By Leslie Callaway, CRCM, CAFP and Rhonda Castaneda, CRCM
Q:My bank has a question regarding what information a bank is required to collect on payable-on-death, or POD, beneficiaries for deposit accounts. My bank generally collects only the name of the beneficiary, consistent with the FDIC’s instructions at 12 CFR §330.10 that the names of the beneficiaries must be reflected in the bank’s account records.
We have recently heard that this is not sufficient and that the bank must now collect information such as the Social Security number and address of each beneficiary. Must the bank change its procedures?
A:Yes, if the bank has at least $2 billion in deposits and at least either (i) 250,000 deposit accounts or (ii) $20 billion in total assets.
In the event of a bank failure, there may be account holders who have died and have named a POD beneficiary. In these cases, the FDIC needs information beyond a name to identify any POD beneficiaries to pay them or determine whether their eligible accounts exceed applicable FDIC insurance caps.
For these reasons, under 12 CFR §360.9, the “Large-Bank Deposit Insurance Determination Modernization” rule, larger banks must maintain and be able to provide to the FDIC accurate and complete data on each depositor’s ownership interest by right and capacity for all of the bank’s deposit accounts. This includes POD beneficiaries.
The enhanced recordkeeping applies to larger banks, as the FDIC explained, in order to:
“Allow the deposit and other operations of a large insured depository institution … to continue functioning on the day following failure. It also is intended to permit the FDIC to fulfill its legal mandates regarding the resolution of failed insured institutions to provide liquidity to depositors promptly, enhance market discipline, ensure equitable treatment of depositors at different institutions and reduce the FDIC’s costs by preserving the franchise value of a failed institution.”
(Answer provided January 2024.)
Q: To comply with Regulation GG, which implements the Unlawful Internet Gambling Act and is intended to restrict internet gambling, my bank requires a certification from commercial customers opening accounts that restricted internet gambling transactions will not be processed through their account. Must the bank obtain this certification from governmental entities opening deposit accounts?
A: Probably not.
Regulation GG requires banks to have written policies and procedures to demonstrate the steps they are taking to prevent commercial entities acting as illegal online gambling enterprises from opening an account to conduct illegal gambling transactions.
However, certain entities are identified in the regulation as posing minimal risk, including agencies, departments, or divisions of federal or state government and entities directly supervised by a federal regulator.
If the bank’s normal account-opening due diligence indicates that the customer poses a minimal risk of engaging in an Internet gambling business, no further due diligence is needed. Most governmental entities likely fall into this bucket. (Answer provided January 2024.)
Q: We have a loan secured by two commercial buildings connected only by a roof. The insurance agent stated that this is one building (based on the connecting roof) requiring a maximum of $500,000, the maximum available under the flood regulations for commercial buildings. Is this correct?
A: Yes. The bank may treat these two connected structures as one building. From the National Flood Insurance Program Flood Insurance Manual, page 39:
Where there are multiple buildings on the same property connected by means of rigid exterior walls, solid load-bearing interior walls, stairways, an elevated walkway, or roof, the insurer may write a policy covering them as a single building or multiple policies covering them as separate buildings. (Answer provided January 2024.)
Q: When my bank closes an account because it has been overdrawn for 30 consecutive days, it will consider reopening the account if a deposit is made within 30 days of the closure. The bank has historically not treated reopened accounts as new accounts subject to account opening disclosures requirements under Regulations DD (Truth in Savings Act), CC (Expedited Funds Availability Act), P (Privacy), and E (Electronic Fund Transfer Act).
However, after the CFPB’s guidance on account reopening, is this required?
A: Documenting the customer’s intent to reopen a closed account makes sense to establish that the bank did not reopen the account unilaterally. However, re-disclosing account terms does not prove that the reopening was not unilateral. It only proves that the bank provided disclosures. (Answer provided January 2024.)
Answers are provided by ABA Regulatory Policy and Compliance team members Leslie T. Callaway, CRCM, CAFP, senior director, compliance outreach and development; and Rhonda Castaneda, CRCM, senior compliance analyst. Answers do not provide, nor are they substitutes for, professional legal services.
