Deposit "proof" errors and adjustments: UDAAP!

What does your bank do with customer deposit errors? You know, the deposit that's not added correctly, or the one with five checks with only four listed and included in the total.

Apparently, the banks in the Citizens Financial Group, Inc., failed to adjust those types of deposits over almost six years (1/1/08 - 11/30/13) unless the error amount exceeded a threshold amount of either $25 or $50. The CFPB, FDIC and OCC just announced a settlement with the holding company and its two banks -- Citizens Bank, N.A. and Citizens Bank of Pennsylvania, after finding the practice to be unfair and deceptive.

The FDIC ordered Citizens Bank of Pennsylvania to pay restitution and a $3 million CMP. The OCC ordered Citizens Bank, N.A. to pay restitution and a $10 million CMP. The Bureau ordered a CMP of $7.5 million and about $11 million in restitution. The FDIC and OCC orders included relief for business accounts.

Ask yourself --
If your bank has a practice of not making what used to be referred to as "proof adjustments" under a given threshold amount, how high is that threshold? Do you disclose to depositors that adjustments under that threshold amount won't be made?

http://www.consumerfinance.gov/newsroom/...eposit-amounts/

Cordray's remarks can be found here:

http://www.consumerfinance.gov/newsroom/...ion-press-call/

His comments included this statement:
In its account disclosures, Citizens Bank told its customers that all deposits were subject to verification and the bank would take steps to ensure that consumers were credited with the correct amounts. But this was not true. For almost five years of the period covered by our order, the bank only investigated and corrected errors that exceeded $50. For the last year, it only reviewed discrepancies above $25. In other words, if the bank read the customer’s deposit slip as totaling $100, but the customer had actually deposited $150, the bank took the $50 difference for itself without ever informing the customer about what it had done.

The bank may have seen these discrepancies as “rounding errors” not worth its time to pursue. But that is not sufficient. Even though some customers may have benefited from the policy in different circumstances, that fact did not nullify the harm to others. This is sloppy banking, and it violates the Dodd-Frank Act, which prohibits financial providers from engaging in unfair or deceptive practices.

I'm glad they got fined and ordered restitution. This is plain and simple theft.

At our bank all deposit errors get fixed with a deposit correction.

And we wonder why we are so highly regulated.

Agree completely with Compl101.

All of our deposit errors get fixed with a deposit correction.

I believe we have a $5.00 write off amount and corrections are made at the customer's request (I'm in the process of checking our procedures).....in our terms and conditions it clearly states that the customer must promptly notify us (within 60 days of statement) of any incorrect deposit credit......

If we have this disclosed are we ok?

Or do we need to specifically disclose that we do not automatically make correction adjustments for amounts of $5.00 or less.

Well, it's a brave new world, ladies and gents. Waaay back in my active banking career, my bank had an employee suggestion program that rewarded staff members for innovative cost-savings ideas. One of the suggestions -- probably back in the '70s -- was to set a $5 minimum adjustment amount for business deposit proof errors. We advised our business customers of the policy (we didn't have voluminous deposit contracts and disclosures back then), and I don't recall that we ever had a problem.

I do think that the $50 and $25 amounts set by Citizens were high for consumer accounts -- perhaps not for businesses. And I do think they should have included a mention of the practice in their deposit agreements. Transparency is always better than obfuscation, as far as examiners are concerned.

I haven't taken the time to look at the Bureau's complaint database on this issue, but I imagine that a number of gripes about the practice initiated the inquiry.

I do have a thought about the finding that the practice was "unfair" --- one leg of "unfair" is that the injury caused to consumer was not "reasonably avoidable." Why is it unreasonable for a consumer to avoid the injury by taking a little more care in completing their deposits?

Not sure if the bank was disclosing their actual practice or not in this case. Cordray's remarks state:

"In its account disclosures, Citizens Bank told its customers that all deposits were subject to verification and the bank would take steps to ensure that consumers were credited with the correct amounts."

I plan to read the order at lunch. I'm curious about this as well.

Look at paragraph 26 in the Bureau's order.

According to the American banker article today, it came about from a tip from a whistleblower. I wonder if that person gets a reward based on the size of the penalty?

The way I understand the CFPBs take on this is that regardless of how it was disclosed, the CFPB believes the practice itself was unfair....even if they had disclosed what they were doing, the CFPB would have still cited them for UDAAP.....am I understanding correctly??


I am interested in how others are responding to this.....do any of you have a write off allowance for adjustments? Are you rethinking the practice?

I don't think the practice itself is the sticking point. I think it's a combo of the lack of disclosure, the fact that the error would have likely undetected by the customer, and the size of the threshold. The fact that the bank lowered the threshold from $50 to $25 suggests the bank knew the $50 figure wasn't being viewed by someone as reasonable.

Thanks, John....do you think we need to specifically include what we feel is a reasonable write off amount ($5) in our disclosure....and if so, for current accounts, should we do a statement stuffer?

Transparency is the watchword these days, so I'd include the amount. I'd do a stuffer or statement message to get the info out there, if it were my bank to run.

Can't thank you enough, John...THANKS!

16. The Banks' practice harmed consumers when the amount scanned on the deposit slip was less than the amount of the deposit items associated with the deposit. In
such cases, the Banks did not give consumers full credit for their deposits.

17. When the amount scanned on the deposit slip was more than the amount of the deposit items associated with the deposit, consumers were credited for more than their actual deposit amount.

Fascinating! I can just hear the bankers in the meeting when the decision was made: "It's fair because sometimes it's to the bank's advantage and sometimes it's not and it will probably net out as revenue neutral to us over a period of time." Frankly, that's probably true; the practice was intended to save time, not generate income and I doubt the bank(s) profited.

It just didn't occur to them to evaluate the proposition that giving one consumer a gift might not provide the moral justification for screwing another. Now, all the benefits they incurred under 16 will be added to the losses they already incurred under 17. Geeze, think about the costs involved in the lookback and customer communications as well...

I would be reluctant to disclose that we would not adjust deposit amounts for a discrepancy of less than $X.XX as I'm certain those who cannot distinguish between cleverness and dishonesty would routinely add that amount (minus 2 cents) to every deposit. I would instead charge a fee (properly disclosed) for a customer's error in the completion of a deposit slip based on the fact that it required us to make correcting entries and send notice.

Thanks, Ken....the thought about dishonest customers working the system to their advantage occurred to me over the weekend.....a fee is a good suggestion.....

Our deposit correction threshold is $1.00 which we have not ever disclosed. At the end of the month the GL account is normally over or short in the $3-$4 range.

As far as charging a fee for deposit corrections....... Ouch. Who can spell a possible "UDAAPPER"?

How about a $5.00 fee for a 2 cent error?

Actually, I was thinking about $10 and it could not be connected to the UDAP or UDAAP boogeyman with crazy glue.

The customer made a mistake and it cost the bank some time. Compare it to a check written against insufficient funds.

We charge a $5 deposit correction fee (used to be less) and it is disclosed.

I also don't see how UDAAP would be more of a problem than always taking less than a dollar from some customers and putting into your GL account without disclosing it.

As Ken said, there is a cost for making corrections. The cost is even higher with business deposits with multiple checks; it takes more time to fix.