What Do You Think?

Lease Security Accounts
A lease security account is a statutory creation intended to hold deposits of rent security in escrow for the protection of landlords and tenants.  In New York, the  rule pertains to property rentals in a building with six or more family dwelling units and  in New Jersey, the rule applies to landlords with 10 rental units or more.

In accordance with N.J.S.A. 46:8-19, a New Jersey landlord is no longer entitled to receive, as administration expenses, 1%  interest on the balance in the account. The interest paid on the deposit amount belongs to the tenant.

According to the New York General Obligations Law Section 7-103, a lease security deposit must be placed at a New York banking organization in an interest bearing account, with the first 1% of interest earned on the account remitted to the landlord.  The balance of the interest may be paid to the tenant or given as a credit against rent.  The law states that the lease security deposit (usually 1 or 2 months of rent on a residential lease) must be placed in a “prevailing rate” account.

• But what if your non-CD accounts are paying 1% or less?  Does this mean the landlord gets all the interest on the account?

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Mortgage Loan Escrow Accounts

The General Obligations Law, the Banking Law and New York State Banking Board General Regulation Part 10 specifically requires a lender to pay 2% on mortgage loan escrow accounts.  Institutions are expected to pay 2% on these accounts even if they offer other interest bearing accounts at 2% or less. It is important to remember that for mortgage loan escrow accounts, the customer is not a depositor but a borrower.

Banks require an escrow balance for the payment of taxes and insurance and to protect the lien against a tax foreclosure.  The bank requires the deposit as an incident to the loan and the bank must pay the statutory rate (not the prevailing rate).

What's New: Bounce Protection Programs

The Gold Book has been updated with expanded definitions for overdraft services as well as a summary of guidance for FDIC supervised institutions.

FinCen Assesses Penalty for SAR Disclosure

The Financial Crimes Network (FinCEN) has assessed a $25,000 civil money penalty against a California bank employee for violating Bank Secrecy (BSA) prohibitions against disclosing suspicious activity reports ("SARs").

FinCEN determined that the employee violated the BSA by willfully disclosing the existence of a SAR to a person involved in the reported transaction.

Read more in the December 15, 2011 FinCEN announcement:  http://www.fincen.gov/news_room/nr/pdf/20111215.pdf

Internet Authentication: Enhanced Expectations

The FDIC, with the other FFIEC agencies, issued new guidance in June 2011, describing updated supervisory expectations regarding customer authentication, layered security, and other controls in an increasingly hostile online environment. Financial institutions are expected to comply with the guidance no later than January 1, 2012.

Read more here: Authentication for Internet Banking.

What's New: Bank Size Criteria

The Gold Book chapter Bank Size Criteria, has been updated to reflect the current regulations for the asset-size thresholds used to define “small bank” and “intermediate small bank” based on the annual percentage change in the Consumer Price Index.

For further information about how these revised asset-size thresholds are applied, see the CRA page on the Federal Financial Institutions Examination Council’s Web site at www.ffiec.gov/cra.

What's New: SAFE Act

The Gold Book has been updated to include information about the Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E. Act). See Lending Compliance and Consumer Loan Regulation.

What's New: New IRS Form 1099-K

IRS Form 1099-K, Merchant Card and Third Party Network Payments has been added to the Reporting Compliance section in The Gold Book. This new form is required in 2012 for payment card and third-party network transactions that occurred in 2011.

What's New: ATM Design Standards

The Gold Book has been updated for the new regulations under the Americans with Disabilities Act which requires new accessibility standards. The new regulations became effective March 15, 2011 and March 15, 2012 mandatory compliance date. See Americans with Disabilities Act for further information.

Proposed Revisions to Flood Insurance Q & As

The federal agencies that supervise banks, thrifts, and credit unions, and the Farm Credit System, published guidance last week that updates the Interagency Questions and Answers Regarding Flood Insurance that were most recently published on July 21, 2009 at 74 FR 35914-35947.

The guidance finalizes two questions and answers that had been previously proposed.

The agencies request comment on three additional proposed updates to questions and answers relating to force placement of flood insurance.

It is the intention of the agencies that, after public comment has been received and considered and the guidance has been adopted in final form, the agencies will issue a final update to the 2009 Interagency Questions and Answers Regarding Flood Insurance. The final update will continue to supplement other guidance or interpretations issued by the agencies and the Federal Emergency Management Agency.

What's New: Annual adjustments for reserve calculations and deposit reporting

The Federal Reserve Board announced this week, the annual indexing of the reserve requirement exemption amount and of the low reserve tranche for 2012. These amounts are used in the calculation of reserve requirements of depository institutions. The Board also announced the annual indexing of the nonexempt deposit cutoff level and the reduced reporting limit that will be used to determine deposit reporting panels effective 2012. See Reserve Requirements in The Gold Book.

What's New: IRS Announces 2012 Pension Plan Limits

The Internal Revenue Service announced today the cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2012. In general, many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged. See Cost-of-Living Adjustments as well as Traditional IRA Deductions and Roth Contribution Phaseouts.

What's New: NYS Fee Prohibition

Effective April 19, 2011, the NYS General Business Law section 399-zzz prohibits financial institutions from charging fees when sending paper billing statements through the mail.

Financial institutions may not charge fees or impose a higher rate on a loan product or other service if they have to send paper billing statements or if their customers want to make a payment through the mail. Also, there is no prohibition from offering a consumer a credit or other incentive to choose to make such payments or to receive billing statements by some other means, i.e., on-line.  Thus, an institution (creditor) could offer a lower rate or fee, or no fee or a non-financial incentive if its customer agrees to go “paperless”.  See Checking Accounts.

What's New: Use of Adverse Action Notices in Employment Actions

As of July 21, 2011, The Dodd-Frank Wall Street Reform and Consumer Protection Act established additional requirements that employers must follow if they use consumer reports in making employment decisions to hire applicants or deny promotions to current employees. Refer to Fair Credit Reporting Act in the Human Resources chapter of  The Gold Book.

What's New: Garnishment of Exempt Funds Rules

A new federal regulation that is intended to protect Federal benefit payments held in deposit accounts from the reach of creditors will impose significant new requirements on financial institutions. The rule, which became effective on May 1, 2011, established procedures banks must follow with respect to garnishments and limits the ability of banks to freeze or restrain bank accounts in which certain federal benefits have been paid by direct deposit.

For further information, please refer to the Legal Processes chapter of The Gold Book  and new sub-section, Garnishments.

What's New: Updated Gold Book Content

Sections of The Gold Book have been recently updated to reflect the repeal of Regulation Q (see Interest on Deposits ) and NYS changes to the handling of information subpoenas (see the update in a sub-section of the Adverse Claims chapter).

What's New: New Legislation - Information Subpoenas

On August 3, 2011, Governor Cuomo signed a new law which amends CPLR section 5224(a)(3) and adds subdivision 10 to section 601 and subdivision 3 to section 602 of the General Business Law.  These changes are intended to reduce the burden on financial institutions that receive many information subpoenas, with or without restraining notices, against deposit accounts.

For details, see Subpoenas and Subpoenas Duces Tecum in the Adverse Claims section of The Gold Book.

 

Repeal of Regulation Q

On July 14, 2011, the Fed repealed the Regulation Q prohibition on paying interest on demand deposit accounts, effective July 21, 2011.  Institutions that elect to pay interest on demand deposit accounts will not be able to offer such customers unlimited deposit insurance.  This may be more attractive to business customers who tend to keep larger checking or operating account balances.

With the advent of interest bearing checking accounts, this may herald the demise of retail repo or sweep accounts.  In these accounts funds from a demand deposit account are swept at the end of the day into a repo account either at the bank or through a third party brokerage service.  There the funds are able to earn interest until they are swept back into the demand deposit account the next morning.  Thus, for some institutions the repeal of the prohibition on paying interest on demand epposit accounts will result in the replacement of indirect interest payments on demand deposit accounts (the retail repo or sweep account structure) with explicit direct interest bearing demand deposit accounts.  This may depend on that rate banks are willing to offer on such accounts.

New York State Banking Board General Regulation Part 20, which largely mirrors Regulation Q, is likewise repealed.

The definition of interest under FDIC regulation section 321.1(c) has been moved to Part 330 (deposit insurance coverage), specifically the definition section at 330.1.

FDIC regulation section 329.103, which addresses the rules for the payment of premiums has also been moved to section 330.101.

Section 330.101 also now includes that section of former Regulation Q that allows a bank to pay a premium on a demand deposit account without it being deemed interest as long as the payment on the funds is not tied to the balance in the account and the duration of the account balance.  The origins of this rule came about years ago to enable institution to pay bonus or extra cash payments to ATM customers on a random basis when they performed certain ATM transactions.

Deposit Insurance Notice Requirement Regarding the Payment of Interest on Demand Deposit Accounts

Under a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), insured depository institutions may pay interest on demand deposit accounts (DDAs) starting July 21, 2011. Under another section of the Dodd-Frank Act, the FDIC provides unlimited deposit insurance for noninterest-bearing transaction accounts through December 31, 2012.  If on or after July 21, 2011, an insured depository institution modifies the terms of a DDA so that the account may pay interest, the institution must notify affected customers that the account no longer will be eligible for unlimited deposit insurance coverage as a noninterest-bearing transaction account.

What's New: FFIEC Supplement to Authentication in an Internet Banking Environment

The FDIC, with the other FFIEC agencies, has issued the new guidance, which describes updated supervisory expectations regarding customer authentication, layered security, and other controls in an increasingly hostile online environment. Financial institutions will be expected to comply with the guidance no later than January 1, 2012.

The Gold Book chapter addressing Authentication for Internet Banking has been updated accordingly.