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#85650 - 06/05/03 02:29 PM CD notice
Anonymous
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If the interest on your CD is compounded each period, we do not mail you a notice.

If you want your interest sent to another bank each period, we load the system to automatically originate an ACH when interest is due. Are we required by law to mail our customer a notice because it is ACH.


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#85651 - 06/05/03 02:37 PM Re: CD notice
1111 Offline
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No - customer authorized the transfer with you deciding to transfer the funds via ACH - no notice.

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#85652 - 06/05/03 02:56 PM Re: CD notice
John Burnett Offline
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But watch out for the possibility you might need to start generating a statement on the CD account. Click here to read thread.
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#85653 - 06/05/03 03:02 PM Re: CD notice
rlcarey Offline
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John - and of course all the other Reg E requirements
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#85654 - 06/05/03 03:10 PM Re: CD notice
John Burnett Offline
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Of course! I should have known you'd offer that postscript, Randy!
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#85655 - 06/05/03 03:54 PM Re: CD notice
1111 Offline
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Quote:

But watch out for the possibility you might need to start generating a statement on the CD account. Click here to read thread.




John:
Are you saying that that fact that a bank decides to use ACH as the output method to transmit an interest payment on a CD triggers the statement requirement on the CD under Reg E? I thought the incoming ACH activity was the concern under Reg E, not outgoing activity at the bank level.

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#85656 - 06/05/03 04:38 PM Re: CD notice
rlcarey Offline
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Ipso - these transactions are interbank - not intrabank - therefor the rub. John contends that they are pre-authorized transfers - I contend that the money never really makes it to the CD account for other than an accounting entry purpose and would be exempt.
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#85657 - 06/05/03 04:59 PM Re: CD notice
John Burnett Offline
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Or, put another way, the CD qualifies as a consumer asset account. In my view, if the interest posts first to the CD and is then transferred out (from the CD account) electronically to another bank, you have a Regulation E transaction.

Randy and I have this friendly discussion going on about whether the interest actually posts to the CD before being transferred out. The answer to that question is the key, I believe, to whether Reg. E applies on the "sending bank" side. The posting of the interest to the CD account is not, itself, a Reg. E event.

From a practical perspective, I've never heard a regulator raise this particular issue. If there are any regulators in our listening audience, please forget we ever had this discussion!
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#85658 - 06/05/03 06:15 PM Re: CD notice
1111 Offline
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I would side with Randy on this issue. The customer does not select the method of transmission, only that the funds must be transmitted, so it's the bank that elects to forward the funds via ACH - no Reg E impact.

On the other hand, my question is: Does Reg E come into play when there is an outgoing ACH entry generated or does Reg E really only cover incoming ACH debits and credits? In other words, when a customer's bank is the originator of an ACH entry, does Reg E apply to the impacted account?

Reg E commentary states:
Quote:

3. Teller-operated terminals. A terminal or other computer equipment operated by an employee of a financial institution is not an electronic terminal for purposes of the regulation.




The origination of ACH entries can easily take place at a teller terminal! Reg E simply states: "(b) Periodic statements. For an account to or from which electronic fund transfers can be made, a financial institution shall send a periodic statement for each monthly cycle in which an electronic fund transfer has occurred"

So, I'm thinking that ACH origination is not covered by Reg E with the transaction covered under Reg E when it arrives at the receiving bank.

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#85659 - 06/05/03 06:49 PM Re: CD notice
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Ipso - It does go both ways. If I authorize the bank to electronically debit my account through a bill pay system accessed through my computer and send it to a specific payee, that transaction becomes subject to Reg E and so does the asset account debited.
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#85660 - 06/05/03 08:27 PM Re: CD notice
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If an insurance company obtains your written OK to draft your account for monthly premium payments and they start to do so using paper drafts, they can unilaterally change that to ACH debits without getting a new authorization from you. However, the transaction via the ACH is nonetheless subject to Regulation E.

If you authorize the bank (or a third party) to issue checks against your account to pay bills (a sort of bill payment program that some vendors offer), those payments are not subject to Reg. E because they are effected by the vendor as your agent via PAPER drafts. But if the vendor changes the way it pays one of those payees to ACH (because a critical volume of transactions is reached, for example), there need not be a new authorization, but the transaction now becomes subject to Reg. E because it's electronic.

The fact that a customer authorizes a bank to pay CD interest to an account at another bank doesn't establish whether the transaction is subject to Reg. E. The applicability of Reg. E is determined by the nature of the account (a CD is a qualifying consumer asset account) and the type of transaction (electronic). If a payment is made from the account, it's an EFT Reg. E transaction. If the payment is made from the bank (not the CD) it NOT a Reg. E transaction at the issuing bank (but would be at the receiving bank).

Splitting hairs? Yes. But that's what keeps examiners, auditors and COs employed. Attorney's too, but I didn't want to include them in the same sentence.
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#85661 - 06/05/03 08:46 PM Re: CD notice
1111 Offline
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Quote:

Ipso - It does go both ways. If I authorize the bank to electronically debit my account through a bill pay system accessed through my computer and send it to a specific payee, that transaction becomes subject to Reg E and so does the asset account debited.




But, in this case the customer is not authorizing a electronic debit to pay the interest due to another bank, so the method of making the payment has no direct connection to the customer. Actually, there is no need for the bank to even include the fact that the payment is being made electronically on the customer statement - I'm suggesting that ACH origination by the customer bank is an internal matter that is one step removed from directly involving the customer as the bank is preparing/executing the transaction internally with Reg E impact when it arrives at the destination bank.

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#85662 - 06/06/03 01:14 PM Re: CD notice
John Burnett Offline
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And, Ipso, I'm suggesting that your analysis could be flawed if the transfer is being made from the CD account (rather than directly from the bank itself). Plain and simple, a transfer effected via the ACH from a consumer asset account to a consumer asset account at another institution is subject to Regulation E at the originating institution and at the receiving institution. Whether the consumer's authorization for the transfer contemplated ACH delivery or check delivery, or delivery by cash carried by my great-aunt Sarah in a grocery sack from the Piggly Wiggly is immaterial. It's the fact of the electronic transmission that matters.

So the key question in this analysis is whether the interest is first posted and credited to the CD before it is withdrawn and transferred to the other bank. If it is, I firmly believe it triggers Reg. E disclosures, statements, and all the other Reg. E "stuff."
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