HELOCS & Check 21

Posted By: Retired DQ

HELOCS & Check 21 - 03/25/04 08:58 PM

Our IT guy said that we have to update our HELOC agreement to include a disclosure about Check 21, is anyone else doing this?

Thanks...

Posted By: Kaos

Re: HELOCS & Check 21 - 03/26/04 02:04 PM

Good question! We truncate all of our HELOC accounts and I had not thought about disclosure for them. I don't remember reading anything about HELOCs off the top of my head. We'll probably treat them the same as the rest of our truncated accounts. Additional thoughts anyone?
Posted By: Retired DQ

Re: HELOCS & Check 21 - 03/26/04 02:09 PM

That's my problem, I haven't found anything about Helocs either. We do truncate... but we require our customer to use the checks we purchase for them in our agreement...
Posted By: Kaos

Re: HELOCS & Check 21 - 03/26/04 04:28 PM

We just received our ABA Toolbox this week; I just got back into the office today and haven't had time to read it thoroughly. At first glance it would appear that all consumers truncated or not s/b notified of the expedited recrediting provisions. Couldn't these disclosures be combined with the Reg E we already provide with our HELOCs?
Posted By: Retired DQ

Re: HELOCS & Check 21 - 03/26/04 08:04 PM

OK, I think I got some clarification on this. The IT people want us to have an blurb in the HELOC contract authorizing electronic check presentment/image exchanges. I know we have to send out reg E disclosures, but what else? What is everyone else doing?
Posted By: rlcarey

Re: HELOCS & Check 21 - 03/26/04 08:08 PM

Quote:

Couldn't these disclosures be combined with the Reg E we already provide with our HELOCs?





OK - you have really confused me - since when and under what conditions is a transaction on a HELOC subject to Regulation E?
Posted By: Retired DQ

Re: HELOCS & Check 21 - 03/26/04 08:19 PM

OK Randy, this is what I am being told (don't yell at me, I am more confused than you) :
A consumer can call--- let's say Amex and authorize a bill pay over the phone (which ends up being electronically charged to the HELOC account like an ACH item), or I am told that they can pay something and have the image converted electonically and charged to the HELOC. I was also told that they needed to sign an ACH agreement of sorts to cover us in the event of electronic/ACH charges...
Honestly, I have no idea what he is talking about...
Posted By: rlcarey

Re: HELOCS & Check 21 - 03/26/04 08:25 PM

Well, there probably does need to be some sort of authorization under ACH rules, but the transaction itself would be governed under Reg Z not Reg E. Unless you provide for this type of access to the HELOC in the account agreement, I would suggest that you block pre-authorized transfers from a HELOC. Check conversions are another issue. I'm not totally up to speed on Check 21 yet, so I really have more questions than answers also.
Posted By: Retired DQ

Re: HELOCS & Check 21 - 03/26/04 08:32 PM

Thanks Randy...
Posted By: Retired DQ

Re: HELOCS & Check 21 *DELETED* - 03/26/04 08:43 PM

Post deleted by Maria KFSB
Posted By: Elwood P. Dowd

Re: HELOCS & Check 21 - 03/26/04 08:46 PM

Maria,
There's a rule that says every day you should do something that scares you, so I am responding...

If your HELOC is accessible by check, it is possible that one of those checks may be presented to you for payment as a substitute check. However, Check 21's "dislcosure" is only triggered when the consumer might receive a substitute check - do you send original checks back to the borrower?
Posted By: Andy_Z

Re: HELOCS & Check 21 - 03/26/04 08:48 PM

Maria, I missed part of that post. Can you repeat it?

scroll scroll scroll
Posted By: Retired DQ

Re: HELOCS & Check 21 - 03/26/04 08:51 PM

Quote:

Maria,
There's a rule that says every day you should do something that scares you, so I am responding...

If your HELOC is accessible by check, it is possible that one of those checks may be presented to you for payment as a substitute check. However, Check 21's "dislcosure" is only triggered when the consumer might receive a substitute check - do you send original checks back to the borrower?




Ken, no, they are truncated...

Andy, sorry, I just wanted to share...
Posted By: waldensouth

Re: HELOCS & Check 21 - 03/26/04 08:52 PM

Let's think this through: Our HELOCs have "checking accounts" that are basically only there to shadow the HELOC loan account and isn't really a true DDA. It is a mechanism of our computer system. When we have check conversions, it appears on our non-posts and takes awhile to discover where the check really belongs. I don't suppose there's much we can do about check conversions.

Check 21, however, will come into play when the merchant deposits the check at their FI and their FI truncates it. All the info should still hit the account and the Reg. Z billing statement just as it always did. It will be treated as every other check in the check clearing process just like it always has been, under those circumstances. Do you return checks or check images to your HELOC customers with the billing statement? How would a HELOC customer receive a substitute check otherwise? The HELOC customer still has the same error resolution rules under Reg. Z that have always existed since the account is governed by Reg. Z. My reading of Check 21 only defines a "deposit account" as an account subject to the rule. I don't believe a credit account, such as a HELOC would be subject to Check 21 rules. Do you concur or am I misunderstanding your question?
Posted By: Andy_Z

Re: HELOCS & Check 21 - 03/26/04 08:56 PM

Quote:

under what conditions is a transaction on a HELOC subject to Regulation E?




If you get creative you may interpret 205.12 applying here.
Posted By: Elwood P. Dowd

Re: HELOCS & Check 21 - 03/26/04 09:10 PM

If there is no possibility the consumer will receive a substitute check, the Check 21 "consumer awareness" disclosure is not necessary.

Actually, Waldensouth's analysis:

Quote:

My reading of Check 21 only defines a "deposit account" as an account subject to the rule. I don't believe a credit account, such as a HELOC would be subject to Check 21 rules.




is the better reason why the dislcosure is not required; e.g. Disclosure to consumers who receive paid checks with periodic account statements. Whatever your HELOC customer receives in connection with this relationship, it will not be an account statement: ...account means any deposit...
Posted By: Kaos

Re: HELOCS & Check 21 - 03/27/04 05:08 PM

We give Reg E disclosures because we allow access by ATM/Debit card and also telephone transfers. The Feds always ask to make sure we are giving it. We do not send checks back in monthly statements - these accounts are truncated. I think this is the loophole I'm looking for:
Quote:

My reading of Check 21 only defines a "deposit account" as an account subject to the rule. I don't believe a credit account, such as a HELOC would be subject to Check 21 rules.


Posted By: rlcarey

Re: HELOCS & Check 21 - 03/28/04 11:23 PM

Quote:

We give Reg E disclosures because we allow access by ATM/Debit card and also telephone transfers.




I would question the Feds on why. If your customers are using a card at an ATM or calling to make transfers to access the HELOC, they are not governed by Reg E.
Posted By: Andy_Z

Re: HELOCS & Check 21 - 03/29/04 01:56 AM

Not having worked with HELOCs, if that fed into a DDA to cover ODs and the OD was created by the ATM card, Reg. E could apply. Are HELOCs ever set up in this manner?

(Although this scenario is off the topic of Check21.)
Posted By: Retired DQ

Re: HELOCS & Check 21 - 03/29/04 01:45 PM

Thank you all, yet once again, for putting everything in perspective.
Posted By: Anonymous

Re: HELOCS & Check 21 - 03/29/04 08:13 PM

We issue checks/ATM/Debit Cards to our HELOC customers and agree that these types of transactions will be available.

I hope I’m reading Reg E correctly;

1. Accounts covered. The requirements of the regulation apply only to an account for which an agreement for EFT services to or from the account has been entered into between—
i. the consumer and the financial institution (including an account for which an access device has been issued to the consumer, for example):

(b) Electronic fund transfer. The term electronic fund transfer means any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit an account. The term includes, but is not limited to—
(1) point-of-sale transfers;
(2) automated teller machine transfers;
(3) direct deposits or withdrawals of funds;
(4) transfers initiated by telephone; and
(5) transfers resulting from debit card transactions, whether or not initiated through an electronic terminal.

…commentary;
v. A transfer via ACH where a consumer has provided a check to enable the merchant or other payee to capture the routing, account, and serial numbers to initiate the transfer, whether the check is blank, partially completed, or fully completed and signed; whether the check is presented at POS or is mailed to a merchant or other payee or lockbox and later converted to an EFT; or whether the check is retained by the consumer, the merchant or other payee, or the payee's financial institution.

(I’m reminded of this one every time I visit the Old Navy store.)
Posted By: rlcarey

Re: HELOCS & Check 21 - 03/29/04 08:43 PM

Yes, but you have to refer to what an "account" is under Reg E:

"Account means a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes."

It has to be an asset account of the customer, not a liability account, of which a HELOC is one.
Posted By: PABanker

Re: HELOCS & Check 21 - 03/29/04 09:13 PM

I am totally confused on this one as we do send the checks back to our customers and allow online banking options. Do we need to give REG E disclosures because of the online banking option that we allow on the HELOC access? Our online banking limits are stated in the REG E disclosure.
Posted By: John Burnett

Re: HELOCS & Check 21 - 03/29/04 09:21 PM

If access is directly to the HELOC at an ATM, Regulation E is not your problem. It's a Regulation Z concern if at all. Regulation E simply does not apply.

If, however, the customer uses his ATM card to access his checking account and an overdraft there creates a transfer from the HELOC, the deposit account withdrawal will be subject to Regulation E. If the customer is able to transfer from his HELOC to the checking account using the ATM, the transfer will be subject to Regulation E on the deposit account side, but not on the HELOC side. Ditto if transfers can be effected between the HELOC and the deposit account on your home banking or telephone banking system.
Posted By: rlcarey

Re: HELOCS & Check 21 - 03/29/04 09:41 PM

I think what confuses many people is the fact that a dummy or shadow account is normally set up on the DDA system for processing purposes only, when in fact there really isn't a DDA in existance. It is only a conduit to process the checks and other transactions as most loan systems do not possess that capability.
Posted By: John Burnett

Re: HELOCS & Check 21 - 03/29/04 09:51 PM

I'm gonna ask real nice that if you want to continue this discussion on Regulation E, you post a new thread in the Operations or General Compliance forum. Perhaps one of the trusty monitors can transfer the Reg E piece in any event?
Posted By: Retired DQ

Re: HELOCS & Check conversion - 03/30/04 06:13 PM

I'mmm baaaccckkk...

I think I finally got to the bottom of my IT guy's question. He was talking about check conversion to ACH the entire time... NOT CHECK 21!

I pulled up NACHA's info on check conversion and it said that it is governed by Reg E. I emailed them for an answer on HELOCs and am waiting for a reply.

Now that I think I know what I am asking, how does check conversion impact HELOCs? Is it still Reg Z or is it now Reg E?


muttering... Geez, it's only Tuesday???
Posted By: John Burnett

Re: HELOCS & Check conversion - 03/30/04 08:23 PM

As has been said several times in the string above, transactions to or from a HELOC cannot be subject to Regulation E because a HELOC is not a consumer asset account.

So, if a check from a HELOC is converted, it's subject to NACHA rules but not subject to Reg. E. It will, of course, be subject to Regulation Z.
Posted By: Retired DQ

Re: HELOCS & Check conversion - 03/30/04 08:28 PM

Thanks John, I guess I just wanted to make sure...
Posted By: Kaos

Re: HELOCS & Check conversion - 03/30/04 10:25 PM

This is absolutely correct. I checked with my regulator today and they concur with you that the account just doesn't qualify as an asset account and therefore no Reg E. We are going to discontinue giving Reg E with our HELOCs effective immediately. Sorry for the uproar. Once again BOL is a great place to learn and unlearn compliance. Thanks!
Posted By: Kaos

Re: HELOCS & Check 21 - 04/30/04 05:57 PM

I needed to bump this back up. I contacted our regulator and they did confirm that Reg E does not apply to an asset account. They are not sure why we were initially told to give Reg E out on our HELOC product. We stopped the minute I hung up the phone!