I read some previous threads on this issue, but was not entirely clear, so I want to just check.

Some of our notes for certain consumer loans contain a contractual right of setoff. However, none of our disclosures reflect that we have a security interest in the customer's deposit accounts. I've heard it said that FDIC's position is that this is a security interest that must be disclosed.

However, it appears to me that the commentary for the definition of security specifically excludes that and we shouldn't be indicating that on the disclosure - 226.2(a)(25)-2 says:

"2. Exclusions. The general definition of security interest excludes three groups of interests: Incidental interests, interests in after-acquired property, and interests that arise solely by operation of law. These interests may not be disclosed with the disclosures required under §226.18, but the creditor is not precluded from preserving these rights elsewhere in the contract documents, or invoking and enforcing such rights, if it is otherwise lawful to do so. If the creditor is unsure whether a particular interest is one of the excluded interests, the creditor may, at its option, consider such interests as security interests for Truth in Lending purposes."

Perhaps I'm just confused. Is there a specific FDIC guidance (FIL) out there that specifies what they want? Someone else also mentioned something about this also triggering rescission?? This is the first time I had heard that, but I did read the commentary, and 226.2(a)(25)-5 seems to support that. I guess on our old system, they were able to simply pull the offset language out of the note, but that's not an option on the new system (FiServe).

Thanks in advance for setting me straight.

I don't know if this helps, but this is how we handle it: All of our notes contain a "contractual" right of set off in the customer's deposit accounts as security for the debt. If the customer has an existing deposit account with us, we disclose in the TIL (this is contractual and not statutory, and needs to be disclosed as we are taking a security interest in an existing account). If the customer does NOT have an existing account with us, we do not disclose it in the TIL.

We too have such language and we do not provide the required deposit disclosure.

In a 2000 FDIC audit, I love that audit, it created my job, a comment was put in the audit that the bank should not be disclosing the required deposit language unless the "specific" required deposit was identified in the security agreement.

We have passed 2 audits since that time with no further mention of this issue.