The do’s and don’ts of Regulation DD

Regulation DD governs the Truth in Savings Act (TISA) for banks. The rules within this act are not complicated; generally, if issues arise, they are due to overlooked inconsistencies. Yet in most cases, these inconsistencies can end up being systemic issues affecting many customers. If financial institutions want to avoid these issues, they must be actively looking for any inconsistencies.

When it comes to Regulation DD, the primary responsibility is to clearly and accurately disclose product features to customers. Below are some important do’s and don’ts when it comes to your financial institution’s compliance with the act.

The Do’s:

• Verify all your disclosures are consistent; the account opening disclosure required by the Truth in Savings Act, TISA disclosure, branch brochure, periodic statement, and information posted online should all document the same terminology and information related to a specific product, annual percentage yields (APYs), minimum balances and fees.   
• Verify consistent terminology between the various disclosures and periodic statements.  If you label the fee to pay an item on insufficient funds an “overdraft fee” within your TISA disclosure but call it a “nonsufficient funds fee” on your periodic statement or if you label your monthly fee a “service charge” within your TISA disclosure but label it a “monthly fee” within your periodic statement, you could be required to reimburse those charges.
• Compare the product terms disclosed to the parameters included on your deposit system to ensure they are accurate. Most Truth in Savings Act violations relate to disclosing one fee, APY, interest accrual method or balance computation method to a customer but actually providing another.
• Validate rate tiers are disclosed appropriately. If the tier pays from $1,000.00 to $1,499.99, verify your disclosures include the rate tiers and system parameters are accurate. Ensure all balances are covered, for example, tiers of $1000 to $1,499 and $1,500 to $4,999, and exclude the 99 cents between tiers, which should not occur.
• Include all required disclosures with certificate of deposit (CD) renewal notices for terms greater than 12 months. Renewal notices for CDs with terms greater than 12 months must contain all disclosures required under Regulation DD at account opening. Not all renewal notices have the required fields, so an additional attachment may be necessary.
• Review all new advertisements of deposit products for required disclosures. If the annual percentage yield is disclosed or a bonus is offered, additional disclosures are triggered.
• Ensure any bonus or rewards checking features are functioning as anticipated and disclosed. Verify the qualifying cycle is clearly defined and rewards or bonuses are functioning as disclosed. 
• Verify all overdraft fees, including any daily overdraft fees, are captured in the monthly and year-to-date overdraft totals table on periodic statements. 
• Verify how your system calculates overdraft fees. If your system charges an overdraft fee when an overdraft occurs as a result of a bank fee, ensure that bank fees are listed in the categories of transactions that may result in an overdraft within your TISA disclosure.
• If you charge a daily overdraft fee, verify that the disclosed period of time in which an account is in overdraft status prior to being assessed the daily overdraft fee is accurate. If not using business days, verify that the system will not charge the fee the day before the calendar day that may fall on a non-business day rather than the day after. For example, if the daily overdraft fee may occur on the third calendar day the account is overdrawn, and the third calendar day falls on a weekend or federal holiday, verify the fee would be charged the day after the non-business day rather than the day before.

The Don’ts:

• Don’t add or update a fee to the fee schedule without verifying consistency with the rest of your disclosures.
• Don’t forget to notify your customer 30 days in advance of any adverse change to a deposit account.
• Don’t provide an “internal use only” rate schedule to a customer. A rate sheet is considered an advertisement and must include all required language.
• Don’t assume because the auditor or examiner has not looked at a disclosure in several years or has looked at it and had no findings that it is accurate or not relevant.
• Don’t include a customer’s overdraft protection limit, overdraft line of credit or available transfer from another account in the available balance disclosed at an ATM or in the online banking or telephone banking system. If disclosed, this balance must be prominently disclosed and segregated from the actual available balance.
• If the funds were good at the time of a signature-based debit card preauthorization and a hold was placed on the preauthorized amount, don’t allow your system to charge an overdraft fee on a preauthorized transaction that settles on insufficient funds.

The goal is not to add work to an already full to-do list; however, this may be a reminder to your financial institution to give pause to Regulation DD. No one wants their financial institution to be the latest class action lawsuit in the news or subject to a costly lookback to calculate reimbursements. The takeaways above can help guide your financial institution’s monitoring and controls to avoid unwanted surprises.