Changing terms on existing products and services can be a cumbersome process. Sometimes, however, it is necessary due to changes originating from the Marketing Department to keep pace with the latest competitive innovation or possibly resulting from a regulatory change that drives changes for the whole industry. Change could also be the result of a merger of institutions that require integration of different product lines. When change occurs, it is important to implement a compliance plan to address the regulatory requirements for consumer notifications and fulfillment.
Consumer Regulations Affected
Changing terms on consumer deposit accounts is primarily affected by Regulation DD (Truth in Savings Act) and Regulation E (Electronic Funds Transfer Act), with the specific coverage and applicability dependent on the type of change.
Consumer deposit accounts such as checking, savings, NOW accounts and time accounts
Consumer asset accounts such as checking and savings
The principles of unfair, deceptive and abusive acts or practices (UDAAP) under the Dodd-Frank Act and the FTC Act also apply to consumer products and services offered by financial institutions to consumers. The broad scope of UDAAP coverage includes all aspects of transactions and interactions with consumers.
Regulation CC (Expedited Funds Availability Act) applies to changes in terms affecting the funds availability of transaction accounts. Regulation CC applies to both consumer and commercial transaction accounts. However, the provision that requires depository institutions to notify accountholders of changes to the Funds Availability Policy is only applicable to consumer accounts.
Timing of Notice of Change in Terms
Each regulation requires a different period of advance notice to consumers of the change in terms:
- Regulation E – 21 days prior to effective date of change required for any change in term that would result in increased fees, increased liability to the consumer, fewer types of available electronic funds transfers, or stricter limitations on the frequency or dollar amount of transfers
- Regulation DD – 30 days* prior to the effective date of change required for any change in a term that is required to be disclosed in the Regulation DD/TISA initial disclosures if the change adversely affects the consumer or if the Annual Percentage Yield is reduced
- Regulation CC – 30 days prior to the effective date of the change if the change negatively impacts the consumer, or within 30 days after implementation if the change expedites availability of funds
There are also some specific exemptions under the regulations that permit institutions to skip a notice of change in terms. Under Regulation E, an advance change in terms notice is not required if the institution needs to change its transaction limits or terms due for security reasons. Under Regulation DD, institutions are not required to notify customers every time check printing fees change.
However, if there is any doubt about whether a change may adversely affect the consumer or may result in increased liability or fewer types of available EFTs, it is wise to err on the side of caution and provide a notice of change in terms to the consumer. A practice may be considered unfair or deceptive even if not in violation of another law or regulation.
Do not forget to review any contractual provisions of account agreements that may override the regulatory time frames. A contract that provides for a 30-day notice of change in terms would supersede a 21-day Regulation E notice requirement. State law may also impact notice requirements in the state or states in which your institution operates.
Content of Notice of Change in Terms
Notices of changes in terms must be:
- In writing
- In a form the consumer can keep
- Clear and conspicuous
Notices may be provided electronically as long as the requirements of the E-Sign Act are met. Notice may be sent on or with a periodic statement. If included with a periodic statement, the institution must ensure that all affected customers are sent the notification within the required time period before the effective date of the change.
There are no specific format requirements of notices of changes in terms. Regulation DD explicitly requires that the notice of change in terms include the effective date of the change. Even without this requirement being called out in any other regulation, any clear and conspicuous change in terms notice should include the effective date of the change.
Posting a notice in the lobby(ies) of your branches would not be an appropriate form of notice of change in terms.
Action Plan for New Customers
An implementation plan for a change in terms event must also include a plan for the group of new customers that open new accounts during the gap period between the time notification begins for existing customers and the time the change becomes effective. These customers will be opening new accounts before the change becomes effective and will need to receive information about the current and future terms of the account, distinguishing between the two.
The institution should develop an interim disclosure or information piece to clearly explain the terms of the account at the present time and the future changes to come.
- Time accounts with a maturity of more than 30 days require a notice mailed or delivered at least 30 days before maturity or 20 days before the end of the grace period if the grace period is at least 5 calendar days.
- Identify all changes and all customers impacted by the changes. While commercial customers are not covered by regulations such as Regulation E, DD, and CC, your contracts may require notice of changes in terms. In addition, good customer relations would suggest that notification may be good business practice.
- Ensure that the message developed by the Marketing Department or business line concerning the change is clear, conspicuous, and factually accurate. From the customer’s point of view, is it fair, reasonable, and easy to understand?
- Keep documentation of the change in terms notification for the required record retention period of two years. Regulations E, DD and CC each require institutions to retain evidence of compliance with the requirements of the regulation for a period of not less than two years. Institutions should maintain evidence that their procedures reasonably ensure that all affected consumers received the disclosures as well as sample disclosures for each type of account affected by the changes.
Copyright © 2021 Compliance Action. Originally appeared in Compliance Action Vol. 25, No. 11, 3/28/2021