ATM Lawsuits; No Closing Costs? Really?; CUSOs

Posted by Anthony Demangone

I think Spring is finally here in Washington, D.C.  I know that for two reasons:

• Each morning, there is a green coating of pollen on my car.
• It is very hard to find nasal decongestant at the local pharmacy.

Now, on to the compliance stuff.

ATM Lawsuits. There have been a rash of news stories about ATM lawsuits. Here's one example. (Dayton Business Journal.).  It seems the lawsuits are claiming that ATM disclosures, which are governed by Regulation E, are inadequate. With that in mind, I would like to point out the following:

1. A 2009 FDIC financial institution letter that outlines exactly what should be on the ATM. 
2. This BankersOnline.com discussion contains some pretty wicked good ideas on how to manage this risk. Wicked good.  Their wicked good ideas are based on this paragraph from the Electronic Funds Transfer Act:

(d) Exception for damaged notices. If the notice required to be posted pursuant to section 1693b(d)(3)(B)(i) of this title by an automated teller machine operator has been posted by such operator in compliance with such section and the  notice is subsequently removed, damaged, or altered by any person other than the operator of the automated teller machine, the operator shall have no liability under this section for failure to comply with section 1693b(d)(3)(B)(i) of this title.

No closing costs. Really?  You might remember that we wrote a bit about the use of "free" when writing ad copy for share accounts.  Are there similar restrictions for claims of "no closing costs" for open end home equity loans?  Yep. The following comes from the Staff Commentary to Part 16(d) of Regulation Z: 

4. Misleading terms prohibited. Under §226.16(d)(5), advertisements may not refer to home-equity plans as free money or use other misleading terms. For example, an advertisement could not state “no closing costs” or “we waive closing costs” if consumers may be required to pay any closing costs, such as recordation fees. In the case of property insurance, however, a creditor may state, for example, “no closing costs” even if property insurance may be required, as long as the creditor also provides a statement that such insurance may be required. (See the commentary to this section regarding fees to open a plan.)

I always forget about that one.  Hat tip to Bill, for reminding me of that restriction. Mahalo, Bill.

CUSOs.  There's been a good deal of compliance "internet chatter" about NCUA examinations and CUSOs.  If your credit union has a CUSO, does that CUSO have its own business plan?  Its own BSA risk assessment and anti-money laundering program? Does your credit union's board have a clear picture of the various risks involved with the CUSO's activities? These questions appear to be popping up during exams.  To be honest, the questions don't appear to be all that unreasonable.

Comments

[Andrew Grove]

I have gone through Reg E and can find no mention of "Exception for damaged notices". Where did you get this language?

[Steve Van Beek]

Andrew,

The "Exception for damaged notices" is found in the Electronic Funds Transfer Act itself and was not carried over into Regulation E. You can find it in the U.S. Code at 15 U.S.C. 1693h: http://www.law.cornell.edu/uscode/text/15/1693h