funds up to the point of set-off.

Return to Top
#3545 - 05/14/02 03:47 PM Re: Reg Z - Required Deposit
Andy_Z Offline
10K Club
Andy_Z
Joined: Oct 2000
Posts: 27,485
On the Net
I agree with John. These are two separate issues. One addresses setoff and collection of the debt, the other (required deposit) is meant to address an account used as specific collateral on the loan.

Aside from that, your Sig. Card should also contain setoff language for deposits at your bank.
_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

Return to Top
#3546 - 05/28/02 05:55 PM Re: Reg Z - Required Deposit
Love those Regs Offline
Gold Star
Joined: Apr 2002
Posts: 292
Southern State
What about in the case of older loans that are being renewed? The original CD was earning more than 5% but at the latest renewal the CD is now earning less than 5% - would a new disclosure with the "required deposit" language be necessary?
_________________________
Opinions are mine and subject to change frequently

Return to Top
#3547 - 05/28/02 06:14 PM Re: Reg Z - Required Deposit
Andy_Z Offline
10K Club
Andy_Z
Joined: Oct 2000
Posts: 27,485
On the Net
226.18(r) requires this disclosure anytime the deposit is earning less than 5%. I'd put the disclosure in the new loan.
_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

Return to Top