I have been asked about any legal/regulatory issues surrounding the use of a messenger services to pick up the deposits of a business customer. I have come up with the following:
If done by the Bank:
insurance coverage
Branching (a messenger service performs one of the core functions of a branch - accepting deposits)
If performedby a third party and cost reimbursed to customer:
Possible Reg Q/DD issues
Our legal counsel said the he thought that it was illegal for the bank to provide such services and not charge for them. The only thing I can come up with on that is the possiblity of that creating an "interest" issue under Reg Q. Do any of your financial institutions provide such services to your commercial customers at no cost?
Have I forgotten anything? (We are regulated by the Fed)
Thanks!
Leslie

The branching issue is generally enough to dissuade us.

I used to work for a very small bank which had a elderly customer, and one of the tellers would go to her house to do her banking. She would pick up deposits, bring back receipts, cash checks. None were ever very big, but I thought we were opening ourselves up to all sorts of violations/problems/lawsuits. But that was small town America, and I sure miss that kind of service.

I can see giving CRA credit for that sort of thing!

I can see liability and being cited for an unauthorized branch for that sort of thing.

I worked for two different community banks that provided just this service. There was a fee, but the fee was wrapped into an account analysis, which used multiple variables to determine if the customer should incur a monthly charge i.e. dollars deposited, number of checks, etc.

I would be leary of providing this service free of charge.

A former employer provided a similar messenger pickup service, except the bank hired its own messengers and provide the cars for messenger use. The bank had to discontinue the service as regulators looked on it as illegal branch operation. Which it clearly was.

Third party messenger services are Ok as long as the agreement is between the customer and the messenger service

We had a written agreement with the customer that they understood the deposit was being given to an independent third party they employed, and the bank was not responsible for the deposit while it was in transit, and until it was physically delivered not in the banks custody. The bank paid the messenger service.

This got expensive in a hurry. Customers often did not have deposits ready at the scheduled pick up times, causing additional pickups, which added to the expense. The cost far outweighed any benefit the bank received and the service was discontinued.

National Banks:
May establish/operate a messenger service to transport banking transaction items to and from its customers; branch approval required if messenger service is a branching function. 12 U.S.C. Sec. 36(j). May use third party messenger service to transport items to and from customers without regard to branching limitations. 12 U.S.C. Sec. 24(7); 12 C.F.R. Sec. 7.1012.

Federal S&L:
FSAs are authorized to provide messenger services to facilitate customer transactions, including deposits. OTS Op., by Asst. Ch. Couns., Nov. 20, 1992. In addition, FSA service corporations may engage in the business of providing financial courier services to the general public. 12 C.F.R. Sec. 559.4-(b)(5).

Sample State Bank (ILLINOIS) (go to your state banking department for their specific regulation):
May establish/operate a messenger service to transport banking transaction items to and from its customers; branch notice required if messenger service is a branching function. Sec. 5(15) IBA. May use third party messenger service to transport items to and from customers without regard to branching limitations. Sec. 5(11) IBA.

Grist--looks like you beat me to this answer: You would need to establish it as a branch if it is delivering deposits. Read 12 CFR 7.1012 and 12 USC 36. If the messenger service makes pickups and deliveries of items pertained to branching activities and is established by a national bank, the bank must obtain approval from the OCC to establish a branch. The procedures to establish a branch are codified at 12 CFR 5.30.

Straw,
In OCC BB 93-6, the OCC wrote an interpretive ruling for 12CFR 7 regarding messenger services. The OCC opined that a National Bank may utilize a messenger service which performs core banking functions without regard to the branching stipulations in 12 USC 36(j) if, among other things, the messenger service enters into contracts with and acts as an agent for the customer until the items are delivered to the bank at an established bank office.
If you rolled the messenger service expense into the account analysis, was it only the Bank's portion of the messenger service fee that was considered?
Leslie

Actually, I was wondering why you had not posted as this is your ball field.

Some of the posts to this thread are interesting, e.g. hesitate to go with a messenger service, but a messenger service, done right, is one of the least expensive options to gather deposits (from businesses) throughout your CRA area. I know that some banks in California have a higher volume coming in by messenger than is transacted directly at some of their branch offices.

Mobile branch applications seem to be readily approved by the OCC, as well. In addition to the nursing homes, etc. - this is a nice service to offer doctors, and other professionals who have a hard time getting to the bank during regular hours.

Sorry I wasn't more clear, but if I recall correctly, we had an agreement with the messenger service and the messenger service had an agreement with the depositors. I believe the bank agreed to pay the depositor's costs directly from the deposit accounts, but the bank would factor that cost into the analysis. If the account was profitable enough, the bank would eat the depositor's costs for the service.

Also, I should mention that both were Arizona state chartered, non-member institutions.

I agree, it's a great service - when properly created and managed - although it's a big hassle for the operating people as customers like to change pick-up schedules, etc. and the messengers can be a little strange, at times.

Also, unless things have changed, the messenger service cannot pick up cash, only checks, etc., correct?

We do this, but are very careful to not count money, cash checks, or give deposit receipts. Otherwise, you are operating a mobile branch. Of course, you could always get branch approval for this mobile branch. Some business customers have found this service useful, I think it would be tough for CRA credit since the folks taking advantage of the service most likely are not low to moderate income.

Accepting the deposit is what falls into a branch definition, not counting it there.

Is this a national bank issue? Every community bank in my market uses a courier system to enable them to obtain deposits from all over the market. I went through two FDIC exams at two different institutions without comment.

I am just wondering if we missed the issue entirely.

It just proves the old adage - "What the examiners don't know - won't hurt you".

burback,
My understanding is that §42 of the BHC Act defines a branch as any banking facility other than a main office, at which deposits are received OR checks paid OR money
lent. This would lead me to believe that the act of receiving and transporting the deposits, with or without a reciept, would make a courier service "a branch" under the meaning of §42.
Leslie

We have an armoured car service pick up the deposits (much like someone like Costco does for their large deposits) and deliver to us for processing. The costs are either waived (because we're dying for the business) or factored into the client relationship charges.

The client has a relationship with the service (contracts etc) and we do as well. The armoured car service of course has insurance and familiarity with safety issues.

Andy darling...wonderful...oh keeper of all knowledge and other stuff.....I need that spell check site desperately! Pretty Pleaseeeee!!! Danged new computers have gerbils and they ate mine and won't reinstall it no matter how many times I ask or stick peanut butter into the cd rom....

There is a way to set up an courier service so that it is not considered a branch.

The contract must be between the customer and the courier so that the customer has hired the courier to act as their agent to deliver the deposit.

The bank CAN pay for courier service (usually this is done through account analysis) as long as the payment is only for delivery of items that relate directly to the customer's account (i.e. deposits.)

The confusion over Reg Q prohibitions comes in when banks were starting to pay for courier service for delivery of items that had nothing to do with the bank account. Typically, this happened with a Title or Escrow company that would have a bank pay for courier service to pick up and/or deliver loan documents and items for recording at the county recorders office. These were for loans and escrows that had nothing to do with the bank account, but was a way for the bank to "indirectly" pay interest on the account. Some banks got even wilder and starting paying for car leases, magazine subscriptions, office parties, and even salaries though account analysis.

The Fed actually issued a letter on the subject to clarify what CAN and CANNOT be paid, but I don't have the site handy.

Oh CRA Queen, Duchess of Duct Tape, your humble servant is here.

I like an IE add-in program. You can also add your own words and avoid redundant notices of misspellings. This is great for compliance terms.

ieSpell has an add-in for your browser that allows you to check the spelling in forms, such as what this post is being done in. This will also work on a Web based intranet where your employees may be completing forms online.

It can be activated with a pull down menu under Tools and has an icon in the toolbar for one-click use.

Is this what you wanted?

Andy,
We are not accepting a deposit, only transporting the funds back to the branch to process the deposit. We are a state chartered savings bank and our holding company is not a bank holding company. I don't know if this makes a difference. We have approval from the state regulator, the FDIC and obtained outside legal advice. No problems so far.

Obviously you jumped through the appropriate hoops. But how do you transport the deposit without first accepting (i.e. taking possession) of it?

Andy
I don't have a clue why the regulators allowed for the courier service, which resides in a wholly owned sub, to pick up funds for deposit and not consider this as a transaction at that point in time. But we have merrily gone along with the service (the biggest customers are doctors and lawyers). I suppose I should reconsider my comfort level with what we are doing but unless a competitor bank complains it may never become an issue.