UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW

Transcription

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
DAREK JURA, on behalf of himself and all others
similarly situated,
Case No. __________
Plaintiff,
-against
HSBC BANK USA, N.A., HSBC USA INC., and
HSBC NORTH AMERICA HOLDINGS INC.,
CLASS ACTION
COMPLAINT
Defendants.
Plaintiff, through undersigned counsel, on behalf of himself and all others similarly
situated, alleges the following based on personal knowledge as to allegations regarding the
Plaintiff and on information and belief as to other allegations.
INTRODUCTION
1.
This is a civil action seeking monetary damages, restitution, and injunctive relief
from Defendants HSBC Bank USA, N.A., HSBC USA Inc., and HSBC North America Holdings
Inc. (collectively herein “HSBC” or “Defendants”), arising out of their unfair, deceptive, and
unconscionable assessment and collection of excessive overdraft fees.
2.
HSBC provides debit cards and/or ATM cards (collectively herein “check cards”)
to its checking account customers, which include individual consumer and small business
depositors. Through those check cards, customers may engage in transactions using funds directly
from their accounts or may withdraw money from their accounts at automatic teller machines.
These are called “point of sale” (“POS”) or “debit” transactions.
3.
If, according to HSBC’s accounting practices detailed below, a customer does not
have sufficient funds in the account, the transaction is considered an “overdraft.” HSBC may
honor or allow an overdraft to go through despite the lack of funds in the account. If HSBC allows
such a POS or debit transaction to proceed, HSBC charges the customer’s account $35 for each
separate overdraft. These fees are known as “overdraft fees.”
4.
Before check cards existed, banks occasionally extended the courtesy of honoring
paper checks written on overdrafted or otherwise deficient accounts for customers who were
typically in good standing. Banks extended this courtesy largely because the third party involved
in a sales transaction allowed the customer to purchase goods or services with a check with an
expectation that funds would be available and that the check would clear. For example, if a
customer used a check to purchase groceries, the grocery store would only know if the check
cleared after the groceries had been purchased.
5.
The same considerations are not present when the transaction is one with a check
card. HSBC could simply decline to honor debit or POS transactions made with check cards
where there are insufficient funds in the account. Retail and service transactions would simply not
take place if the consumer were unable to present an alternative form of payment. ATM
transactions could proceed if HSBC provided a warning that an overdraft fee would be incurred
and the consumer chose to proceed nevertheless. In fact, until a few years ago, most banks simply
declined debit and/or POS transactions that would overdraw an account.
6.
Instead of declining debit and/or POS transactions when there are insufficient
funds, however, or warning the customer that an overdraft fee will be assessed if he or she
proceeds with the transaction, HSBC routinely processes such transactions in order to charge its
customers an overdraft fee of $35, even when the transaction is for only a few dollars. This
automatic fee-based overdraft scheme is designed and intended solely to increase overdraft fee
revenue.
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7.
Although it is possible to do so, HSBC does not alert its check card customers at
the time a POS transaction or ATM withdrawal is made that the transaction will overdraft their
account and cause them to incur fees.
8.
Because HSBC’s check card customers are not notified of the potential overdraft
and are not given the option to decline the check card transaction or to provide another form of
payment, the customers incur monetary damages in the form of overdraft fees.
9.
HSBC seeks to maximize the number of overdraft fees it charges check card
customers because overdraft fees are a primary source of revenue for HSBC.
10.
On August 9, 2009, an article was published in the Financial Times that stated
that United States banks “stand to collect a record $38.5 [billion] in fees for customer overdrafts
this year,” and that “fees are nearly double those reported in 2000.” The article goes on to state
that “[o]verdraft fees accounted for more than three-quarters of service fees charged on customer
deposits.” See Exhibit A.
11.
HSBC’s overdraft fees can cost the account holders hundreds of dollars in a
matter of days, or even hours, when they may be overdrawn only by a few dollars. Even more
egregious, a customer’s account may not actually be overdrawn at the time the overdraft fee is
charged or at the time of the POS transaction.
12.
In an effort to cause as many overdrafts as possible, HSBC manipulates and
reorders debits from highest to lowest during the course of a day.
13.
Upon information and belief, HSBC has a computer-automated overdraft system
programmed to maximize the number of overdrafts, and thus the amount of fees charged, per
customer.
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14.
As a result of HSBC’s manipulation of customers’ transactions, funds in a
customer’s account are depleted more rapidly and more overdraft fees are likely to be charged for
multiple smaller transactions. Indeed, overdraft charges are likely to occur at times when, but for
the manipulation, there would be adequate funds in the account and no overdraft would occur. For
example, if a customer has an account with a $50 balance and makes four transactions of $10 and
one later transaction of $100 the same day, HSBC debits the transactions from the account largestto-smallest, thus subjecting the customer to four overdraft fees.
Conversely, if the $100
transaction were debited last (in the order it was made), the customer would only be subject to one
overdraft fee. See FDIC Study of Bank Overdraft Programs, November 2008, available at
http://www.fdic.gov/bank/analytical/overdraft/, at p. 11, n.12.
15.
Thus, it is through manipulation of customers’ transaction records that HSBC
maximizes overdraft penalties imposed on customers.
16.
As described below, HSBC reorders transactions for no reason other than to
increase the number of exorbitant overdraft fees it can charge. This practice is a violation of New
York’s consumer protection laws and the implied covenant of good faith and fair dealing in
HSBC’s Rules For Deposit Accounts.
17.
Prior to July 1, 2010, banks like HSBC could automatically enroll consumers in
their standard overdraft practices for all types of transactions when a customer opened an account.
Pursuant to new Federal Reserve System rules enacted last year, however, for new accounts
opened after July 1, 2010, customers were required to opt-in to receive overdraft protection.
Similarly, customers with existing accounts with overdraft protection who did not affirmatively
opt-in to overdraft protection by August 15, 2010 ceased receiving such protection. The opt-in
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requirement applies to all accounts covered by Regulation E, including payroll card accounts, but
not to check transactions, recurring debits, or ACH transactions.
18.
Thus, prior to the middle of last year, it was not clearly disclosed to check card
customers that they have the right to “opt out” of HSBC’s overdraft scheme. Moreover, after the
new Federal Reserve System rules went into effect, customers still were not given a meaningful
opportunity to “opt in,” as the nature of HSBC’s wrongful overdraft practices, as alleged in greater
detail herein, was not clearly disclosed to customers.
JURISDICTION AND VENUE
19.
This Court has original jurisdiction of this action under the Class Action Fairness
Act of 2005. The amount-in-controversy exceeds the sum or value of $5,000,000 exclusive of
interest and costs, and there is minimal diversity because certain members of the classes are
citizens of a different state than any defendant as required by 28 U.S.C. § 1332(d)(2).
20.
Venue is proper in this Court because Defendants have, at all relevant times, been
doing business in the Eastern District of New York and throughout the State of New York.
THE PARTIES
21.
Plaintiff Darek Jura is, and at all relevant times has been, a citizen of the State of
New York and a resident of Erie County. At all relevant times, Mr. Jura was a customer of HSBC
who was charged improper overdraft fees.
22.
Defendant HSBC Bank USA, N.A. is a Delaware corporation, who main office is
located in McLean, Virginia. It has a principal office located in New York City and maintains
offices and numerous branches, and conducts significant business, in New York State.
23.
Defendant HSBC USA Inc. is a Maryland corporation with principal offices
located at 452 Fifth Avenue, New York, New York 10018.
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24.
Defendant HSBC North America Holdings Inc. (“HSBCNA Holdings”) is a
Delaware corporation with principal offices located at 26525 North Riverwoods Boulevard, 4
North East, Mettawa, Illinois, 60045.
CLASS ACTION ALLEGATIONS
25.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23, on behalf of himself and all others similarly situated. The proposed classes are
defined as:
All HSBC customers in the United States who, within the applicable
statute of limitations preceding the filing of this action to the date of class
certification, incurred an overdraft fee as a result of HSBC’s practice of
re-sequencing debit card transactions from highest to lowest (the
“National Class”).
All HSBC customers who have accounts at branches in the State of New
York for the purpose of asserting claims under New York’s consumer
fraud statute – New York General Business Law § 349 – and incurred an
overdraft fee as a result of HSBC’s practice of re-sequencing debit card
transactions from highest to lowest (the “New York Subclass”).
The National Class and the New York Subclass are collectively referred to
as the “Classes.”
26.
Plaintiff reserves the right to modify or amend the definition of the proposed
Classes before the Court determines whether certification is appropriate.
27.
Excluded from the Classes are Defendants and their parents, subsidiaries,
affiliates, officers and directors, any entity in which Defendants have a controlling interest, all
customers who make a timely election to be excluded, governmental entities, and all judges
assigned to hear any aspect of this litigation, as well as their immediate family members.
28.
Certification of Plaintiff’s claims for class-wide treatment is appropriate because
Plaintiff can prove the elements of his claims on a class-wide basis using the same evidence as
would be used to prove those elements in individual actions alleging the same claims.
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(a)
Numerosity Under Rule 23(a)(1): The members of the Classes are so numerous
that individual joinder of all the members is impracticable. Plaintiff is informed and believes that
there are at least many thousands of HSBC customers who have been damaged by HSBC’s
unfair, deceptive, and illegal conduct alleged herein.
(b)
Commonality Under Rule 23(a)(2): This action involves common questions of
law and fact, including, but not limited to, whether HSBC:

did not clearly disclose to check card customers that they have the right to “opt out” of
HSBC’s overdraft scheme, or meaningfully explain the nature of such scheme before
check card customers “opted-in”;

does not obtain affirmative consent from checking account customers prior to processing
a transaction that would overdraw the account and result in an overdraft fee;

does not alert its customers that a check card transaction will trigger an overdraft fee and
does not provide customers the opportunity to cancel such transactions;

manipulates and reorders transactions so that it can increase the number of overdraft
charges it imposes on customers;

manipulates and reorders debits from highest to lowest in order to maximize overdrafts;

imposes overdrafts and overdraft fees when, but for reordering transactions, there would
otherwise be sufficient funds in the account;

engages in practices that have damaged Plaintiff and members of the Classes;

engages in deceptive or unfair acts and practices in violation of the New York’s Unfair
and Deceptive Business Practices Act, for which Plaintiff and the other members of the
New York Subclass are entitled to recover;

converts the funds of Plaintiff and members of the Classes;

breaches the implied covenants of good faith and fair dealing;

is unjustly enriched as a result of its overdraft fee policies and practices;

causes injury to Plaintiff and the other members of the Classes; and

engages in practices that warrant equitable and injunctive relief.
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(c)
Typicality Under Rule 23(a)(3): The named Plaintiff’s claims are typical of
(and not antagonistic to) the claims of the members of the Classes. Plaintiff, like all members of
the Classes, has been subject to HSBC’s overdraft charge policies and practices and has damaged
by HSBC’s misconduct in that he incurred unlawful overdraft charges. Furthermore, the factual
bases of HSBC’s misconduct are common to all members of the Classes and represent a common
thread of unconscionable, unfair and/or deceptive misconduct resulting in injury to all members
of the Classes.
(d)
Adequacy of Representation under Rule 23(a)(4): Plaintiff is committed to the
vigorous prosecution of this action. Plaintiff will fairly and adequately protect the interests of the
members of the Classes, and Plaintiff’s interests are coincident with and not antagonistic to those
of the other class members they seek to represent. Plaintiff has retained competent counsel
experienced in the prosecution of class actions to represent him and the Classes.
(e)
The Classes Can be Properly Maintained Under Rules 23(b)(2) and(c). HSBC
has acted or refused to act, with respect to some or all issues presented in this Complaint, on
grounds generally applicable to the Classes, thereby making appropriate final injunctive relief
with respect to the Classes as a whole.
(f)
The Classes Can Be Properly Maintained Under Rules 23(b)(3) and (c).
Questions of law common to the members of the Classes predominate over any questions
affecting only individual members with respect to some or all issues presented in this Complaint.
A class action is superior to other available methods for the fair and efficient adjudication of this
controversy. Individual litigation of the claims of all class members is impracticable because the
cost of litigation would be prohibitively expensive for each class member and would impose an
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immense burden upon the courts. Individualized litigation would also present the potential for
varying, inconsistent, or contradictory judgments and would magnify the delay and expense to
all parties and to the court system resulting from multiple trials of the same complex factual and
legal issues. By contrast, the conduct of this action as a class action, with respect to some or all
of the issues presented in this Complaint, presents fewer management difficulties, conserves the
resources of the parties and of the court system, and is the only means to protect the rights of all
class members.
SUBSTANTIVE ALLEGATIONS
HSBC
29.
HSBCNA Holdings is a financial holding company. According to its website, as
of December 31, 2009, HSBCNA Holdings is one of the ten largest bank holding companies in the
United States with assets (in U.S. and Canada) of $391 billion. HSBCNA Holdings’ businesses
serve customers in personal financial services, credit cards, specialty insurance products,
commercial banking, private banking, and global banking and markets.
30.
HSBC USA Inc. is an indirect, wholly-owned subsidiary of HSBCNA Holdings.
HSBC USA Inc.’s principal subsidiary is HSBC.
31.
HSBC Bank USA, N.A. operates more than 475 bank branches throughout the
United States, with over 370 in New York state as well as branches in Connecticut, Washington,
D.C., Florida, New Jersey, Pennsylvania, Maryland, Virginia, California, Delaware, Illinois,
Oregon and Washington state. HSBC, with total assets of $171 billion as of December 31, 2009,
offers its 3.8 million plus customers a full range of banking products and services to, among
others, individuals, small businesses, corporations, and institutions through its personal financial
services, commercial banking, private banking, and global banking and markets segments.
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32.
HSBC is a national bank subject to the National Bank Act, 12 U.S.C. § 1, et seq.,
and OCC regulations.
HSBC’S Customer Documents Regarding Overdrafts
33.
The terms of HSBC’s checking accounts are contained in a written standard
account holder agreement, which was drafted and imposed by HSBC and presented to its
customers on a “take it or leave it” basis. The “Rules For Deposit Accounts” is attached as Exhibit
B. The Rules For Deposit Accounts is currently a 33-page, single-spaced document written in
small font.
34.
The Rules for Deposit Accounts states that:
An overdraft occurs when you do not have enough money in your account to
cover a transaction, but we pay it anyway. We can cover your overdrafts through
our standard overdraft practices or through an overdraft protection plan. Through
our standard overdraft practices, we authorize and pay overdrafts for checks and
we can also cover overdrafts for preauthorized automatic bill payments. Under
our standard overdraft practices, we will charge you the fee listed in our Terms &
Charges disclosure. We pay ourdrafts at our discretion, which means we do not
guarantee that we will always authorize and pay any type of transaction. If we do
not authorize and pay an overdraft, your transaction will be declined. For
consumer accounts, we do not authorize and pay overdrafts for the following
types of transactions: ATM transactions and everyday debit card transactions.
Rules for Deposits, Ex. B at p. 3.
35.
The Rules For Deposit Accounts then states:
Your account may be debited on the same day an item is presented, or at such an
earlier time as notification is received by the Bank by electronic or other means,
that an item drawn on your account has been deposited for collection in another
financial insitution. You understand that the Bank reserves the right to pay items
into overdraft, to impose overdraft fees as permitted by law, and to apply any later
deposits (including direct deposits of social security or other government benefits)
to those overdrafts or overdraft fees, by way of setoff. An “item” includes
checks, subsititute checks, remotely created checks, withdrawal slips or other inperson transfers or withdrawals, service charges, electronic items or transactions,
including withdrawals made from an automated teller machine, one-time or
recurring debit card transactions, pre-authorized payments or transfers, ACH
transactions, telephone initiated transfers, online banking transfers or bill payment
insructions, and any other instruments or instructions for the payment, transfer or
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withdrawal of funds including an image or photocopy of any of these. A
determination of your account balance for purposes of making a decision to
dishonor an item for insufficiency of available funds may be made at any time
between the receipt of such presentment or notice and the time of return of the
item, and no more than one such determination need be made.
Rules For Deposit Accounts, Ex. B at p. 4.
36.
The Rules For Deposit Accounts then states that “[t]he Bank generally pays the
largest debit items drawn on a depositor’s account first.” Rules For Deposits, Ex. B at p. 4.
37.
The Rules for Deposit Accounts does not set forth the dollar amount of fees that
will be charged for purported overdrafts. Instead, a separate document, the “Terms & Charges
Disclosure” (“Charges Disclosure”) (copy attached as Exhibit C), lists the dollar amount of fees
that will be charged for purported overdrafts, in a chart entitled “Service Fees.” In small print, the
chart states:
Insufficient Funds (NSF) Checking ……………….. $35 each
for each withdrawal, check or electronic fund transfer
we pay or return that overdraws your account.
HSBC’S Re-Ordering of Checking Account Transactions
38.
In an effort to maximize overdraft revenue, HSBC manipulates and reorders
debits from highest to lowest during given periods of time. HSBC reorders transactions for no
reason other than to increase the number of exorbitant overdraft fees it can charge.
39.
HSBC misleads its customers regarding its reordering practices.
Instead of
unequivocally telling its customers that it will reorder debits from highest to lowest, HSBC states
in its Rules for Deposit Accounts that “[t]he Bank generally pays the largest debit items drawn on
a depositor’s account first.” This statement is deceptive and/or unfair because it is, in fact,
HSBC’s practice to always reorder debits from highest to lowest, and because HSBC groups
together POS transactions that occurred on subsequent days with POS transactions that occurred
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on earlier days, and reorders them so that higher debits that occurred on subsequent days are
posted to its customers’ accounts before lower debits that occurred on earlier days, contrary to the
terms of the Rules For Deposit Accounts and its customers’ reasonable expectations.
40.
In addition, the Charges Disclosure also fails to disclose how transactions are
reordered from highest to lowest.
41.
Transactions involving debit cards used by HSBC’s customers, including the
withdrawal of cash from ATM machines and POS transactions with vendors, are processed
electronically. As a result, HSBC is notified instantaneously when the customer’s debit card is
swiped, and has the option to accept or decline these transactions.
42.
Notwithstanding the instantaneous nature of these electronic debit card
transactions, under HSBC’s posting system, it fails to post charges in the order in which they are
incurred or received. HSBC developed a policy and employs a practice whereby account charges
and debits are posted to its customers’ accounts out of chronological order for the sole purpose of
maximizing the number of overdraft transactions and, therefore, the amount of overdraft fees
charged to its customers.
43.
Instead of processing such transactions in chronological order, HSBC processes
them starting with the largest debit and ending with the smallest debit, so as to generate the largest
possible number of overdrafts and the greatest possible amount of overdraft fees.
44.
HSBC refrains from immediately posting charges to a customer’s account as it
receives them – sometimes for multiple business days. By holding charges rather than posting
them immediately to an account, HSBC is able to amass a number of charges on the account.
Subsequently, HSBC posts all of the amassed charges on a single date. When the group of
charges is eventually posted to the customer’s account, HSBC posts them in order of largest to
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smallest – not in the order in which they were received or in the order in which they were charged.
This delayed posting results in the imposition of multiple overdraft fees that would not otherwise
be imposed. The delayed posting also prevents customers from ascertaining the accurate balances
in their accounts.
45.
HSBC’s policy and practice of posting charges from largest to smallest, rather
than chronologically, or from smallest to largest, is specifically designed to maximize the
generation of overdraft fees by triggering overdraft fees for account charges that would not
otherwise result in such fees.
46.
HSBC enforces an unconscionable policy whereby charges incurred are posted to
customers’ accounts in a non-chronological order, from highest to lowest, and are held for
multiple days and then batched together, to maximize the number of overdraft transactions and
fees. HSBC’s processing practices substantially increase the likelihood that customers’ smaller
charges will result in multiple overdraft fees. The practices provide HSBC with substantially
higher service fee revenues than it would otherwise achieve absent these practices.
47.
As a result, Plaintiff and members of the Classes have been assessed overdraft
fees for transactions which occurred when they actually had sufficient funds in their accounts to
cover those transactions.
HSBC Fails to Notify Customers of Overdrafts or Advise Customers of Right to Opt Out
48.
At the time that HSBC’s check card is used, for example at a POS or at an ATM,
HSBC is able to determine almost instantaneously whether there are sufficient funds in a
customer’s account to cover that particular transaction. HSBC has the technological capability to
decline transactions or notify customers at that very moment that the particular check card
transaction would result in an overdraft. HSBC could give customers the option to decline the
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transaction to avoid incurring the overdraft fee, but it does not do this because it seeks to
maximize its overdraft fees.
49.
Notwithstanding its technological capabilities and actual knowledge, HSBC fails
to provide notice to customers that a particular debit card transaction will result in an overdraft
and, hence, an overdraft fee.
Because HSBC’s customers are not notified of the potential
overdraft, and are not given the option of declining the debit card transaction or providing another
form of payment, the customers incur monetary damages in the form of overdraft fees.
50.
The Rules For Deposit Accounts fails to clearly or reasonably disclose to
depositors that they have the option to “opt out” of HSBC’s overdraft scheme.
HSBC’S Overdraft Policies and Practices are Contrary to Best Practices
51.
According to rules proposed by the Board of Governors of the Federal Reserve
System, the Office of Thrift Supervision, Treasury, and the National Credit Union Administration
(the “Agencies”): “Injury [caused by overdraft charges] is not outweighed by countervailing
benefits. . . . This is particularly the case for ATM withdrawals and POS debit card transactions
where, but for the overdraft service, the transaction would typically be denied and the consumer
would be given the opportunity to provide other forms of payment without incurring any fee.” 73
F.R. 28904-01, 28929 (May 19, 2008).
52.
HSBC’s overdraft policies make it difficult for a customer to avoid injury even if
a customer carefully tracks the balance in his or her account. In fact, the Agencies have stated that
“injury” resulting from such policies “is not reasonably avoid[able]” by the consumer. 73 F.R.
28904-01, 28929 (“It appears that consumers cannot reasonably avoid this injury if they are
automatically enrolled in an institution’s overdraft service without having an opportunity to opt
out. Although consumers can reduce the risk of overdrawing their accounts by carefully tracking
their credits and debits, consumers often lack sufficient information about key aspects of their
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account. For example, a consumer cannot know with any degree of certainty when funds from a
deposit or a credit for a returned purchase will be made available.”).
53.
Prior to when the new Federal Reserve System rules went into effect, HSBC did
not follow the list of “best practices” with respect to overdraft programs set forth in the “Joint
Guidance on Overdraft Protection Programs” (herein “Joint Guidance”) (attached hereto as
Exhibit D), issued by the United States Department of the Treasury, the Office of the Comptroller
of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation and the National Credit Union Administration. These “best practices”
include: “Provide election or opt-out of service. Obtain affirmative consent of consumers to
receive overdraft protection. Alternatively, where overdraft protection is automatically provided,
permit consumers to ‘opt out’ of the overdraft program and provide a clear consumer disclosure of
this option.” 70 F.R. 9127-01, 9132.
54.
Even after those rules went into effect, HSBC still does not follow the Joint
Guidance’s “best practices.” The “best practices” listed in the Joint Guidance also advise banks to
“[a]lert customers before a transaction triggers any fees. When consumers attempt to withdraw or
transfer funds made available through an overdraft protection program, provide a specific
consumer notice, where feasible, that completing the withdrawal may trigger the overdraft fees.”
70 F.R.D. 9127, 9132. The “best practices” go on to advise that “[t]his notice should be presented
in a manner that permits consumers to cancel the attempted withdrawal or transfer after receiving
the notice.” Id.
55.
The list of “best practices” set forth in the “Overdraft Protection: A Guide For
Bankers” issued by the American Bankers Association includes offering customers the option of
“opting out” of any overdraft programs, and informing customers, before they access funds, that a
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particular POS or ATM transaction will cause them to incur overdraft fees. (See Exhibit E,
attached, at pp. 18, 20).
56.
HSBC did not clearly or reasonably disclose to its customers that they have the
right to opt out of HSBC’s overdraft scheme, nor did they clearly or reasonably disclose such
scheme when customers began to opt-in as required by the new Federal Reserve System’s new
rules. HSBC also fails to notify consumers when use of a check card, such as an ATM or POS
transaction, will cause an overdraft fee.
57.
HSBC’s lack of reasonable disclosure regarding the ability to opt out of the
overdraft scheme and its failure to notify customers when the use of a check card, such as an ATM
or POS transaction, will cause an overdraft fee, is a violation of New York’s consumer protection
laws and the implied covenant of good faith and fair dealing in HSBC’s “Rules For Deposit
Accounts” – the agreement which governs its checking accounts.
HSBC’s Unconscionable Provisions and Policies
58.
Under New York General Business Law § 349, HSBC’s overdraft policies and
practices are unfair, deceptive and unconscionable in the following respects, among others:
(a)
HSBC did not clearly or reasonably disclose to customers that they have the
option to “opt out” of HSBC’s overdraft scheme, nor did they clearly or reasonably disclose such
scheme when customers began to opt-in as required by the new Federal Reserve System’s new
rules;
(b)
HSBC does not obtain the affirmative consent from checking account
customers prior to processing a transaction that would overdraw the account and result in an
overdraft fee;
(c)
HSBC does not alert its customers that a check card transaction will trigger an
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overdraft fee and does not provide the customer the opportunity to cancel that transaction;
(d)
The Rules For Deposit Accounts, to the extent it may be deemed a contract, is a
contract of adhesion in that it is a standardized form, imposed and drafted by HSBC, which is a
party of vastly superior bargaining strength, and relegates to the depositor only the opportunity to
adhere to it or reject it;
(e)
The Rules For Deposit Accounts provided to HSBC’s customers is ineffective,
ambiguous, deceptive and misleading in that it does not unambiguously state that it always
reorders debits from high to low (even though HSBC always reorders transactions in this way so
as to maximize overdrafts and revenue for HSBC), or that its reordering of debits will necessarily
increase the number of overdraft charges; and
(f)
The amounts of overdraft fees are disclosed in an ineffective, ambiguous,
misleading and deceptive manner, since they are not contained in the Rules For Deposit
Accounts.
59.
The Rules For Deposit Accounts also contains a “Waiver of Trial by Jury”
provision, which states “YOU AND THE BANK AGREE TO WAIVE THE RIGHT TO TRIAL
BEFORE A JURY IN ANY ACTION FOR ANY CLAIMS THAT MAY ARISE FROM OR
RELATE TO YOUR DEPOSIT ACCOUNT INCLUDING, BUT NOT LIMITED TO,
CONTRACT,
NEGLIGENCE,
USE,
ATTORNEYS-IN-FACT,
RESTRAINT
AND
EXECUTION.”
60.
Such agreements are procedurally and substantively unconscionable and
unenforceable under New York law in that, inter alia, the Rules For Deposit Accounts, to the
extent it may be deemed a contract at all, is a contract of adhesion because, among other reasons,
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it is a standardized form, imposed and drafted by HSBC, which is a party of vastly superior
bargaining strength, and relegates to the depositor only the opportunity to adhere to it or reject it,
and because it leads to overly harsh results for consumers and prevents consumers from having a
meaningful opportunity to redress their grievances.
ALLEGATIONS SPECIFIC TO PLAINTIFF
61.
Plaintiff Darek Jura was, at all relevant times, a checking account customer of
HSBC. He opened his checking account with HSBC in the late 1990s. During the relevant time
period, Mr. Jura was issued a check card by HSBC.
62.
During his time as a checking account customer of HSBC, Mr. Jura was charged
with overdraft fees when there were sufficient funds in his account to cover the transaction at
issue.
63.
For example, on August 7, 2008, Mr. Jura was charged with five (5) overdraft
charges for a total of $140.
The overdraft fees were based on the following ordering of
transactions:
Balance Sheet per HSBC Reordering Scheme
(Debits Processed from Highest to Lowest)
Debits
Deposits
Beginning
Balance on
8/6/08:
Fees
Balance
$151.34
Date Posted
Description
8/6/08
Purchase (on
8/5/08) at
PayPal
60.13
91.21
8/6/08
Purchase (on
43.50
47.71
18
8/2/08) at Tilt
8/6/10
Purchase (on
8/2/08) at Tilt
29.00
18.71
8/6/08
Purchase (on
8/2/08) at Tilt
26.00
-7.29
8/6/08
Purchase (on
8/2/08) at Tilt
20.00
-27.29
8/6/08
Purchase (on
8/2/08) at Tilt
12.50
-39.79
8/6/08
Purchase (on
8/4/08) at J&P
Pappas
Restaurant
11.00
-50.79
8/6/08
Purchase (on
8/4/08) at J&P
Pappas
Restaurant
10.50
-61.29
8/7/08
64.
140.00
Although Mr. Jura’s account statement notes that Mr. Jura incurred overdraft fees
based on “5 ITEM(S),” he was only charged for four (4) overdrafts for a total of $140.00. In any
event, if HSBC had not manipulated and reordered Mr. Jura’s transactions from highest to lowest,
Mr. Jura would have only incurred two overdraft fees:
Balance Sheet per HSBC Reordering Scheme
(Debits Processed in Chronological Order)
Debits
Deposits
Beginning
Balance on
8/6/08:
Date Posted
Fees
Balance
$151.34
Description
19
8/2/08
Purchase (on
8/2/08) at Tilt
43.50
107.84
8/2/10
Purchase (on
8/2/08) at Tilt
29.00
78.84
8/2/08
Purchase (on
8/2/08) at Tilt
26.00
52.84
8/2/08
Purchase (on
8/2/08) at Tilt
20.00
32.84
8/2/08
Purchase (on
8/2/08) at Tilt
12.50
20.34
8/4/08
Purchase (on
8/4/08) at J&P
Pappas
Restaurant
11.00
9.34
8/4/08
Purchase (on
8/4/08) at J&P
Pappas
Restaurant
10.50
-1.16
8/5/08
Purchase (on
8/5/08) at
PayPal
60.13
-61.21
8/7/08
65.
70.00
At all relevant times, HSBC did not reasonably provide Mr. Jura with notice that
he could opt out of HSBC’s overdraft program.
66.
HSBC has never notified Mr. Jura at the time he made check card transactions,
including POS transactions, that his checking account was overdrawn or that it would charge him
an overdraft fee as a result of the transaction.
20
67.
HSBC never declined to pay any of Mr. Jura’s check card charges, even when his
account was overdrawn. Rather, HSBC has always paid such charges and charged Mr. Jura with
overdraft fees.
FIRST CAUSE OF ACTION
(On Behalf of Plaintiff and the National Class)
(Breach of Contract and the Implied Covenant of Good Faith and Fair Dealing)
68.
Plaintiff repeats and realleges all of the foregoing paragraphs as though fully set
forth herein.
69.
As described above, Plaintiff and all other members of the National Class entered
into a contract with HSBC.
70.
Plaintiff and all other members of the National Class performed all, or
substantially all, of their responsibilities under the contract.
71.
HSBC materially breached its contract with Plaintiff and all other members of the
National Class by engaging in the deceptive acts and practices described above, and thus, deprived
Plaintiff and all other members of the National Class of the benefit of their bargain.
72.
As a consequence of the foregoing, HSBC is liable to Plaintiff and all other
members of the National Class, the amount of such damages to be determined at trial.
73.
In addition, under common law, a covenant of good faith and fair dealing is
implied into every contract.
74.
HSBC breached the implied covenant of good faith and fair dealing by charging
Plaintiff and all other members of the National Class by engaging in the deceptive acts and
practices described above.
75.
HSBC destroyed or injured the rights of Plaintiff and all other members of the
National Class to receive the fruits of the contract.
21
76.
As a consequence of the foregoing, HSBC is liable to Plaintiff and all other
members of the National Class, the amount of such damages to be determined at trial.
SECOND CAUSE OF ACTION
(Conversion)
77.
Plaintiff repeats and realleges all of the foregoing paragraphs as though fully set
forth herein.
78.
Plaintiff and the other members of the National Class own and have the right to
possess the money in their checking accounts.
79.
Through its actions, HSBC has wrongfully collected overdraft fees from Plaintiff
and the other members of the National Class, and has taken specific and readily identifiable funds
from their accounts in payment of these fees.
80.
Through its actions, HSBC has, without authority and/or legal justification,
assumed and exercised a right of ownership over such funds belonging to Plaintiff and the other
members of the National Class to the exclusion of Plaintiff and the other members of the National
Class.
81.
Plaintiff and the other members of the National Class have been, and will
continue to be, damaged by HSBC’s wrongful assessment of overdraft fees in an amount to be
determined at trial.
THIRD CAUSE OF ACTION
(Unjust Enrichment)
82.
Plaintiff repeats and realleges each and every allegation contained in all of the
foregoing paragraphs as if fully set forth herein.
22
83.
By engaging in the conduct described above, HSBC has unjustly enriched itself at
the expense of Plaintiff and the other members of the National Class and is required, in equity and
good conscience, to compensate them fully for the damages that they have suffered as a result of
HSBC’s actions.
84.
By reason of the foregoing, HSBC is liable to Plaintiff and the other members of
the National Class for the damages they have suffered as a result of HSBC’s actions, the amount
of such damages to be determined at trial.
FOURTH CAUSE OF ACTION
(On Behalf of Plaintiff and the New York Subclass)
(Violation of New York General Business Law § 349)
85.
Plaintiff repeats and realleges each and every allegation contained in all of the
foregoing paragraphs as if fully set forth herein.
86.
Through its misconduct described above, HSBC has engaged in acts and/or
practices that are deceptive or misleading in a material way and that resulted in injury to Plaintiff
and the other members of the New York Subclass.
87.
By reason of the foregoing, HSBC has violated New York General Business Law
§ 349 and decisional law prohibiting deceptive trade practices and consumer fraud, is liable to
Plaintiff and the other members of the New York Subclass for the damages that they have suffered
as a result of HSBC’s actions, the amount of such damages to be determined at trial, plus
attorneys’ fees.
23
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of himself and the members of the Classes, demand
a jury trial and judgment as follows:
1.
Preliminary and permanent injunctive relief enjoining HSBC from charging
overdraft fees under its current policies and from engaging in the unfair and deceptive business
practices alleged herein;
2.
Restitution of all overdraft fees paid to HSBC by Plaintiff and the members of the
Classes, as a result of the wrongs alleged herein, within the applicable statutes of limitations, in
an amount to be determined at trial;
3.
Disgorgement of the ill-gotten gains derived by HSBC from its misconduct;
4.
Actual damages in an amount according to proof;
5.
Damages pursuant to N.Y. Gen. Bus. Law § 349;
6.
Pre-judgment interest at the highest rate permitted by law;
7.
The costs and disbursements incurred by Plaintiff and the members of the Classes
in connection with this action, including attorneys’ fees; and
24
Such other and further relief as the Court deems just and proper.
December 18, 2012
RIGRODSKY & LONG, P.A.
COHEN LAW GROUP, P.C.
By: /s/ Timothy J. MacFall
Seth D. Rigrodsky (sdr@rigrodskylong.com)
Timothy J. MacFall (tjm@rigrodskylong.com)
Olga A. Pettigrew (oap@rigrodskylong.com)
825 East Gate Boulevard, Suite 300
Garden City, NY 11530
Telephone: (516) 683-3516
Facsimile: (302) 654-7530
By: /s/ Brian S. Cohen
Brian S. Cohen (brian@cohenlg.com)
10 East 40th Street, 46th Fl.
New York, NY 10016
Telephone: (212) 967-2879
Facsimile: (646) 349-2567
Counsel for Plaintiff and the Classes
25
EXHIBIT A
FT com pnnt article
2/ 8/ 11 7:48PM
FT .com
I' L'<ANC1A1. lUttS
Close
Banks make $38bn from overdraft fees
By Saskta Scholtes and Francesco Guerrera in New York
Published. August 9 2009 22:52 1 Last updated: August 9 2009 22:52
US banks stand to collect a record S38.5bn in fees for customer overdrafts this year. with the bulk of the
revenue coming from the most financially stretched consumers am1d the deepest recession since the
1930s, according to research. The fees are nearly double those reported in 2000.
The finding is likely to increase public hostility towards the financial sector. whtch has been under political
pressure to ease the burden on consumers by increasing credit availability and lending more fairly after
betng bailed out by taxpayers.
The Federal Reserve is working on rules on overdraft fees. and rules on customer charges could be a
priority of the Obama administration's proposed Consumer Protection Agency if approved by Congress.
Data from Moebs Services, a research company, show that the crisis has prompted many banks to lift
charges on overdrafts and credit cards in order to boost profits.
The median bank overdraft fee has this year rose from $25 to $26, according to Moebs, the first time it has
gone up in a recession for more than 40 years.
"Banks are returnmg to a fee-dnven model and overdraft fees are the mother lode." said Mike Moebs. the
company's founder.
Overdraft fees accounted for more than three-quarters of servtce fees charged on customer deposits, he
said.
The most cash-strapped customers are the hardest hit by such fees, with 90 per cent of overdraft
revenues coming from 10 per cent of the 130m checking accounts in the US. Regular use of overdrafts is
most common among consumers with low credit scores, Moebs discovered.
Banks say that the fees compensate for the risk they incur when they pay on behalf of customers who do
not have enough money in their accounts. "Overdraft fees are there for a reason, we take on a lot of risk."
a senior banker said "It's a service to our customers, they want us to pay their overdrafts."
The highest overdraft fees were charged by the largest banks, said Mr Moebs. At banks with assets
greater than $50bn- a group including Citigroup , Bank of America , JPMorgan Chase and Wells Fargo
- the median overdraft fee is set at $33.
At BofA, a customer overdrawn by as little as $6 could trigger a $35 penalty. If the customer does not
realise they have a negative balance and continue spending, they could incur that fee as many as 10
times in a single day, for a total of $350. Failing to repay the overdraft within a few days results in an
additional $35 penalty
BofA said that the bank was "committed to ensunng that our fees are transparent and predictable. We
have a range of tools and servtces to give customers more control over thetr accounts and to prevent
these fees·.
Chase has tiered overdraft fees - the first overdraft within a 12-month period is charged at $25, the second
to fourth at $32 and the fifth at $35
Chase declined to comment.
Sun Trust Bank charges the highest overdraft fee for a single overdraft at $36, according to the Consumer
Federation of America while Citizens Bank levies a $39 fee after three overdraft items and follows with two
separate "sustained overdraft fees· for repeat offenders.
http://www.ft.com / cms/ s/ 43dl 8c68- 85 ld- llde-9a64 - 00 144feabdcO.dwp_uul d- fSd2 7f8a- aS17- lldd- b4f5- 000077 b07658,prlnt• ye s.htm l
Page 1 of 2
FT.com print article
2 / 8 / 11 7:48PM
Sun Trust said it offered waivers and discounts as well as overdraft protection servtces that made tt easy
for customers to avoid those fees.
Citizens declined to comment.
The survey by the Consumer Federation of America found that five of the ten largest banks have raised
their overdraft fees tn some way in the last year.
Nessa Feddis, general counsel at the American Bankers' Association said the higher fees are appropriate
because big banks do not know their customers as well as small community banks, and need to be
compensated for the higher risk.
Consumer advocacy groups point to very low loss rates on overdrafts for all banks and argue that
overdrafts are the least risky form of credit, while being the most expensive for consumers.
Eric Halperin. director of the Center for Responsible Lending satd: "The banks own your pay check before
you do. so the only way you can default on your overdraft is if you choose to open another account and
deposit your income elsewhere."
Copyngh t The Financ1al nmes Um1ted 2011 Print a s1ngle copy of th1s article for personal use. Contact us 1f you
w1sh to print more to distribute to others.
"FT" and "Financ1al T1mes" are trademarks of the Financial Times. Pnvacy poliCy
1
Terms
C Copynght The Fmanc1al Tmes Ltd 2011 .
hnp·ttwww.ft.com / cms/ s / 43d 18c68-85 ld - llde-9a64- 00 144feabdcO,dwp_uu ld • fSd27f8a- aS 17- lldd-b4f5 - 000077b07658,prlnt• yes.html
Page 2 of 2
EXHIBIT B
RULES FOR
DEPOSIT
ACCOUNTS
HSBC Bank USA, N.A.
G 2333 SF (Rev. 6/10)
APS # 074767
TABLE OF CONTENTS
Our Agreement
1
Checking Accounts
2
Savings Accounts
7
Certificates Of Deposit
8
Special Deposit Accounts
8
Deposits
8
Availability Of Funds
10
Withdrawals
19
Funds Transfers
20
Interest
24
Joint Accounts
25
Relationship Between Joint Depositors
25
Your Agreement With The Bank
25
More About Your Account
26
Currency Transaction Reports
If you make cash withdrawals, cash deposits,
currency exchanges or other payments or transfers
with cash, exceeding $10,000, the Bank is required
to complete a Currency Transaction Report.
Monetary Instrument Reports
The Bank reserves the right to obtain identification
and additional information from customers who
purchase U.S. Dollar Drafts (Cashier’s Checks),
Foreign Drafts, Money Orders or Traveler’s
Cheques (including gift checks) for any amount.
Structuring Transactions
Any person who conducts or assists in transactions
designed to evade U.S. Government reporting
requirements, which may include splitting
transactions into smaller amounts, can be subject to
criminal penalties, including fines, imprisonment
or both.
The Bank complies with recording and
recordkeeping requirements under the Bank
Secrecy Act including monitoring accounts on a
periodic basis for compliance.
The Bank reserves the right to close any account
that attempts to avoid these requirements.
PROHIBITED TRANSACTIONS
The Unlawful Internet Gambling Enforcement Act
of 2006 (UIGEA) prohibits any person engaged in
the business of betting or wagering from knowingly
accepting any payment in connection with the
participation of another person in unlawful Internet
gambling (a"restricted transaction"). You
acknowledge and agree that you are prohibited from
processing a restricted transaction through your
account or banking relationship with HSBC. Your
participation, or attempted participation, in any
restricted transaction through your account or
banking relationship with HSBC may result in the
termination of your banking relationship with
HSBC and/or the closure of your account.
WAIVER OF TRIAL BY JURY
YOU AND THE BANK AGREE TO WAIVE THE
RIGHT TO TRIAL BEFORE A JURY IN ANY
ACTION FOR ANY CLAIMS THAT MAY ARISE
FROM OR RELATE TO YOUR DEPOSIT
ACCOUNT INCLUDING, BUT NOT LIMITED TO,
CONTRACT, NEGLIGENCE, USE, ATTORNEYSIN-FACT, RESTRAINT AND EXECUTION.
33
CHANGES TO THE RULES
The Bank can change these Rules or impose other
restrictions on your account, as the Bank deems
necessary or appropriate, in the course of its business
at any time.
Before the change goes into effect you will be
notified:
• either by mail,
• by a posting in your branch, or
• by a published statement in the newspaper.
If notice is sent to you, use of ordinary mail or inbranch notification shall be sufficient. Changes to
these Rules which are required by law may be
implemented immediately or as required by law.
SEVERABILITY
If any provision(s) of these Rules shall be held to be
illegal or unenforceable, the validity of the remaining
portions of these Rules shall not be affected.
WAIVER
No waiver of any term, provision, or condition of
this Agreement, whether by conduct or otherwise, in
any one or more instances, will be deemed, or shall
constitute, a waiver of any other provision hereof,
whether or not similar, nor will such waiver
constitute a continuing waiver, and no waiver shall
be binding unless executed in writing by the party
making the waiver.
OTHER TERMS AND CONDITIONS
Other terms and conditions, not stated herein, may
apply to your account. All such other terms and
conditions remain in full force and effect and
continue to govern your account except as stated in
these Rules.
BANK SECRECY ACT - REGULATORY
REPORTING REQUIREMENTS
As part of the Bank Secrecy Act recordkeeping
requirements, the Bank is responsible to obtain,
verify and record customer information for certain
transactions and report this information to U.S.
Government agencies. The information obtained
includes, but is not limited to:
• Name and home address (photo identification
required) for an individual or Business name and
business address
• Social Security or taxpayer identification number
• Date of birth for an individual
• Occupation
• Information for anyone on whose behalf you are
conducting transactions
The above information may be required when
conducting certain cash transactions, including, but
not limited to:
32
OUR AGREEMENT
These Rules are part of the Agreement between you
and HSBC Bank USA, National Association (the
“Bank” or “HSBC”), and contain some of the terms
and conditions for deposit accounts. The Bank offers a
variety of products and services, including checking,
savings, money market, certificates of deposit (CDs),
escrow accounts, retirement plans and electronic
banking services. Any Terms and Charges Disclosure
applicable to your account is also a part of the
Agreement. By signing a contract to open any deposit
account or by using a Bank product or service, you
agree that these Rules, as amended from time to time,
shall apply to all your deposit accounts.
If there is a conflict between these Rules and
something one of our employees says, the Bank will
follow these Rules. These Bank Rules supersede and
replace all prior Bank Rules.
GOVERNING LAWS AND REGULATIONS
These Rules shall be governed by and interpreted
according to federal law, and by applicable state
law, clearing house rules, ACH rules and general
commercial bank practices applicable to the
services provided, to the extent not superceded by
federal law. The applicable state law (to the extent
not superceded by federal law) shall be the law of
the state where the deposit account is opened, if
opened in person. For deposit accounts opened by
telephone, Internet, or through our Payments &
Cash Management Division, applicable New York
law will govern to the extent not superceded by
federal law. If these Rules conflict at any time with
the applicable federal or state law or regulation, the
Rules will be considered changed to the extent
necessary to comply. The Bank's failure to enforce
these Rules or waiver of any of the provisions of
these Rules in any instance will not prevent the
Bank enforcing these Rules at any other time.
IMPORTANT INFORMATION ABOUT
PROCEDURES FOR OPENING
A NEW ACCOUNT
To help the government fight the funding of
terrorism and money laundering activities, Federal
law requires all financial institutions to obtain,
verify, and record information that identifies each
person or entity that opens an account.
What this means to you: If you open a personal
account, we will ask for your name, address,
taxpayer identification number, date of birth, and
other information that will allow us to identify you.
Additionally, we will take certain steps to verify
your identity, such as asking for your driver’s
license or other identifying documents or checking
other sources. Similar identification requirements
apply to non-personal accounts such as corporations
1
and partnerships. Be assured that we recognize the
importance of protecting your privacy and
safeguarding the confidentiality of the information
you provide to us.
CHECKING ACCOUNTS
TYPES
The Bank offers interest bearing and non-interest
bearing accounts to eligible consumers. The Bank also
offers a variety of non-consumer checking accounts.
See Terms and Charges Disclosure for details.
INTERNAL ACCOUNTING OF BALANCES
Your checking account may consist of two “subaccounts” on the books of the Bank. In that event, one
sub-account will be a checking account and the other
a savings account. The two will be treated as a single
account for customer use, and will not affect your
Bank statement, your account balance or the interest,
fees, and features of your account. For interest
bearing checking accounts, we will pay the same rate
of interest on balances in both sub-accounts.
All deposits and other credits will be posted to, and
checks and debits will be deducted from, the
checking sub-account. Whenever the checking subaccount balance exceeds a “threshold amount”
(which we may establish and change at our
discretion), we may transfer funds above that
amount to the savings sub-account. As these funds
are needed to pay items presented against your
checking account, the appropriate amount will be
transferred back to the checking sub-account, up to
six times per statement period. If the sixth transfer is
needed, the entire balance of the savings sub-account
will be transferred into the checking sub-account.
This process may be repeated each month.
Although the Bank has no present intention to
exercise this right, federal regulations require the
Bank to reserve the right to require at least seven
days written notice prior to withdrawal or transfer of
any funds in a savings account.
WRITING CHECKS
The Bank requires you to use the Bank’s checks.
Depending on style and number of checks you order
and what kind of checking account you have, the Bank
may charge a fee to your account for your checks.
SIGNATURES ON CHECKS OR DRAFTS
The Bank may, in its discretion, return unpaid a check
or draft that does not bear a signature reflected on the
signature card unless you have notified the Bank in
advance you want the check or draft to be paid.
CONVENIENCE CHECK CASHING FEE
You agree that the Bank may impose a fee on the
payee or other holder of a check or other item drawn
2
ADVISED OF THE POSSIBILITY OF SUCH
DAMAGE. You agree the Bank shall be liable only
for damages which are the direct result of the
Bank’s misconduct. If the Bank’s conduct results in
an inappropriate delay of transfer or withdrawal, the
Bank’s liability, as liquidated damages and not as a
penalty, shall be an amount equal to the interest, at
the Federal Funds rate, payable on the amount of the
funds which were directed by you to be transferred
in the Payment Order for the period of delay.
COOPERATION WITH INVESTIGATION
You agree, in the event of any claim arising from
your account to cooperate and assist both the Bank
and any law enforcement authorities in connection
with any investigation and prosecution of any
suspected wrongdoer. You understand and agree that
failure to cooperate may result, in the Bank’s sole
discretion, in the Bank dishonoring any claim which
you have made.
INDEMNITY AGAINST ACTIONS
OF AUTHORIZED PERSONS
In order to induce the Bank to honor requests for
services, including but not limited to those
enumerated above, you hereby agree to indemnify
and hold the Bank, its successors, assigns,
correspondents, directors, officers, employees and
agents harmless for all losses, costs, damages,
expenses (including attorney’s fees) and liability for
any claim or demand occasioned by or action
brought by virtue of any misconduct, negligence,
action or omission on the part of any individual who
has been listed as a person authorized to act on your
behalf in any document provided by you to
the Bank.
FORCE MAJEURE
The Bank shall not be liable for any loss or damage
to you caused by the Bank’s failure to provide any
service requested by you resulting from an act of
God, fire, catastrophe, electrical, mechanical or
computer failure, telecommunications failure or
failure of any agent or correspondent or any other
cause beyond the Bank’s control, provided it
exercises such diligence as the circumstances
may require.
NOTICES
Any notice we send you will take effect when it is
personally delivered to you or mailed to the last
address we have for you in our records. A notice
from you will be considered received when received
at the Bank’s Customer Service Department and
will take effect following the expiration of any
notice period that may be specified in the Deposit
Account Agreement.
31
balance. If your account is closed, the Bank shall
send you any finally collected and available balance
in the account at the time the account is closed. The
Bank may return unpaid any items presented on
your account after it is closed.
The Bank may charge you a fee shown on the Terms
and Charges Disclosure.
SERVICE
The Bank may terminate any service at any time
without notice. If you wish to terminate a service,
you shall give the Bank prior written notice of your
intention to terminate. Termination by you shall
become effective no sooner than five (5) business
days after the Bank’s receipt of the termination
notice. The Bank may complete all requests and
instructions accepted on the day termination is to
become effective.
LEGAL PROCEEDINGS
Unless the Bank receives an order from a court of
competent jurisdiction that directs the Bank not to
act, the Bank will comply with legal proceedings in
any jurisdiction in which the Bank has offices even
if the legal proceeding occurs in a jurisdiction where
you are not located.
You agree that if you and/or your account become
involved in legal proceedings and the Bank receives a
legal document or other notice that the Bank believes
requires it to supply information on your account, to
restrict your account or to pay money from your
account, the Bank is authorized to do so regardless of
whether you appeared in those proceedings and
regardless of whether those proceedings occurred
within the jurisdiction where you and/or your account
are located. If this occurs, use of your account or
services that access your account may become
restricted and the Bank may charge you the fee shown
on your Terms and Charges Disclosure.
LIMITATION OF CLAIMS
You agree to make any claim or bring any legal
action relating to the Bank’s handling of your
account, in writing, within one (1) year of the date
the problem occurred, unless these Rules or
applicable law or regulation require earlier action by
you. You agree that if the problem involves a series
of events, such as a number of forgeries over a
period of time, then the date the first event occurred
shall be the date by which the period to make any
claim or bring any legal action shall begin to run.
LIMITATION OF LIABILITY
THE BANK ASSUMES NO LIABILITY FOR
SPECIAL, INCIDENTAL, CONSEQUENTIAL,
PUNITIVE OR INDIRECT LOSS OR DAMAGE
TO YOU INCLUDING LOST PROFITS
WHETHER OR NOT THE BANK HAS BEEN
30
against your account that is presented for payment
over the counter at the Bank.
REMOTELY CREATED CHECKS
If you authorize a third party (such as a
telemarketer) over the phone or via the Internet to
debit from your account the amount(s) of one or
more “remotely created checks,” the third party may
create a check drawn on your account that the Bank
may pay, although it does not bear your signature.
While the Bank is authorized to honor such
remotely created checks, the Bank is not required to
do so and may refuse to honor any such remotely
created checks at its discretion. The Bank may
return such remotely created checks even if it has
honored similar remotely created checks in the past.
You agree that the Bank is not liable to you for any
losses that may result from either honoring or
dishonoring any such remotely created checks
drawn on your account. You are responsible for
reviewing your statement in a timely fashion and
reporting promptly to HSBC any claims of
unauthorized remotely created checks.
For HSBC business account-holders who originate
and deposit remotely created checks into an HSBC
account you affirm that such items are properly
authorized in accordance with applicable law and
that you will provide evidence of such authorization
to the Bank upon request. In the event such items
are not properly authorized or you are unable to
provide proof of proper authorization, you agree to
hold the Bank harmless from any losses arising
from this deficiency.
OVERDRAFTS AND OVERDRAFT FEES
An overdraft occurs when you do not have enough
money in your account to cover a transaction, but
we pay it anyway. We can cover your overdrafts
through our standard overdraft practices or through
an overdraft protection plan. Through our standard
overdraft practices, we authorize and pay overdrafts
for checks and we can also cover overdrafts for
preauthorized automatic bill payments. Under our
standard overdraft practices, we will charge you the
fee listed in our Terms & Charges disclosure. We
pay overdrafts at our discretion, which means we do
not guarantee that we will always authorize and pay
any type of transaction. If we do not authorize and
pay an overdraft, your transaction will be declined.
For consumer accounts, we do not authorize and
pay overdrafts for the following types of
transactions: ATM transactions and everyday debit
card transactions.
If you have a consumer or qualifying business
deposit account, you can use the available balance
on your qualifying credit account with the Bank to
fund any overdraft amount automatically. The
overdraft protection plan is subject to application
and credit approval.
3
Your account may be debited on the day an item is
presented, or at such earlier time as notification is
received by the Bank by electronic or other means,
that an item drawn on your account has been
deposited for collection in another financial
institution. You understand that the Bank reserves
the right to pay items into overdraft, to impose
overdraft fees as permitted by law, and to apply any
later deposits (including direct deposits of social
security or other government benefits) to those
overdrafts or overdraft fees, by way of setoff. An
"item" includes checks, substitute checks, remotely
created checks, withdrawal slips or other in-person
transfers or withdrawals, service charges, electronic
items or transactions, including withdrawals made
from an automated teller machine, one-time or
recurring debit card transactions, pre-authorized
payments or transfers, ACH transactions, telephone
initiated transfers, online banking transfers or bill
payment instructions, and any other instruments or
instructions for the payment, transfer or withdrawal
of funds including an image or photocopy of any of
these. A determination of your account balance for
purposes of making a decision to dishonor an item
for insufficiency of available funds may be made at
any time between the receipt of such presentment or
notice and the time of return of the item, and no
more than one such determination need be made.
PAYMENT OF YOUR ITEMS
FOR YOUR ACCOUNT
The Bank generally pays the largest debit items
drawn on a depositor’s account first.
STOPPING PAYMENT
You can ask the Bank to stop payment on a check
drawn on your account in person, by mail, by phone,
or by using Hexagon®, the Bank’s internet banking
product and secure Bank e-mail. The Bank needs a
reasonable amount of time to apply the stop payment
request to your account and to verify that the check
has not already been paid. You (or an authorized
signer on your account) must give the Bank the
account number, payee, date, exact amount of the
check, and the correct check number. Without
completely accurate information on the amount of the
check and the check number, the Bank cannot ensure
a stop payment will occur. Your stop payment request
takes effect when the Bank records it on your account.
If you phone in your stop payment, you must confirm
it in writing within 14 days. Your written stop
payment request is good only for six months unless
you renew it in writing. Special procedures apply to a
stop payment for a funds transfer. Please refer to the
“Amendment and Cancellation” paragraph in the
“Funds Transfers” section of these Rules. The Bank
may charge you the fee shown on your Terms and
Charges Disclosure for each stop payment request.
4
administrator. Note: Consecutive inactivity periods
for determining actual escheatment requirements
vary by the abandoned property laws of the
individual states, and by type of account. The Bank
is required to base the period for escheatment on the
state of the depositor’s last known address on the
Bank’s records, and that state’s corresponding
consecutive inactivity period.
At any time after the funds in the abandoned
account have been turned over to the appropriate
state abandoned property administrator, the
depositor (or other person entitled to the funds) may
reclaim this money from the state abandoned
property administrator.
TAXPAYER IDENTIFICATION NUMBER
Federal regulations require the Bank to record your
taxpayer identification number (Social Security
Number). If you do not give the Bank your number
on or shortly after the day you opened your account,
federal law requires the Bank to withhold a portion
of the amount of interest paid on your account each
time interest is credited.
CURRENCY TRANSACTION REPORTING
Federal regulations require the Bank to disclose
certain transactions involving your account. The
Bank may request information from you and
disclose information about your account whenever
the Bank believes it is necessary or appropriate to
comply with those federal regulations. Until you
provide sufficient information, the Bank may hold
your account or refuse any transaction.
POWER OF ATTORNEY
If the Bank receives a power of attorney
authorization in a form the Bank determines
complies with applicable state law, your attorneyin-fact can do whatever you could do with your
account. The Bank may honor an acceptable power
of attorney where you are one of the persons named
on a joint account. In that case, your attorney-in-fact
can do whatever you could do with your joint
account. The Bank is not required to seek the
consent of the other persons named on the joint
account before honoring the power of attorney. The
Bank may request the attorney-in-fact to indemnify
and hold the Bank harmless before the Bank honors
the power of attorney.
The Bank does not have to accept an out-of-state
power of attorney or a power of attorney which does
not comply with applicable state law.
ACCOUNT CLOSING
You can close your account at any time by notifying
your branch during normal business hours. The
Bank also has the right to close your account at any
time by sending you a notice and/or check for the
29
you promptly review your statement, and notify the
Bank of any errors, forgeries, or alterations within
fourteen (14) days from the date the Bank first
mailed, or made available to you, your statement or
advice. However, if the error involves an electronic
service, refer to the Bank’s electronic banking
services disclosures for the services you are using.
If you cannot balance your statement and do not
bring it to the Bank’s attention before you receive
your next statement, the Bank may charge you an
hourly reconcilement fee to locate the error.
The Bank may stop sending account statements if
you stop using your account or have not given the
Bank your current address. If the post office returns
as "undeliverable" any statement that the Bank sent
you, and if you do not provide the Bank with a
correct mailing address, the Bank will retain only
images of the statements and enclosures, not the
original items, for six years. Copies of your
statement are available by request during this six
year period in accordance with the Terms and
Charges Disclosure.
CHANGE OF ADDRESS
You (or an authorized person) must notify the Bank
promptly of any change of your address. The Bank
may require written notice or written confirmation
of this change. All statements and advises will be
sent to you by ordinary mail at the address last
recorded by the Bank.
DORMANCY AND ABANDONED PROPERTY
When an account is inactive the Bank follows
special procedures.
An account is considered inactive when:
No customer initiated deposits or only direct
deposits by a third party are made to your account;
no withdrawals or only preauthorized automatic
withdrawals are made from your account; AND the
Bank does not receive anything in writing from you
that indicates that you knew your account exists, or
if your account is a passbook account and you have
not presented the passbook to the Bank for entry of
any dividend or interest credit.
When a checking or savings account remains inactive
for three (3) consecutive years it is considered
dormant. If your account is considered dormant, the
Bank may prohibit access to your account until you
contact the Bank in person or in writing. Before your
account is classified as dormant, the Bank may try to
contact you to reactivate the account.
If your account remains inactive for the time period
specified by law, it may be deemed abandoned. If
your account is considered abandoned, the Bank
may cease to pay interest on the account, may close
the account, and, if required, turn the funds over to
the appropriate state abandoned property
28
POST-DATED CHECKS
The Bank may certify or pay a check before the date
written on it and charge your account without being
liable to you. The Bank can also refuse to certify or
pay a post-dated check before its date. The Bank
may dishonor and return unpaid other items drawn,
accepted or made by you as a consequence of the
Bank having certified or paid a post-dated item.
CHECKS MORE THAN SIX MONTHS OLD
The Bank is not required to pay an uncertified check
six months after its date. The Bank may pay it,
however, and not be liable to you.
INTEREST BEARING CHECKING
The Bank’s interest bearing checking accounts are
really savings accounts against which you can write
checks. The Bank has the right to ask you for seven
days advance notice of withdrawal. If the Bank does,
the Bank will not be liable to you for dishonoring
your checks during the seven-day notice period.
EARNINGS CREDIT ANALYZED ACCOUNTS
Positive earnings credit is the amount of credit
earned depending on the positive investable balance
maintained throughout the cycle, which will be
applied toward the payment of service expense.
Negative investable balance is the total of all days
with a negative available balance, averaged over the
total number of days in the current analysis period;
reserves are not deducted from this balance.
RECORDCHECK® SERVICE
By choosing this service that does not provide image
copies of the front of cancelled items with your
statement, you have instructed the Bank to hold copies
of the cancelled items for you in accordance with the
applicable terms of service. If you need a copy of a
cancelled check, the Bank will mail it to you. A
reconstruction fee may apply if you request a total
reconstruction (copies of all checks and/or statements)
for one or more statements. The Bank will hold copies
of your checks for six years (seven years for accounts
at our Washington branch). Copies of your checks are
available during the foregoing period in accordance
with the Terms and Charges Disclosure.
IMAGE STATEMENT SERVICE
By choosing this service that provides image copies of
the front of cancelled items with your statement, you
have instructed the Bank to hold copies of the
cancelled items for you in accordance with the
5
CONSUMER CHECKING ACCOUNTS
RECEIVING PAID CHECKS WITH
STATEMENTS – SUBSTITUTE CHECKS
AND YOUR RIGHTS.
What is a substitute check? To make check
processing faster, federal law permits banks to
replace original checks with “substitute checks.”
These checks are similar in size to original checks
with a slightly reduced image of the front and back
of the original check. The front of a substitute check
states: “This is a legal copy of your check. You can
use it the same way you would use the original
check.” You may use a substitute check as proof of
payment just like the original check.
Some or all of the checks that you receive back from
us may be substitute checks. This notice describes
rights you may have when you receive substitute
checks from us. The rights in this notice do not
apply to original checks or to electronic debits to
your account. However, you have rights under other
law with respect to those transactions.
What are my rights regarding substitute checks? In
certain cases, federal law provides a special procedure
that allows you to request a refund for losses you suffer
if a substitute check is posted to your consumer
checking account (for example, if you think that we
withdrew the wrong amount from your account or that
we withdrew money from your account more than
once for the same check). The losses you may attempt
to recover under this procedure may include the
amount that was withdrawn from your consumer
checking account and fees that were charged as a result
of the withdrawal (for example, bounced check fees).
The amount of your refund under this procedure is
limited to the amount of your loss or the amount of the
substitute check, whichever is less. You also are
entitled to interest on the amount of your refund if
your account is an interest bearing consumer account.
If your loss exceeds the amount of the substitute
check, you may be able to recover additional amounts
under other law.
If you use this procedure, you may receive up to
$2,500 of your refund (plus interest if your account
earns interest) within 10 business days after we
received your claim and the remainder of your refund
(plus interest if your account earns interest) not later
than 45 calendar days after we received your claim.
We may reverse the refund (including any interest on
the refund) if we later are able to demonstrate that the
substitute check was correctly posted to your account.
6
FEES
You agree to pay and to have your account charged
for all maintenance fees and service fees incurred by
you including, but not limited to, all usual and
customary fees that the Bank may, from time to
time, charge for any products and services provided.
The Bank may impose a reasonable charge, which
shall not be refundable, on inactive accounts, as set
forth in the Bank’s Terms and Charges Disclosure.
REIMBURSEMENT OF BANK
IN THE EVENT OF A DISPUTE
You agree to be liable to the Bank for any losses,
costs, or expenses the Bank incurs as a result of any
dispute involving your account. You authorize the
Bank to deduct any such losses, costs, or expenses
from your account without prior notice to you. This
obligation includes disputes between you and the
Bank involving the account and situations where the
Bank becomes involved in disputes between you
and an authorized person, another joint owner, or a
third party claiming an interest in the account.
LIEN AND SETOFF
You give the Bank a continuing lien on any account
or other personal property of yours which is in the
possession or control of either the Bank or any of
the Bank’s affiliates, including, but not limited to,
Bank deposits and securities. This lien shall be in
the amount of any and all liabilities and obligations
that you may owe to the Bank or any of the Bank’s
affiliates whether such liabilities and obligations
exist now or are incurred in the future. You agree
that the Bank and its affiliates may setoff against
your accounts and may sell your personal property
which is not an account, by public or private sale at
its discretion, and use the funds in such account or
the proceeds of such sale to satisfy such liabilities or
obligations whether or not such liabilities or
obligations are then in default or subject to a
contingency to the fullest extent permitted by
applicable law.
PERIODIC STATEMENTS AND ADVISES
Upon receipt of your monthly or periodic statement
(which may include a record of transactions and
images of cancelled items) or advises, you shall
exercise reasonable care and promptness in
examining the statement or advice. By using a
product or service that does not return copies of
cancelled items, you agree that the Bank will hold
copies of the cancelled items for you in accordance
with the applicable terms of service. You
acknowledge that copies of cancelled items held for
you are available at the same time as your statement
is first mailed, or made available to you, by the
Bank. You agree that you cannot make any claim
against the Bank arising from your account unless
27
Payment Orders and withdrawal requests made by
any one of them, unless the Bank receives a written,
signed notice from another joint depositor telling us
not to. If the Bank receives such a notice, the Bank
may require the signatures of all the joint depositors
before the Bank allows any further withdrawals (of
principal or interest) to be made from the account.
THE BANK’S OBLIGATION
SATISFIED BY PAYMENT
If the Bank honors a check, other Payment Order or
withdrawal request made by a joint depositor before
the Bank receives written notice from another joint
depositor telling the Bank not to, the Bank has
satisfied its obligation with respect to all money the
Bank paid or delivered and is not liable to other
joint depositors. (Although the joint depositors may
be liable to each other for withdrawing more than
their shares of the account, the Bank is not
responsible for making sure a depositor does not
withdraw more than his or her share.)
DEBTS OWED THE BANK AND LEGAL PROCESS
If one joint depositor owes the Bank money and the
debt becomes due, the Bank can use any money in
the joint account to pay the debt. Further, if a
depositor has an account, in that depositor’s name
solely, and that depositor owes the Bank money,
you agree that any money held in a joint account
with that depositor and you may also be used to pay
the debt.
If one joint depositor has a judgment or other debt
against him or her, the Bank may be required by
legal process to pay out money from the joint
account to satisfy that judgment or debt. The Bank
is not responsible for determining or otherwise
claiming funds in your account are exempt from the
reach of a third party, unless otherwise expressly
required by applicable law.
If one joint depositor overdraws the joint account, you
agree that the Bank may use any funds in any other
accounts of either joint depositor to pay the debt.
MORE ABOUT YOUR ACCOUNT
STANDARD OF CARE
You agree the standard of ordinary care and good
faith which the Bank will use in handling your
account is to be measured against the practice of
other commercial banks similar to HSBC in size.
BALANCE INFORMATION
Balances may change frequently throughout a
business day. You hereby waive any claim against
the Bank based on representations made by the
Bank, either orally or in writing, to you, or your
authorized person, or to any other party, regarding
balance information.
26
How do I make a claim for a refund? If you believe
that you have suffered a loss relating to a substitute
check that you received and that was posted to your
consumer checking account, please contact us at
1-800-975-HSBC (4722). You must contact us within
40 calendar days of the date that we mailed, or made
available to you, the substitute check in question or
the account statement showing that the substitute
check was posted to your consumer checking
account, whichever is later. We will extend this time
period if you were not able to make a timely claim
because of extraordinary circumstances.
Your claim must include• A description of why you have suffered a loss
(for example, you think the amount withdrawn
was incorrect);
• An estimate of the amount of your loss;
• An explanation of why the substitute check you
received is insufficient to confirm that you
suffered a loss; and
• A copy of the substitute check and/or the following
information to help us identify the substitute check:
identifying information, for example the check
number, the name of the person to whom you
wrote the check, the amount of the check.
SUBSTITUTE CHECK DEPOSIT OR
ENCASHMENT LIMITATIONS
The Bank is not obligated to accept unwarranted
substitute checks for deposit or to cash a substitute
check over the counter.
SAVINGS ACCOUNTS
TYPES
The Bank offers a variety of savings accounts that
earn a preferred rate of interest as well as regular
savings accounts. See your Terms and Charges
Disclosure for details.
NOTICE OF WITHDRAWAL
The Bank has the right to ask you for seven days
advance notice of withdrawal.
PASSBOOK ACCOUNTS
If you have a passbook account, the Bank can refuse to
allow a withdrawal unless you present the passbook.
If your passbook is lost, stolen or destroyed, notify
the Bank immediately. The Bank will have you sign
an agreement protecting you and the Bank. The
Bank may require you to wait (no more than 30
days) before the Bank pays you.
The amount in your passbook is considered correct
only if it agrees with the Bank’s records.
NOT TRANSFERABLE
Savings accounts are not transferable except on the
Bank’s books.
7
CERTIFICATES OF DEPOSIT
TYPES
The Bank offers Certificates of Deposit in various
maturities, including but not limited to 7 days to
10 years. See your Terms and Charges Disclosure
for details.
AUTOMATIC RENEWAL
Unless you specify otherwise, the Bank will
automatically renew CDs at the then current rate and
subject to the terms described in the then current
Terms and Charges Disclosure. If you do not want
the Bank to renew your CD, notify the Bank before
the maturity date. The Bank can refuse to renew your
CD. If this happens, the Bank will send a notice
before the maturity date.
EARLY WITHDRAWAL PENALTY
If you withdraw principal from your CD before the
maturity date, you may be charged a penalty shown
on your Terms and Charges Disclosure. The
penalty may reduce principal if there is insufficient
interest available.
In the past, the Bank has usually permitted CDs to
be cashed in before the maturity date, but the Bank
reserves the right not to do so in the future. For
consumer accounts, the Bank may not assess a
penalty if an owner of the account dies or is
declared legally incompetent, but the Bank will
require proof of death or incompetency before a
withdrawal is allowed.
SPECIAL DEPOSIT ACCOUNTS
The Bank offers a number of special purpose accounts,
as well as trust, custodial, retirement, and fiduciary
accounts. A Bank representative can provide details.
DEPOSITS
HOW TO DEPOSIT
You can make deposits in person or by mail. If you
are a consumer or qualifying business, you can also
use your HSBC MasterCard®, Visa®, Debit
MasterCard® or ATM card to make deposits at HSBC
Automated Teller Machines (ATMs) and certain
other electronic facilities. The Bank is not obligated
to accept unwarranted substitute checks for deposit.
For more information about electronic banking, refer
to the Bank’s electronic banking services disclosures
for the services you are using.
DIRECT DEPOSIT
You can arrange to have funds, such as your Social
Security or other Federal payment(s) and your
paychecks, directly deposited into your checking or
savings account.
8
ANNUAL INTEREST EARNED
If required by IRS regulations based on the interest
earned on your deposit accounts on an annual basis,
a combined year-end statement will be sent to you
by the Bank.
JOINT ACCOUNTS
This is a summary of some of the important legal
rules governing your joint account. The law
regarding joint deposits is very complicated, and this
summary does not try to answer all the questions that
could arise.
The rules stated in this summary apply to accounts
and CDs in the names of two or more persons or the
survivor of them. They do not apply to trust accounts,
custodial accounts, “Totten Trust” accounts or any
other account that is not a joint account with the right
of survivorship.
RELATIONSHIP BETWEEN
JOINT DEPOSITORS
JOINT OWNERSHIP OF ACCOUNT
All funds deposited in a joint account, including any
interest earned, become the property of all joint
tenants. Even if only one depositor puts in all the
money or puts in more than the other(s), all money
on deposit will be owned jointly.
RIGHT OF SURVIVORSHIP
The Bank will assume that when you open a joint
account you intend to create a right of survivorship,
unless you establish the account under the Bank’s
procedures for Tenants in Common. A right to
survivorship means that if one joint depositor dies,
the money in the account belongs entirely to the
surviving depositor(s).
TENANTS IN COMMON
A joint account may be held as Tenants in Common
if when the account is opened the joint owners enter
into the Bank’s agreement for accounts held as
Tenants in Common and designate the percentage of
the funds to be paid to the survivor(s) on the death
of a joint owner. Until the Bank receives notice of
the death of a tenant, all funds in the account may be
treated as the property of each of the tenants in
common without any limitation.
YOUR AGREEMENT
WITH THE BANK
WITHDRAWALS FROM ACCOUNT
While all the joint depositors named on the account
are living, the Bank will honor checks, other
25
agree that the Bank is entitled to a refund of the
amount credited to you in connection with such entry,
and the party making payment to you shall not be
deemed to have paid you the amount of such entry.
INTEREST
RATES
Interest rates, compounding periods, balance
computation methods, and minimum balance
requirements are explained in the Terms and
Charges Disclosures.
THOMAS B. ANDERSON
100 YORK ST.
SOMEWHERE, USA 12345
(000) 123-4567
VOID
ENDORSE HERE:
Endorse
Check
Here
X___________________________________________
____________________________________________
____________________________________________
DO NOT SIGN / WRITE / STAMP BELOW THIS LINE
FOR FINANCIAL INSTITUTION USAGE ONLY
____________________________________________
____________________________________________
$
102
10-2/220
Security Features
Details
on Back.
Date _________________________
_______________________________________________________________________________Dollars
Pay to the
Order of _______________________________________________________________________|
0102
24
____________________________________________MP
INTEREST ON CERTIFICATES OF DEPOSIT
A CD does not earn interest after the maturity date.
However, you will earn interest from the original
maturity date on the renewed principal amount if you
renew your CD within the grace period as defined in
the Terms and Charges Disclosure and the renewal
date is back dated to the original maturity date.
HSBC Buffalo, NY 14203
HOW INTEREST IS PAID
The Bank credits interest to your account or CD
monthly, quarterly, annually or at maturity,
depending on what kind of account or CD you have.
If you have a statement account, credited interest
will show on your statement. If you have a passbook
account, credited interest can be added to your
passbook at any branch. Interest on CDs can be
credited to another HSBC account you specify.
For____________________________________________
WHEN YOUR DEPOSIT
BEGINS TO EARN INTEREST
Cash deposited before the “cut-off time” at your
branch (or at an HSBC ATM or electronic banking
facility) begins earning interest the same day. Cash
deposited after the “cut-off time” or on a Saturday,
Sunday or Federal holiday, begins earning interest
the next business day.
NOTE:
1. Ask your branch for its “cut-off time.”
2. For interest bearing checking and savings
products, interest begins to accrue no later than
the business day the Bank receives credit for
deposit of noncash items.
3. For CDs, interest begins to accrue on the
business day you deposit noncash items.
RESPONSIBILITY FOR THE BACK OF
A CHECK
The diagram below shows where you should place
your endorsement on the back of your check.
The
endorsement area is limited to the area 11/2” from
the trailing edge of the check, which is at the top in
the diagram.
022000020750123456
CHANGES
The Bank may change the interest rate on deposit
accounts, solely at the Bank’s discretion, at any time.
The Bank will not change the rate on a fixed-rate CD
during its term. We will not notify you of rate changes
for variable rate accounts. Current rates are available
at your branch. The Bank may change the way the
Bank calculates interest on 30 days advance notice.
ENDORSING CHECKS
Be sure to endorse all checks and other items
exactly as they are made out. The Bank has the right
to endorse items you deposit to your account. The
Bank will chargeback to your account any item that
is returned for any reason, including endorsement
irregularity or forgery.
The following security features (and others not
listed) exceed industry standards:
®Padlock design is a certification mark of
Check Payment Systems Association
You are responsible for any loss resulting from your
improper endorsement of a check if it causes a bank
endorsement to be illegible.
FINAL PAYMENT OF ITEMS
The Bank chooses the method of obtaining final
payment of a deposited check, draft, note, acceptance
or other instrument (“item”) and may use other banks
in the process. The Bank is not responsible for actions
taken by other banks, nor for the loss or destruction of
any item in the possession of other banks or in transit.
Any bank may refuse to honor a deposited item or
may honor one refused by another bank.
VERIFYING DEPOSITS
The Bank will verify that the figure on your deposit
ticket agrees with the amount of your deposit. If
there is a discrepancy, the Bank may adjust your
account for the amount of the difference without
notifying you.
RETURN OF DEPOSITED ITEM (CHARGEBACK)
If you deposit an item to your account and it is
returned unpaid, or is lost or destroyed, the Bank
will charge the amount of the item back to your
account. The Bank may charge your account the fee
shown on your Terms and Charges Disclosure.
Your Terms and Charges Disclosure explains when
and how deposits may be made to your certificate
of deposit.
9
AVAILABILITY OF FUNDS
The Bank’s policy is to make funds from your deposits
quickly available to you according to a schedule which
is based on where the check is drawn, where the
deposit is made, and the type of account as set forth
herein. The types of accounts that this section applies
to are: Interest Bearing Checking Accounts; NonInterest Bearing and Business Checking Accounts.
Until funds are available according to the schedule,
you may not withdraw the funds in cash, and the
Bank may choose not to use the funds to pay checks
you have written or other withdrawals or transfers
you have authorized.
DETERMINING THE
AVAILABILITY OF A DEPOSIT
The day of availability is counted in business days
from the day of your deposit. Every day is a business
day except Saturdays, Sundays, and Federal holidays.
If you make a deposit before 2 p.m. on a business day
the Bank is open, the Bank will consider that day to
be the day of your deposit. Certain branches use a
later cut-off time and each Customer Service
Representative will put up a sign when he or she
changes over to the next day’s business. If you make
a deposit after the cut-off time or on a day the Bank
is not open, the Bank will consider the deposit made
on the next business day the Bank is open. The day of
availability varies depending on the type of deposit
and is explained below.
SAME DAY AVAILABILITY
Funds from electronic direct deposit and funds
transfers (wires) will be available on the day the
Bank received final credit for the deposit.
NEXT DAY AVAILABILITY
Funds from the following deposits are available to
you no later than the first business day after the day
of your deposit:
• U.S. Treasury checks payable to you;
• Federal Reserve Bank checks, Federal Home
Loan Bank checks, and postal money orders, if
these items are payable to you;
• Checks drawn on HSBC Bank USA N.A.;
• Cash.
you on the first business day after the day of your
deposit, if you make the deposit in person to one of
our employees using a special deposit slip available
on request at any branch:
• State and local government checks payable to you;
• Cashier’s, certified, and teller’s checks payable
to you.
Note: Funds from deposits of state and local
government checks, cashier’s, certified, teller’s
10
VALUE DATED PAYMENT ORDERS
Payment Orders may be executed by the Bank on
the date of receipt, if received prior to the Bank’s
“cut-off time”, unless a future value date is stated in
the Customer instruction.
AMENDMENT AND CANCELLATION
Instructions requesting cancellation or amendment
of a Payment Order must be transmitted to the Bank
using the same level of Security Procedure as used
for the original Payment Order. The Bank will honor
all requests received by the Bank’s “cut-off time” on
the business day prior to the value date. The Bank
shall use reasonable efforts to act on a request
received after the Bank’s “cut-off time” on the
business day prior to the value date, unless agreed
otherwise in writing.
RELIANCE ON IDENTIFYING NUMBER
If a Payment Order identifies an intermediary bank,
the beneficiary’s bank or the beneficiary by name
and an account or other identifying number, the
Bank may act solely on the basis of such number.
ROUTING OF A PAYMENT ORDER
You are responsible for full routing instructions. You
agree that in executing any Payment Order the Bank
may make use of correspondents, agents, sub-agents,
funds transfer and communications systems. If a
Payment Order does not designate an intermediary
bank, you agree that, where appropriate, the Bank
will select an intermediary bank on your behalf and
the Bank shall have no liability with respect to such
selection. To the fullest extent permitted by law,
correspondents, agents, sub-agents, systems or
intermediary banks shall be deemed to be your agents
and the Bank shall not be under any liability for any
errors, negligence, suspension or default of any of
them, all such risks being borne by you.
NOTICE OF RECEIPT OF ACH PAYMENTS
Under the operating rules of the National
Automated Clearing House Association that are
applicable to ACH transactions involving your
account, the Bank is not required to give next day
notice to you of receipt of an ACH item, and the
Bank will not do so. However, the Bank will
continue to notify you of the receipt of payments in
the periodic statements the Bank provides to you.
PROVISIONAL CREDIT
Credit given by the Bank to you with respect to an
ACH credit entry is provisional until the Bank
receives final settlement for such entry through a
Federal Reserve Bank. If the Bank does not receive
such final settlement, you are hereby notified and
23
a Payment Order or a communication amending or
cancelling a Payment Order issued by you. You
acknowledge that the Level Two Security
Procedure may be deemed commercially
reasonable pursuant to Section 4A-202(c) of the
Uniform Commercial Code.
Whenever a Level Two Security Procedure is used,
you agree to be bound by any Payment Order, whether
or not authorized, issued in your name and accepted by
the Bank in compliance with such procedure.
CONFIDENTIALITY OF
SECURITY PROCEDURES
You and the Bank agree to keep the Security
Procedures confidential and shall not reveal them to
any person other than authorized persons having “a
need to know.”
AUTHORIZED PERSONS
Unless otherwise specified by you in writing, the
individuals authorized by you to sign checks on
your account are also authorized to issue Payment
Orders, cancel and amend Payment Orders, and
designate the persons and telephone numbers for
use with the security procedure you have chosen.
FUNDS TRANSFERS FEES
Except as otherwise agreed in writing, the Bank
may charge your account for the fees and charges
for processing Payment Orders and issuing advises
relating to Payment Orders, advised to you at the
time of the Payment Order, or listed in the Terms
and Charges Disclosure as the fee for Funds
Transfer, or as set forth in any other applicable rules
or terms.
ACCEPTANCE OF A PAYMENT ORDER
A Payment Order must be received by the Bank’s
“cut-off time” on a business day for action on the date
of receipt. Instructions received for value on a nonbusiness day will be processed on the next business
day. A Payment Order is not accepted until the Bank
executes it. The Bank reserves the right to reject or
delay the execution of a Payment Order under certain
circumstances including, but not limited to, the
following: (a) if the instructions are incomplete or
ambiguous; (b) if there is an insufficient balance of
available funds in the account; (c) if any party in the
payment order is under restraint or under a regulatory
sanction; or (d) if a routing system is down and no
suitable alternative system is available.
METHOD OF EXECUTION
If a Payment Order does not indicate it requires
expeditious processing via wire or phone, the Bank
may transmit the Payment Order by mail or by any
other reasonable means.
22
checks, and cash made by mail or by using an
automated teller machine (ATM) may not be
available until the second business day after the
day of your deposit.
The first $100 from a deposit of one or more checks
other than those listed above will be made available
on the first business day after the day of your deposit.
EXCEPTIONS
In some cases, funds you deposit by check may not
be available for a longer period under the following
circumstances:
• The Bank believes a check you deposit will not
be paid.
• You deposit checks totaling more than $5,000
on any one day.
• You re-deposit a check that has been returned
unpaid.
• You have overdrawn your account repeatedly in
the last six months.
• There is an emergency, such as a failure of
communications or computer equipment.
The Bank will notify you if the Bank delays your
ability to withdraw funds for any of these reasons,
and the Bank will tell you when the funds will be
available. They will be available generally by the
sixth business day after the day of your deposit.
SPECIAL RULES FOR NEW ACCOUNTS
If you are a new customer, the following special
rules may apply during the first 30 days your
account is open:
• Funds from electronic direct deposits to your
account will be available on the day the Bank
received credit for the deposit.
• The first $5,000 from a deposit of U.S. Treasury
checks will be available on the first business day
after the day of your deposit. The excess over
$5,000 will be available to you no later than the
ninth business day after the day of your deposit.
• Funds from a funds transfer into your account
will be available on the first business day after
the day the Bank receives the transfer.
• Funds from deposits of cash and the first
$5,000 of a day’s total deposits of cashier’s,
certified, teller’s, traveler’s, and state and local
government checks will be available on the first
business day after the day of your deposit, if the
deposit meets certain conditions. For example,
the checks must be payable to you and you may
have to use a special deposit slip. The excess
over $5,000 may be available to you no later
than the ninth business day after the day of your
deposit. If you do not make the deposit in
person to an employee of the Bank, the first
$5,000 will not be available until the second
business day after the day of your deposit.
The availability schedule will not apply to funds
from all other check deposits.
11
HOLDS ON OTHER FUNDS (CHECK CASHING)
If the bank cashes a check for you drawn on another
bank, the bank may withhold the availability of a
corresponding amount of funds already in your
account. Those funds will be available at the time
funds from the check cashed would have been
available if you had deposited it.
HOLDS ON OTHER FUNDS (OTHER ACCOUNT)
If the Bank accepts for deposit a check that is drawn
on another bank, the Bank may make funds from the
deposit available for withdrawal immediately but
delay your ability to withdraw a corresponding
amount of funds that you have on deposit in another
account with the Bank. The funds in the other
account would then not be available for withdrawal
until the scheduled day of availability for the type of
check you deposited.
FOREIGN CHECKS
The Bank may delay availability on checks drawn on
banks outside the United States (including checks
drawn upon foreign HSBC affiliates) and on checks
drawn in foreign currencies or handle such checks on
a collection basis. You understand and agree that
you bear all exchange risk in the event of a returned
item. If you want to avoid the exchange risk of a
returned item, you can request that the item be
processed on a collection basis for the applicable fee.
If a check drawn on a bank outside of the United
States uses a dollar sign (“$”) but does not indicate
the check is drawn in U.S. Dollars, it will be
processed as a check drawn in the currency of the
country where the bank is located, e.g., a check
drawn on a Canadian bank. You will bear the costs
associated with any adjustments that must be made
if the check should have indicated it was drawn in
U.S. Dollars including exchange rate adjustments
and fees assessed against the Bank by third parties
related to the adjustment. You can avoid this risk by
making sure that the issuer of the item clearly
identifies checks payable in U.S. Dollars.
CASH WITHDRAWAL LIMITATIONS
We place certain limitations on withdrawals in cash.
In general, $100 of a deposit is available for
withdrawal in cash on the first business day after the
day of deposit. In addition, a total of $400 of other
funds becoming available on a given day is
available for withdrawal in cash on that day. Any
remaining funds will be available for withdrawal in
cash on the following business day.
LOCATING THE ROUTING NUMBER
TO DETERMINE AVAILABILITY
The routing number is printed along the bottom of
the check. See the consumer and business check
illustrations below for the highlighted location of
the routing number. The first four digits represent
12
detect an error in the transmission or content of the
Payment Order.
LEVEL ONE SECURITY PROCEDURES
HSBCnet provides encryption of banking and
transaction data sent from the customer's computer
to the Bank. Multilevel authentication of users is
provided and HSBCnet's administrative options
allow the customer to control user access according
to corporate, compliance and audit needs. The
security procedures are more specifically described
at www.hsbcnet.com.
Internet Banking (Business Accounts): The
Internet Banking security procedures include
encryption and a password that allows the Customer
to transfer funds and conduct banking transactions
as more specifically described in the Terms and
Conditions for Internet Banking (Business
Accounts) and the Security Statement available
online at www.us.hsbc.com/business/online/
business-internet-banking/terms.
Authenticated SWIFT: The security procedure for
authenticating Payment Orders sent through SWIFT
is explained in the SWIFT Handbook. Authenticator
keys are provided to the Customer by the Bank.
Tested Telex: The security procedure using Tested
Telex is explained in the Global Test Key booklet
available from the Bank. A test key number is
provided to the Customer by the Bank.
LEVEL TWO SECURITY PROCEDURES
Call-Back Procedures: The Level Two Security
Procedures may involve either or both the use of a
call-back procedure by the Bank or the use of an
identification code by the Customer (or their
authorized users).
ACCEPTANCE OF SECURITY PROCEDURES
By using any of the Level One Security Procedures,
you have accepted that security procedure as
described above or as modified from time to time
by the Bank. The Level One Security Procedure
will be used for the purpose of verifying that a
Payment Order or a communication amending or
cancelling a Payment Order was issued by you. If
the bank accepts a Payment Order by means other
than through HSBCnet, Internet Banking,
authenticated SWIFT or tested telex, and you
communicate a Payment Order to the Bank in
writing, or use the telephone to transmit a Payment
Order orally or by fax or telex (without a test code),
you have rejected the Level One Security
Procedures offered by the Bank and have chosen
Level Two Security Procedures generally described
previously, as such procedure may be modified
from time to time by the Bank. This Security
Procedure will be used for the purpose of verifying
21
•
•
•
•
•
The account or CD is pledged as collateral.
You do not present your passbook.
The account or CD has not matured.
Endorsement irregularity or possible forgery.
There is a dispute regarding the authority of
an authorized person to transact business on
the account.
TRANSFER LIMITS (SAVINGS, INCLUDING
MONEY MARKET ACCOUNTS)
Only six preauthorized, automatic, computer or
telephone transfers can be made from your savings
account to another account in any month. (A month
may be either a calendar month or a statement cycle
month.) No more than three (3) of your six (6) such
transfers may be made by check, draft, debit card, or
similar order made payable to a third party if
permitted by your account. If you exceed these limits,
the Bank may be required to close your account or
convert your account to a checking account.
FUNDS TRANSFERS
You may transfer funds from your account or receive
funds into your account by funds transfer. Service
fees apply to funds transfers and there are limitations
on transfers from certain types of accounts.
AUTOMATED CLEARING HOUSE
You agree that any rules or regulations of any
automated clearing house (“ACH”) used shall be
fully applicable to and binding upon you and that
transfers may not be initiated that violate the laws of
the United States.
AUTHORIZATION TO PAY
Your instruction to transfer funds from your account
to a third party is a Payment Order. The Bank is
authorized, at its option, to charge your account in
the amount of any Payment Order and to execute a
Payment Order, even if the Payment Order conflicts
with any other instructions received by the Bank
from you or results in an overdraft or payment to or
for the benefit of a person authorized by you to sign
checks or transfer funds for you. If there are not
sufficient available funds in your account, the Bank
may, without prior notice or demand, charge any
account maintained by you with the Bank or setoff
against any amount the Bank owes you in order to
obtain payment of your obligations.
SECURITY PROCEDURES
The following Security Procedures are offered by
the Bank to each customer for the purpose of
verifying the authenticity of a Payment Order or a
communication amending or cancelling a Payment
Order. The Security Procedures are not used to
20
the geographic location of the bank and determine
when funds become available. See schedules listed
below to determine your availability.
Consumer Check:
001
Name
Address, City State
DATE ____________________
PAY TO THE
ORDER OF ___________________________________________________________ $ ____________________
________________________________________________________________________________ DOLLARS
BANK NAME AND LOCATION
FOR __________________________________
123456789
0000000000
_________________________________________
000
Routing number
Business Check:
001
Name of Company
Address, City State
DATE ____________________
PAY TO THE
ORDER OF _________________________________________________________________________________________ $ ____________________
______________________________________________________________________________________________________________ DOLLARS
FOR ____________________________________________
___________________________________________________
000000000
000
123456789
0000000000
Routing number
Some checks are marked “payable through” and
have a four or nine digit number nearby. For these
checks, use the four digit number (or the first four
digits of the nine digit number), not the routing
number on the bottom of the check, to determine
when these checks are available. See schedules
listed below to determine your availability.
If you have questions, please contact your local
branch or account officer.
SPECIAL FUNDS AVAILABILITY SCHEDULES BASED
ON ACCOUNT TYPE AND ACCOUNT LOCATION
INTEREST BEARING CHECKING ACCOUNTS
Including IOLA and NOW Checking
If you have an interest bearing checking account,
funds from your deposits will be made available to
you according to the following schedule that
corresponds to where you make your deposit.
For deposits made in California
At least 93% of funds from deposits of checks in
which the first four digits of the routing number are
1210 1211
1212
1213
1214
1220
1221 1222
1223
1224
3210
3211
3212 3213
3214
3220
3221
3222
3223 3224
are available to you no later than the next business
day after the day of your deposit.
All funds from deposits of checks drawn on all other
routing numbers with the exception of those listed
above and those checks in the NEXT DAY
AVAILABILITY section, are available to you no later
than the second business day after the day of deposit.
13
For deposits made in Downstate New
York, Connecticut, Delaware, New Jersey,
and Pennsylvania
(Downstate New York includes deposits made in
the five boroughs of New York, Long Island and
Dutchess, Orange, Putnam, Rockland, Sullivan,
Ulster and Westchester Counties.)
0110 0111
0112
0113
0114
0115
0116 0117
0118
0119
0210
0211
0212 0213
0214
0219
0220
0223
0260 0280
0310
0311
0312
0313
0319 0360
0410
0412
0420
0430
0432 0433
0434
0440
0510
0514
0519 0520
0521
0522
0530
0531
0539 0540
0550
0560
0570
0610
0620 0630
0640
0650
0660
0710
0720 0730
0740
0750
0810
0820
0830 0840
0910
0920
0921
0960
1010 1020
1030
1039
1040
1110
1130 1140
1210
1220
1230
1240
1250 2110
2111
2112
2113
2114
2115 2116
2117
2118
2119
2210
2211 2212
2213
2214
2219
2220
2223 2260
2280
2310
2311
2312
2313 2319
2360
2410
2412
2420
2430 2432
2433
2434
2440
2510
2514 2519
2520
2521
2522
2530
2531 2539
2540
2550
2560
2570
2610 2620
2630
2640
2650
2660
2710 2720
2730
2740
2750
2810
2820 2830
2840
2910
2920
2921
2960 3010
3020
3030
3039
3040
3110 3130
3140
3210
3220
3230
3240 3250
day after the day of your deposit, based upon when
the Bank would generally receive credit from the
Federal Reserve Bank for deposited checks.
For deposits made in Upstate New York
0110 0111
0112
0113
0114
0115
0116 0117
0118
0119
0210
0211
0212 0213
0214
0219
0220
0223
0260 0280
0310
0311
0312
0313
0319 0360
0410
0412
0420
0430
0432 0433
0434
0440
0510
0514
0519 0520
0521
0522
0530
0531
0539 0540
0550
0560
0570
0610
0620 0630
0640
0650
0660
0710
14
WITHDRAWALS
HOW TO WITHDRAW
You can withdraw from your checking account by
presenting a signed check payable to yourself or to
“cash.” You can also withdraw from your checking
or savings account in person or by mail with a
signed withdrawal order. In addition you can
withdraw interest credited, during the current term
or at maturity, on CDs in person or by mail. When
withdrawing from a passbook savings account, you
should present your passbook. You can withdraw or
transfer funds at our HSBC ATMs and other
electronic facilities if you receive statements on
your account. A withdrawal is deemed to be made
when recorded on the books of the Bank which is
not necessarily the date that the account holder
initiated the transaction.
AUTHORIZED INDIVIDUALS
The Bank is authorized to rely upon any document
provided by you to the Bank which indicates the
person(s) authorized to act on your behalf.
REASONS THE BANK MAY REFUSE YOUR
WITHDRAWAL REQUEST
The Bank may refuse to allow a withdrawal from
any account in certain cases including, but not
limited to, the following cases:
• The Bank decides to require seven (7) days
advance written notice and the Bank has not
received that notice.
• The withdrawal would consist of money
deposited in the form of a check or money order
that is not available for withdrawal.
• Another owner of a joint account or CD tells the
Bank in writing not to allow a withdrawal.
• A court orders the Bank not to allow a withdrawal.
• The withdrawal would consist of money the Bank
has taken to pay an overdue debt to the Bank.
• The withdrawal would consist of money the
Bank has been ordered to pay or hold for
someone else.
• An account or CD owner dies, and the Bank has
not received all documents required by law.
• The Bank has not received any documents or
identification required for access to the account.
19
the five boroughs of New York, Long Island
and Dutchess, Orange, Putnam, Rockland,
Sullivan, Ulster and Westchester Counties.)
Funds from deposits of checks in which the first
four digits of the routing number are
0210 0212
0214
0219
0260
0280
2210 2212
2214
2219
2260
2280
0213 0220
0223
0410
2213
2220
2223 2410
For deposits made in District of Columbia,
Maryland and Virginia
Funds from deposits of checks drawn on all routing
numbers with the exception of those checks in the
NEXT DAY AVAILABILITY section, are available to
you no later than the second business day after the
day of deposit.
For deposits made in Florida
day of deposit.
For deposits made in Illinois
day of deposit.
For deposits made in Oregon/Washington State
1230 1231
1232
1233
1250
1251
1252 3230
3231
3232
3233
3250
3251 3252
18
0720 0730
0740
0750
0810
0820
0830 0840
0910
0960
1010
1020
1030 1039
1040
1110
1130
1140
1210 1220
1230
1240
1250
2110
2111 2112
2113
2114
2115
2116
2117 2118
2119
2210
2211
2212
2213 2214
2219
2220
2223
2260
2280 2310
2311
2312
2313
2319
2360 2410
2412
2420
2430
2432
2433 2434
2440
2510
2514
2519
2520 2521
2522
2530
2531
2539
2540 2550
2560
2570
2610
2620
2630 2640
2650
2660
2710
2720
2730 2740
2750
2810
2820
2830
2840 2910
2960
3010
3020
3030
3039 3040
3110
3130
3140
3210
3220 3230
3240
3250
0110 0111
0112
0113
0114
0115
0116 0117
0118
0119
0210
0211
0212 0213
0214
0219
0220
0223
0260 0280
0310
0311
0312
0313
0319 0360
0410
0412
0420
0430
0432 0433
0434
0440
0510
0514
0519 0520
0521
0522
0530
0531
0539 0540
0550
0560
0570
0610
0611 0612
0613
0620
0630
0640
0650 0660
0710
0711
0712
0719
0720 0730
0740
0750
0810
0820
0830 0840
0910
0920
0921
0960
1010 1020
1030
1039
1040
1110
1120 1130
1140
1210
1220
1230
1240 1250
2110
2111
2112
2113
2114 2115
2116
2117
2118
2119
2210 2211
2212
2213
2214
2219
2220 2223
2260
2280
2310
2311
2312 2313
2319
2360
2410
2412
2420 2430
2432
2433
2434
2440
2510 2514
2519
2520
2521
2522
2530 2531
2539
2540
2550
2560
2570 2610
2611
2612
2613
2620
2630 2640
2650
2660
2710
2711
2712 2719
2720
2730
2740
2750
2810 2820
2830
2840
2910
2920
2921 2960
3010
3020
3030
3039
15
3040 3110
3120
3130
3140
3210
3220 3230
3240
3250
0110 0210
0212
0220
0260
0280
0310 0360
0410
0420
0430
0440
0510 0519
0520
0530
0539
0610
0620 0630
0631
0632
0640
0650
0660 0670
0710
0720
0730
0740
0750 0810
0820
0830
0840
0910
0920 0921
0960
1010
1020
1030
1039 1040
1110
1130
1140
1210
1220 1230
1240
1250
2110
2210
2212 2220
2260
2280
2310
2360
2410 2420
2430
2440
2510
2519
2520 2530
2539
2610
2620
2630
2631 2632
2640
2650
2660
2670
2710 2720
2730
2740
2750
2810
2820 2830
2840
2910
2920
2921
2960 3010
3020
3030
3039
3040
3110 3130
3140
3210
3220
3230
3240 3250
0110 0210
0220
0260
0280
0310
0360 0410
0412
0420
0430
0440
0510 0519
0520
0530
0539
0610
0620 0630
0640
0650
0660
0710
0711 0712
0719
0720
0730
0739
0740 0750
0759
0810
0812
0815
0819 0820
0830
0840
0865
0910
0918 0919
0960
1010
1011
1012
1019 1020
1030
1040
1049
1110
1130 1140
1210
1220
1230
1240
1250 2710
2711
2712
2719
2812
2815 2865
2759
2110
2210
2220
2260 2280
2310
2360
2410
2412
2420 2430
2440
2510
2519
2520
2530 2539
2610
2620
2630
2640
2650 2660
2710
2711
2712
2719
16
2720 2730
2739
2740
2750
2759
2810 2812
2819
2820
2830
2840
2865 2910
2918
2919
2960
3010
3011 3012
3019
3020
3030
3040
3049 3110
3130
3140
3210
3220
3230 3240
3250
1230 1231
1232
1233
1250
1251
1252 3230
3231
3232
3233
3250
3251 3252
NON-INTEREST BEARING
CHECKING ACCOUNTS
If you have a non-interest bearing checking account
(including Checking for Professionals, Escrow
Accounts, ExtraVantage for Business, Free
Business Checking and Regular Business
Checking) funds from your deposits will be made
available to you according to the following
schedule, which is based on where the check is
drawn, where the deposit is made, and the type of
account as set forth below.
1210 1211
1212
1213
1214
1220
1221 1222
1223
1224
3210
3211
3212 3213
3214
3220
3221
3222
3223 3224
For deposits made in Downstate New York, New
Jersey, Connecticut, Delaware and Pennsylvania
17
3040 3110
3120
3130
3140
3210
3220 3230
3240
3250
0110 0210
0212
0220
0260
0280
0310 0360
0410
0420
0430
0440
0510 0519
0520
0530
0539
0610
0620 0630
0631
0632
0640
0650
0660 0670
0710
0720
0730
0740
0750 0810
0820
0830
0840
0910
0920 0921
0960
1010
1020
1030
1039 1040
1110
1130
1140
1210
1220 1230
1240
1250
2110
2210
2212 2220
2260
2280
2310
2360
2410 2420
2430
2440
2510
2519
2520 2530
2539
2610
2620
2630
2631 2632
2640
2650
2660
2670
2710 2720
2730
2740
2750
2810
2820 2830
2840
2910
2920
2921
2960 3010
3020
3030
3039
3040
3110 3130
3140
3210
3220
3230
3240 3250
0110 0210
0220
0260
0280
0310
0360 0410
0412
0420
0430
0440
0510 0519
0520
0530
0539
0610
0620 0630
0640
0650
0660
0710
0711 0712
0719
0720
0730
0739
0740 0750
0759
0810
0812
0815
0819 0820
0830
0840
0865
0910
0918 0919
0960
1010
1011
1012
1019 1020
1030
1040
1049
1110
1130 1140
1210
1220
1230
1240
1250 2710
2711
2712
2719
2812
2815 2865
2759
2110
2210
2220
2260 2280
2310
2360
2410
2412
2420 2430
2440
2510
2519
2520
2530 2539
2610
2620
2630
2640
2650 2660
2710
2711
2712
2719
16
2720 2730
2739
2740
2750
2759
2810 2812
2819
2820
2830
2840
2865 2910
2918
2919
2960
3010
3011 3012
3019
3020
3030
3040
3049 3110
3130
3140
3210
3220
3230 3240
3250
1230 1231
1232
1233
1250
1251
1252 3230
3231
3232
3233
3250
3251 3252
NON-INTEREST BEARING
CHECKING ACCOUNTS
If you have a non-interest bearing checking account
(including Checking for Professionals, Escrow
Accounts, ExtraVantage for Business, Free
Business Checking and Regular Business
Checking) funds from your deposits will be made
available to you according to the following
schedule, which is based on where the check is
drawn, where the deposit is made, and the type of
account as set forth below.
1210 1211
1212
1213
1214
1220
1221 1222
1223
1224
3210
3211
3212 3213
3214
3220
3221
3222
3223 3224
For deposits made in Downstate New York, New
Jersey, Connecticut, Delaware and Pennsylvania
17
the five boroughs of New York, Long Island
and Dutchess, Orange, Putnam, Rockland,
Sullivan, Ulster and Westchester Counties.)
0210 0212
0214
0219
0260
0280
2210 2212
2214
2219
2260
2280
0213 0220
0223
0410
2213
2220
2223 2410
day of deposit.
day of deposit.
day of deposit.
1230 1231
1232
1233
1250
1251
1252 3230
3231
3232
3233
3250
3251 3252
18
0720 0730
0740
0750
0810
0820
0830 0840
0910
0960
1010
1020
1030 1039
1040
1110
1130
1140
1210 1220
1230
1240
1250
2110
2111 2112
2113
2114
2115
2116
2117 2118
2119
2210
2211
2212
2213 2214
2219
2220
2223
2260
2280 2310
2311
2312
2313
2319
2360 2410
2412
2420
2430
2432
2433 2434
2440
2510
2514
2519
2520 2521
2522
2530
2531
2539
2540 2550
2560
2570
2610
2620
2630 2640
2650
2660
2710
2720
2730 2740
2750
2810
2820
2830
2840 2910
2960
3010
3020
3030
3039 3040
3110
3130
3140
3210
3220 3230
3240
3250
0110 0111
0112
0113
0114
0115
0116 0117
0118
0119
0210
0211
0212 0213
0214
0219
0220
0223
0260 0280
0310
0311
0312
0313
0319 0360
0410
0412
0420
0430
0432 0433
0434
0440
0510
0514
0519 0520
0521
0522
0530
0531
0539 0540
0550
0560
0570
0610
0611 0612
0613
0620
0630
0640
0650 0660
0710
0711
0712
0719
0720 0730
0740
0750
0810
0820
0830 0840
0910
0920
0921
0960
1010 1020
1030
1039
1040
1110
1120 1130
1140
1210
1220
1230
1240 1250
2110
2111
2112
2113
2114 2115
2116
2117
2118
2119
2210 2211
2212
2213
2214
2219
2220 2223
2260
2280
2310
2311
2312 2313
2319
2360
2410
2412
2420 2430
2432
2433
2434
2440
2510 2514
2519
2520
2521
2522
2530 2531
2539
2540
2550
2560
2570 2610
2611
2612
2613
2620
2630 2640
2650
2660
2710
2711
2712 2719
2720
2730
2740
2750
2810 2820
2830
2840
2910
2920
2921 2960
3010
3020
3030
3039
15
For deposits made in Downstate New
York, Connecticut, Delaware, New Jersey,
and Pennsylvania
the five boroughs of New York, Long Island and
Dutchess, Orange, Putnam, Rockland, Sullivan,
Ulster and Westchester Counties.)
0110 0111
0112
0113
0114
0115
0116 0117
0118
0119
0210
0211
0212 0213
0214
0219
0220
0223
0260 0280
0310
0311
0312
0313
0319 0360
0410
0412
0420
0430
0432 0433
0434
0440
0510
0514
0519 0520
0521
0522
0530
0531
0539 0540
0550
0560
0570
0610
0620 0630
0640
0650
0660
0710
0720 0730
0740
0750
0810
0820
0830 0840
0910
0920
0921
0960
1010 1020
1030
1039
1040
1110
1130 1140
1210
1220
1230
1240
1250 2110
2111
2112
2113
2114
2115 2116
2117
2118
2119
2210
2211 2212
2213
2214
2219
2220
2223 2260
2280
2310
2311
2312
2313 2319
2360
2410
2412
2420
2430 2432
2433
2434
2440
2510
2514 2519
2520
2521
2522
2530
2531 2539
2540
2550
2560
2570
2610 2620
2630
2640
2650
2660
2710 2720
2730
2740
2750
2810
2820 2830
2840
2910
2920
2921
2960 3010
3020
3030
3039
3040
3110 3130
3140
3210
3220
3230
3240 3250
0110 0111
0112
0113
0114
0115
0116 0117
0118
0119
0210
0211
0212 0213
0214
0219
0220
0223
0260 0280
0310
0311
0312
0313
0319 0360
0410
0412
0420
0430
0432 0433
0434
0440
0510
0514
0519 0520
0521
0522
0530
0531
0539 0540
0550
0560
0570
0610
0620 0630
0640
0650
0660
0710
14
WITHDRAWALS
HOW TO WITHDRAW
You can withdraw from your checking account by
presenting a signed check payable to yourself or to
“cash.” You can also withdraw from your checking
or savings account in person or by mail with a
signed withdrawal order. In addition you can
withdraw interest credited, during the current term
or at maturity, on CDs in person or by mail. When
withdrawing from a passbook savings account, you
should present your passbook. You can withdraw or
transfer funds at our HSBC ATMs and other
electronic facilities if you receive statements on
your account. A withdrawal is deemed to be made
when recorded on the books of the Bank which is
not necessarily the date that the account holder
initiated the transaction.
AUTHORIZED INDIVIDUALS
The Bank is authorized to rely upon any document
provided by you to the Bank which indicates the
person(s) authorized to act on your behalf.
REASONS THE BANK MAY REFUSE YOUR
WITHDRAWAL REQUEST
The Bank may refuse to allow a withdrawal from
any account in certain cases including, but not
limited to, the following cases:
• The Bank decides to require seven (7) days
advance written notice and the Bank has not
received that notice.
• The withdrawal would consist of money
deposited in the form of a check or money order
that is not available for withdrawal.
• Another owner of a joint account or CD tells the
Bank in writing not to allow a withdrawal.
• A court orders the Bank not to allow a withdrawal.
• The withdrawal would consist of money the Bank
has taken to pay an overdue debt to the Bank.
• The withdrawal would consist of money the
Bank has been ordered to pay or hold for
someone else.
• An account or CD owner dies, and the Bank has
not received all documents required by law.
• The Bank has not received any documents or
identification required for access to the account.
19
•
•
•
•
•
The account or CD is pledged as collateral.
You do not present your passbook.
The account or CD has not matured.
Endorsement irregularity or possible forgery.
There is a dispute regarding the authority of
an authorized person to transact business on
the account.
TRANSFER LIMITS (SAVINGS, INCLUDING
MONEY MARKET ACCOUNTS)
Only six preauthorized, automatic, computer or
telephone transfers can be made from your savings
account to another account in any month. (A month
may be either a calendar month or a statement cycle
month.) No more than three (3) of your six (6) such
transfers may be made by check, draft, debit card, or
similar order made payable to a third party if
permitted by your account. If you exceed these limits,
the Bank may be required to close your account or
convert your account to a checking account.
FUNDS TRANSFERS
You may transfer funds from your account or receive
funds into your account by funds transfer. Service
fees apply to funds transfers and there are limitations
on transfers from certain types of accounts.
AUTOMATED CLEARING HOUSE
You agree that any rules or regulations of any
automated clearing house (“ACH”) used shall be
fully applicable to and binding upon you and that
transfers may not be initiated that violate the laws of
the United States.
AUTHORIZATION TO PAY
Your instruction to transfer funds from your account
to a third party is a Payment Order. The Bank is
authorized, at its option, to charge your account in
the amount of any Payment Order and to execute a
Payment Order, even if the Payment Order conflicts
with any other instructions received by the Bank
from you or results in an overdraft or payment to or
for the benefit of a person authorized by you to sign
checks or transfer funds for you. If there are not
sufficient available funds in your account, the Bank
may, without prior notice or demand, charge any
account maintained by you with the Bank or setoff
against any amount the Bank owes you in order to
obtain payment of your obligations.
SECURITY PROCEDURES
The following Security Procedures are offered by
the Bank to each customer for the purpose of
verifying the authenticity of a Payment Order or a
communication amending or cancelling a Payment
Order. The Security Procedures are not used to
20
the geographic location of the bank and determine
when funds become available. See schedules listed
below to determine your availability.
Consumer Check:
001
Name
Address, City State
DATE ____________________
PAY TO THE
ORDER OF ___________________________________________________________ $ ____________________
________________________________________________________________________________ DOLLARS
FOR __________________________________
123456789
0000000000
_________________________________________
000
Routing number
Business Check:
001
Name of Company
Address, City State
DATE ____________________
PAY TO THE
ORDER OF _________________________________________________________________________________________ $ ____________________
______________________________________________________________________________________________________________ DOLLARS
FOR ____________________________________________
___________________________________________________
000000000
000
123456789
0000000000
Routing number
Some checks are marked “payable through” and
have a four or nine digit number nearby. For these
checks, use the four digit number (or the first four
digits of the nine digit number), not the routing
number on the bottom of the check, to determine
when these checks are available. See schedules
listed below to determine your availability.
If you have questions, please contact your local
branch or account officer.
SPECIAL FUNDS AVAILABILITY SCHEDULES BASED
ON ACCOUNT TYPE AND ACCOUNT LOCATION
INTEREST BEARING CHECKING ACCOUNTS
Including IOLA and NOW Checking
If you have an interest bearing checking account,
funds from your deposits will be made available to
you according to the following schedule that
corresponds to where you make your deposit.
1210 1211
1212
1213
1214
1220
1221 1222
1223
1224
3210
3211
3212 3213
3214
3220
3221
3222
3223 3224
13
HOLDS ON OTHER FUNDS (CHECK CASHING)
If the bank cashes a check for you drawn on another
bank, the bank may withhold the availability of a
corresponding amount of funds already in your
account. Those funds will be available at the time
funds from the check cashed would have been
available if you had deposited it.
HOLDS ON OTHER FUNDS (OTHER ACCOUNT)
If the Bank accepts for deposit a check that is drawn
on another bank, the Bank may make funds from the
deposit available for withdrawal immediately but
delay your ability to withdraw a corresponding
amount of funds that you have on deposit in another
account with the Bank. The funds in the other
account would then not be available for withdrawal
until the scheduled day of availability for the type of
check you deposited.
FOREIGN CHECKS
The Bank may delay availability on checks drawn on
banks outside the United States (including checks
drawn upon foreign HSBC affiliates) and on checks
drawn in foreign currencies or handle such checks on
a collection basis. You understand and agree that
you bear all exchange risk in the event of a returned
item. If you want to avoid the exchange risk of a
returned item, you can request that the item be
processed on a collection basis for the applicable fee.
If a check drawn on a bank outside of the United
States uses a dollar sign (“$”) but does not indicate
the check is drawn in U.S. Dollars, it will be
processed as a check drawn in the currency of the
country where the bank is located, e.g., a check
drawn on a Canadian bank. You will bear the costs
associated with any adjustments that must be made
if the check should have indicated it was drawn in
U.S. Dollars including exchange rate adjustments
and fees assessed against the Bank by third parties
related to the adjustment. You can avoid this risk by
making sure that the issuer of the item clearly
identifies checks payable in U.S. Dollars.
CASH WITHDRAWAL LIMITATIONS
We place certain limitations on withdrawals in cash.
In general, $100 of a deposit is available for
withdrawal in cash on the first business day after the
day of deposit. In addition, a total of $400 of other
funds becoming available on a given day is
available for withdrawal in cash on that day. Any
remaining funds will be available for withdrawal in
cash on the following business day.
LOCATING THE ROUTING NUMBER
TO DETERMINE AVAILABILITY
The routing number is printed along the bottom of
the check. See the consumer and business check
illustrations below for the highlighted location of
the routing number. The first four digits represent
12
detect an error in the transmission or content of the
Payment Order.
LEVEL ONE SECURITY PROCEDURES
HSBCnet provides encryption of banking and
transaction data sent from the customer's computer
to the Bank. Multilevel authentication of users is
provided and HSBCnet's administrative options
allow the customer to control user access according
to corporate, compliance and audit needs. The
security procedures are more specifically described
at www.hsbcnet.com.
Internet Banking (Business Accounts): The
Internet Banking security procedures include
encryption and a password that allows the Customer
to transfer funds and conduct banking transactions
as more specifically described in the Terms and
Conditions for Internet Banking (Business
Accounts) and the Security Statement available
online at www.us.hsbc.com/business/online/
business-internet-banking/terms.
Authenticated SWIFT: The security procedure for
authenticating Payment Orders sent through SWIFT
is explained in the SWIFT Handbook. Authenticator
keys are provided to the Customer by the Bank.
Tested Telex: The security procedure using Tested
Telex is explained in the Global Test Key booklet
available from the Bank. A test key number is
provided to the Customer by the Bank.
LEVEL TWO SECURITY PROCEDURES
Call-Back Procedures: The Level Two Security
Procedures may involve either or both the use of a
call-back procedure by the Bank or the use of an
identification code by the Customer (or their
authorized users).
ACCEPTANCE OF SECURITY PROCEDURES
By using any of the Level One Security Procedures,
you have accepted that security procedure as
described above or as modified from time to time
by the Bank. The Level One Security Procedure
will be used for the purpose of verifying that a
Payment Order or a communication amending or
cancelling a Payment Order was issued by you. If
the bank accepts a Payment Order by means other
than through HSBCnet, Internet Banking,
authenticated SWIFT or tested telex, and you
communicate a Payment Order to the Bank in
writing, or use the telephone to transmit a Payment
Order orally or by fax or telex (without a test code),
you have rejected the Level One Security
Procedures offered by the Bank and have chosen
Level Two Security Procedures generally described
previously, as such procedure may be modified
from time to time by the Bank. This Security
Procedure will be used for the purpose of verifying
21
a Payment Order or a communication amending or
cancelling a Payment Order issued by you. You
acknowledge that the Level Two Security
Procedure may be deemed commercially
reasonable pursuant to Section 4A-202(c) of the
Uniform Commercial Code.
Whenever a Level Two Security Procedure is used,
you agree to be bound by any Payment Order, whether
or not authorized, issued in your name and accepted by
the Bank in compliance with such procedure.
CONFIDENTIALITY OF
SECURITY PROCEDURES
You and the Bank agree to keep the Security
Procedures confidential and shall not reveal them to
any person other than authorized persons having “a
need to know.”
AUTHORIZED PERSONS
Unless otherwise specified by you in writing, the
individuals authorized by you to sign checks on
your account are also authorized to issue Payment
Orders, cancel and amend Payment Orders, and
designate the persons and telephone numbers for
use with the security procedure you have chosen.
FUNDS TRANSFERS FEES
Except as otherwise agreed in writing, the Bank
may charge your account for the fees and charges
for processing Payment Orders and issuing advises
relating to Payment Orders, advised to you at the
time of the Payment Order, or listed in the Terms
and Charges Disclosure as the fee for Funds
Transfer, or as set forth in any other applicable rules
or terms.
ACCEPTANCE OF A PAYMENT ORDER
A Payment Order must be received by the Bank’s
“cut-off time” on a business day for action on the date
of receipt. Instructions received for value on a nonbusiness day will be processed on the next business
day. A Payment Order is not accepted until the Bank
executes it. The Bank reserves the right to reject or
delay the execution of a Payment Order under certain
circumstances including, but not limited to, the
following: (a) if the instructions are incomplete or
ambiguous; (b) if there is an insufficient balance of
available funds in the account; (c) if any party in the
payment order is under restraint or under a regulatory
sanction; or (d) if a routing system is down and no
suitable alternative system is available.
METHOD OF EXECUTION
If a Payment Order does not indicate it requires
expeditious processing via wire or phone, the Bank
may transmit the Payment Order by mail or by any
other reasonable means.
22
checks, and cash made by mail or by using an
automated teller machine (ATM) may not be
available until the second business day after the
day of your deposit.
The first $100 from a deposit of one or more checks
other than those listed above will be made available
on the first business day after the day of your deposit.
EXCEPTIONS
In some cases, funds you deposit by check may not
be available for a longer period under the following
circumstances:
• The Bank believes a check you deposit will not
be paid.
• You deposit checks totaling more than $5,000
on any one day.
• You re-deposit a check that has been returned
unpaid.
• You have overdrawn your account repeatedly in
the last six months.
• There is an emergency, such as a failure of
communications or computer equipment.
The Bank will notify you if the Bank delays your
ability to withdraw funds for any of these reasons,
and the Bank will tell you when the funds will be
available. They will be available generally by the
sixth business day after the day of your deposit.
SPECIAL RULES FOR NEW ACCOUNTS
If you are a new customer, the following special
rules may apply during the first 30 days your
account is open:
• Funds from electronic direct deposits to your
account will be available on the day the Bank
received credit for the deposit.
• The first $5,000 from a deposit of U.S. Treasury
checks will be available on the first business day
after the day of your deposit. The excess over
$5,000 will be available to you no later than the
ninth business day after the day of your deposit.
• Funds from a funds transfer into your account
will be available on the first business day after
the day the Bank receives the transfer.
• Funds from deposits of cash and the first
$5,000 of a day’s total deposits of cashier’s,
certified, teller’s, traveler’s, and state and local
government checks will be available on the first
business day after the day of your deposit, if the
deposit meets certain conditions. For example,
the checks must be payable to you and you may
have to use a special deposit slip. The excess
over $5,000 may be available to you no later
than the ninth business day after the day of your
deposit. If you do not make the deposit in
person to an employee of the Bank, the first
$5,000 will not be available until the second
business day after the day of your deposit.
The availability schedule will not apply to funds
from all other check deposits.
11
AVAILABILITY OF FUNDS
The Bank’s policy is to make funds from your deposits
quickly available to you according to a schedule which
is based on where the check is drawn, where the
deposit is made, and the type of account as set forth
herein. The types of accounts that this section applies
to are: Interest Bearing Checking Accounts; NonInterest Bearing and Business Checking Accounts.
Until funds are available according to the schedule,
you may not withdraw the funds in cash, and the
Bank may choose not to use the funds to pay checks
you have written or other withdrawals or transfers
you have authorized.
DETERMINING THE
AVAILABILITY OF A DEPOSIT
The day of availability is counted in business days
from the day of your deposit. Every day is a business
day except Saturdays, Sundays, and Federal holidays.
If you make a deposit before 2 p.m. on a business day
the Bank is open, the Bank will consider that day to
be the day of your deposit. Certain branches use a
later cut-off time and each Customer Service
Representative will put up a sign when he or she
changes over to the next day’s business. If you make
a deposit after the cut-off time or on a day the Bank
is not open, the Bank will consider the deposit made
on the next business day the Bank is open. The day of
availability varies depending on the type of deposit
and is explained below.
SAME DAY AVAILABILITY
Funds from electronic direct deposit and funds
transfers (wires) will be available on the day the
Bank received final credit for the deposit.
NEXT DAY AVAILABILITY
you no later than the first business day after the day
of your deposit:
• U.S. Treasury checks payable to you;
• Federal Reserve Bank checks, Federal Home
Loan Bank checks, and postal money orders, if
these items are payable to you;
• Checks drawn on HSBC Bank USA N.A.;
• Cash.
you on the first business day after the day of your
deposit, if you make the deposit in person to one of
our employees using a special deposit slip available
on request at any branch:
• State and local government checks payable to you;
• Cashier’s, certified, and teller’s checks payable
to you.
Note: Funds from deposits of state and local
government checks, cashier’s, certified, teller’s
10
VALUE DATED PAYMENT ORDERS
Payment Orders may be executed by the Bank on
the date of receipt, if received prior to the Bank’s
“cut-off time”, unless a future value date is stated in
the Customer instruction.
AMENDMENT AND CANCELLATION
Instructions requesting cancellation or amendment
of a Payment Order must be transmitted to the Bank
using the same level of Security Procedure as used
for the original Payment Order. The Bank will honor
all requests received by the Bank’s “cut-off time” on
the business day prior to the value date. The Bank
shall use reasonable efforts to act on a request
received after the Bank’s “cut-off time” on the
business day prior to the value date, unless agreed
otherwise in writing.
RELIANCE ON IDENTIFYING NUMBER
If a Payment Order identifies an intermediary bank,
the beneficiary’s bank or the beneficiary by name
and an account or other identifying number, the
Bank may act solely on the basis of such number.
ROUTING OF A PAYMENT ORDER
You are responsible for full routing instructions. You
agree that in executing any Payment Order the Bank
may make use of correspondents, agents, sub-agents,
funds transfer and communications systems. If a
Payment Order does not designate an intermediary
bank, you agree that, where appropriate, the Bank
will select an intermediary bank on your behalf and
the Bank shall have no liability with respect to such
selection. To the fullest extent permitted by law,
correspondents, agents, sub-agents, systems or
intermediary banks shall be deemed to be your agents
and the Bank shall not be under any liability for any
errors, negligence, suspension or default of any of
them, all such risks being borne by you.
NOTICE OF RECEIPT OF ACH PAYMENTS
Under the operating rules of the National
Automated Clearing House Association that are
applicable to ACH transactions involving your
account, the Bank is not required to give next day
notice to you of receipt of an ACH item, and the
Bank will not do so. However, the Bank will
continue to notify you of the receipt of payments in
the periodic statements the Bank provides to you.
PROVISIONAL CREDIT
Credit given by the Bank to you with respect to an
ACH credit entry is provisional until the Bank
receives final settlement for such entry through a
Federal Reserve Bank. If the Bank does not receive
such final settlement, you are hereby notified and
23
agree that the Bank is entitled to a refund of the
amount credited to you in connection with such entry,
and the party making payment to you shall not be
deemed to have paid you the amount of such entry.
INTEREST
RATES
Interest rates, compounding periods, balance
computation methods, and minimum balance
requirements are explained in the Terms and
Charges Disclosures.
THOMAS B. ANDERSON
100 YORK ST.
SOMEWHERE, USA 12345
(000) 123-4567
VOID
ENDORSE HERE:
Endorse
Check
Here
X___________________________________________
____________________________________________
____________________________________________
DO NOT SIGN / WRITE / STAMP BELOW THIS LINE
FOR FINANCIAL INSTITUTION USAGE ONLY
____________________________________________
____________________________________________
$
102
10-2/220
Security Features
Details
on Back.
Date _________________________
_______________________________________________________________________________Dollars
Pay to the
Order of _______________________________________________________________________|
0102
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____________________________________________MP
INTEREST ON CERTIFICATES OF DEPOSIT
A CD does not earn interest after the maturity date.
However, you will earn interest from the original
maturity date on the renewed principal amount if you
renew your CD within the grace period as defined in
the Terms and Charges Disclosure and the renewal
date is back dated to the original maturity date.
HSBC Buffalo, NY 14203
HOW INTEREST IS PAID
The Bank credits interest to your account or CD
monthly, quarterly, annually or at maturity,
depending on what kind of account or CD you have.
If you have a statement account, credited interest
will show on your statement. If you have a passbook
account, credited interest can be added to your
passbook at any branch. Interest on CDs can be
credited to another HSBC account you specify.
For____________________________________________
WHEN YOUR DEPOSIT
BEGINS TO EARN INTEREST
Cash deposited before the “cut-off time” at your
branch (or at an HSBC ATM or electronic banking
facility) begins earning interest the same day. Cash
deposited after the “cut-off time” or on a Saturday,
Sunday or Federal holiday, begins earning interest
the next business day.
NOTE:
1. Ask your branch for its “cut-off time.”
2. For interest bearing checking and savings
products, interest begins to accrue no later than
the business day the Bank receives credit for
deposit of noncash items.
3. For CDs, interest begins to accrue on the
business day you deposit noncash items.
RESPONSIBILITY FOR THE BACK OF
A CHECK
The diagram below shows where you should place
your endorsement on the back of your check.
The
endorsement area is limited to the area 11/2” from
the trailing edge of the check, which is at the top in
the diagram.
022000020750123456
CHANGES
The Bank may change the interest rate on deposit
accounts, solely at the Bank’s discretion, at any time.
The Bank will not change the rate on a fixed-rate CD
during its term. We will not notify you of rate changes
for variable rate accounts. Current rates are available
at your branch. The Bank may change the way the
Bank calculates interest on 30 days advance notice.
ENDORSING CHECKS
Be sure to endorse all checks and other items
exactly as they are made out. The Bank has the right
to endorse items you deposit to your account. The
Bank will chargeback to your account any item that
is returned for any reason, including endorsement
irregularity or forgery.
The following security features (and others not
listed) exceed industry standards:
®Padlock design is a certification mark of
Check Payment Systems Association
You are responsible for any loss resulting from your
improper endorsement of a check if it causes a bank
endorsement to be illegible.
FINAL PAYMENT OF ITEMS
The Bank chooses the method of obtaining final
payment of a deposited check, draft, note, acceptance
or other instrument (“item”) and may use other banks
in the process. The Bank is not responsible for actions
taken by other banks, nor for the loss or destruction of
any item in the possession of other banks or in transit.
Any bank may refuse to honor a deposited item or
may honor one refused by another bank.
VERIFYING DEPOSITS
The Bank will verify that the figure on your deposit
ticket agrees with the amount of your deposit. If
there is a discrepancy, the Bank may adjust your
account for the amount of the difference without
notifying you.
RETURN OF DEPOSITED ITEM (CHARGEBACK)
If you deposit an item to your account and it is
returned unpaid, or is lost or destroyed, the Bank
will charge the amount of the item back to your
account. The Bank may charge your account the fee
shown on your Terms and Charges Disclosure.
Your Terms and Charges Disclosure explains when
and how deposits may be made to your certificate
of deposit.
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TYPES
The Bank offers Certificates of Deposit in various
maturities, including but not limited to 7 days to
10 years. See your Terms and Charges Disclosure
for details.
AUTOMATIC RENEWAL
Unless you specify otherwise, the Bank will
automatically renew CDs at the then current rate and
subject to the terms described in the then current
Terms and Charges Disclosure. If you do not want
the Bank to renew your CD, notify the Bank before
the maturity date. The Bank can refuse to renew your
CD. If this happens, the Bank will send a notice
before the maturity date.
EARLY WITHDRAWAL PENALTY
If you withdraw principal from your CD before the
maturity date, you may be charged a penalty shown
on your Terms and Charges Disclosure. The
penalty may reduce principal if there is insufficient
interest available.
In the past, the Bank has usually permitted CDs to
be cashed in before the maturity date, but the Bank
reserves the right not to do so in the future. For
consumer accounts, the Bank may not assess a
penalty if an owner of the account dies or is
declared legally incompetent, but the Bank will
require proof of death or incompetency before a
withdrawal is allowed.
SPECIAL DEPOSIT ACCOUNTS
The Bank offers a number of special purpose accounts,
as well as trust, custodial, retirement, and fiduciary
accounts. A Bank representative can provide details.
DEPOSITS
HOW TO DEPOSIT
You can make deposits in person or by mail. If you
are a consumer or qualifying business, you can also
use your HSBC MasterCard®, Visa®, Debit
MasterCard® or ATM card to make deposits at HSBC
Automated Teller Machines (ATMs) and certain
other electronic facilities. The Bank is not obligated
to accept unwarranted substitute checks for deposit.
For more information about electronic banking, refer
to the Bank’s electronic banking services disclosures
for the services you are using.
DIRECT DEPOSIT
You can arrange to have funds, such as your Social
Security or other Federal payment(s) and your
paychecks, directly deposited into your checking or
savings account.
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ANNUAL INTEREST EARNED
If required by IRS regulations based on the interest
earned on your deposit accounts on an annual basis,
a combined year-end statement will be sent to you
by the Bank.
JOINT ACCOUNTS
This is a summary of some of the important legal
rules governing your joint account. The law
regarding joint deposits is very complicated, and this
summary does not try to answer all the questions that
could arise.
The rules stated in this summary apply to accounts
and CDs in the names of two or more persons or the
survivor of them. They do not apply to trust accounts,
custodial accounts, “Totten Trust” accounts or any
other account that is not a joint account with the right
of survivorship.
RELATIONSHIP BETWEEN
JOINT DEPOSITORS
JOINT OWNERSHIP OF ACCOUNT
All funds deposited in a joint account, including any
interest earned, become the property of all joint
tenants. Even if only one depositor puts in all the
money or puts in more than the other(s), all money
on deposit will be owned jointly.
RIGHT OF SURVIVORSHIP
The Bank will assume that when you open a joint
account you intend to create a right of survivorship,
unless you establish the account under the Bank’s
procedures for Tenants in Common. A right to
survivorship means that if one joint depositor dies,
the money in the account belongs entirely to the
surviving depositor(s).
TENANTS IN COMMON
A joint account may be held as Tenants in Common
if when the account is opened the joint owners enter
into the Bank’s agreement for accounts held as
Tenants in Common and designate the percentage of
the funds to be paid to the survivor(s) on the death
of a joint owner. Until the Bank receives notice of
the death of a tenant, all funds in the account may be
treated as the property of each of the tenants in
common without any limitation.
YOUR AGREEMENT
WITH THE BANK
WITHDRAWALS FROM ACCOUNT
While all the joint depositors named on the account
are living, the Bank will honor checks, other
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Payment Orders and withdrawal requests made by
any one of them, unless the Bank receives a written,
signed notice from another joint depositor telling us
not to. If the Bank receives such a notice, the Bank
may require the signatures of all the joint depositors
before the Bank allows any further withdrawals (of
principal or interest) to be made from the account.
THE BANK’S OBLIGATION
SATISFIED BY PAYMENT
If the Bank honors a check, other Payment Order or
withdrawal request made by a joint depositor before
the Bank receives written notice from another joint
depositor telling the Bank not to, the Bank has
satisfied its obligation with respect to all money the
Bank paid or delivered and is not liable to other
joint depositors. (Although the joint depositors may
be liable to each other for withdrawing more than
their shares of the account, the Bank is not
responsible for making sure a depositor does not
withdraw more than his or her share.)
DEBTS OWED THE BANK AND LEGAL PROCESS
If one joint depositor owes the Bank money and the
debt becomes due, the Bank can use any money in
the joint account to pay the debt. Further, if a
depositor has an account, in that depositor’s name
solely, and that depositor owes the Bank money,
you agree that any money held in a joint account
with that depositor and you may also be used to pay
the debt.
If one joint depositor has a judgment or other debt
against him or her, the Bank may be required by
legal process to pay out money from the joint
account to satisfy that judgment or debt. The Bank
is not responsible for determining or otherwise
claiming funds in your account are exempt from the
reach of a third party, unless otherwise expressly
required by applicable law.
If one joint depositor overdraws the joint account, you
agree that the Bank may use any funds in any other
accounts of either joint depositor to pay the debt.
MORE ABOUT YOUR ACCOUNT
STANDARD OF CARE
You agree the standard of ordinary care and good
faith which the Bank will use in handling your
account is to be measured against the practice of
other commercial banks similar to HSBC in size.
BALANCE INFORMATION
Balances may change frequently throughout a
business day. You hereby waive any claim against
the Bank based on representations made by the
Bank, either orally or in writing, to you, or your
authorized person, or to any other party, regarding
balance information.
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How do I make a claim for a refund? If you believe
that you have suffered a loss relating to a substitute
check that you received and that was posted to your
consumer checking account, please contact us at
1-800-975-HSBC (4722). You must contact us within
40 calendar days of the date that we mailed, or made
available to you, the substitute check in question or
the account statement showing that the substitute
check was posted to your consumer checking
account, whichever is later. We will extend this time
period if you were not able to make a timely claim
because of extraordinary circumstances.
Your claim must include• A description of why you have suffered a loss
(for example, you think the amount withdrawn
was incorrect);
• An estimate of the amount of your loss;
• An explanation of why the substitute check you
received is insufficient to confirm that you
suffered a loss; and
• A copy of the substitute check and/or the following
information to help us identify the substitute check:
identifying information, for example the check
number, the name of the person to whom you
wrote the check, the amount of the check.
SUBSTITUTE CHECK DEPOSIT OR
ENCASHMENT LIMITATIONS
The Bank is not obligated to accept unwarranted
substitute checks for deposit or to cash a substitute
check over the counter.
SAVINGS ACCOUNTS
TYPES
The Bank offers a variety of savings accounts that
earn a preferred rate of interest as well as regular
savings accounts. See your Terms and Charges
Disclosure for details.
NOTICE OF WITHDRAWAL
The Bank has the right to ask you for seven days
advance notice of withdrawal.
PASSBOOK ACCOUNTS
If you have a passbook account, the Bank can refuse to
allow a withdrawal unless you present the passbook.
If your passbook is lost, stolen or destroyed, notify
the Bank immediately. The Bank will have you sign
an agreement protecting you and the Bank. The
Bank may require you to wait (no more than 30
days) before the Bank pays you.
The amount in your passbook is considered correct
only if it agrees with the Bank’s records.
NOT TRANSFERABLE
Savings accounts are not transferable except on the
Bank’s books.
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CONSUMER CHECKING ACCOUNTS
RECEIVING PAID CHECKS WITH
STATEMENTS – SUBSTITUTE CHECKS
AND YOUR RIGHTS.
What is a substitute check? To make check
processing faster, federal law permits banks to
replace original checks with “substitute checks.”
These checks are similar in size to original checks
with a slightly reduced image of the front and back
of the original check. The front of a substitute check
states: “This is a legal copy of your check. You can
use it the same way you would use the original
check.” You may use a substitute check as proof of
payment just like the original check.
Some or all of the checks that you receive back from
us may be substitute checks. This notice describes
rights you may have when you receive substitute
checks from us. The rights in this notice do not
apply to original checks or to electronic debits to
your account. However, you have rights under other
law with respect to those transactions.
What are my rights regarding substitute checks? In
certain cases, federal law provides a special procedure
that allows you to request a refund for losses you suffer
if a substitute check is posted to your consumer
checking account (for example, if you think that we
withdrew the wrong amount from your account or that
we withdrew money from your account more than
once for the same check). The losses you may attempt
to recover under this procedure may include the
amount that was withdrawn from your consumer
checking account and fees that were charged as a result
of the withdrawal (for example, bounced check fees).
The amount of your refund under this procedure is
limited to the amount of your loss or the amount of the
substitute check, whichever is less. You also are
entitled to interest on the amount of your refund if
your account is an interest bearing consumer account.
If your loss exceeds the amount of the substitute
check, you may be able to recover additional amounts
under other law.
If you use this procedure, you may receive up to
$2,500 of your refund (plus interest if your account
earns interest) within 10 business days after we
received your claim and the remainder of your refund
(plus interest if your account earns interest) not later
than 45 calendar days after we received your claim.
We may reverse the refund (including any interest on
the refund) if we later are able to demonstrate that the
substitute check was correctly posted to your account.
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FEES
You agree to pay and to have your account charged
for all maintenance fees and service fees incurred by
you including, but not limited to, all usual and
customary fees that the Bank may, from time to
time, charge for any products and services provided.
The Bank may impose a reasonable charge, which
shall not be refundable, on inactive accounts, as set
forth in the Bank’s Terms and Charges Disclosure.
REIMBURSEMENT OF BANK
IN THE EVENT OF A DISPUTE
You agree to be liable to the Bank for any losses,
costs, or expenses the Bank incurs as a result of any
dispute involving your account. You authorize the
Bank to deduct any such losses, costs, or expenses
from your account without prior notice to you. This
obligation includes disputes between you and the
Bank involving the account and situations where the
Bank becomes involved in disputes between you
and an authorized person, another joint owner, or a
third party claiming an interest in the account.
LIEN AND SETOFF
You give the Bank a continuing lien on any account
or other personal property of yours which is in the
possession or control of either the Bank or any of
the Bank’s affiliates, including, but not limited to,
Bank deposits and securities. This lien shall be in
the amount of any and all liabilities and obligations
that you may owe to the Bank or any of the Bank’s
affiliates whether such liabilities and obligations
exist now or are incurred in the future. You agree
that the Bank and its affiliates may setoff against
your accounts and may sell your personal property
which is not an account, by public or private sale at
its discretion, and use the funds in such account or
the proceeds of such sale to satisfy such liabilities or
obligations whether or not such liabilities or
obligations are then in default or subject to a
contingency to the fullest extent permitted by
applicable law.
PERIODIC STATEMENTS AND ADVISES
Upon receipt of your monthly or periodic statement
(which may include a record of transactions and
images of cancelled items) or advises, you shall
exercise reasonable care and promptness in
examining the statement or advice. By using a
product or service that does not return copies of
cancelled items, you agree that the Bank will hold
copies of the cancelled items for you in accordance
with the applicable terms of service. You
acknowledge that copies of cancelled items held for
you are available at the same time as your statement
is first mailed, or made available to you, by the
Bank. You agree that you cannot make any claim
against the Bank arising from your account unless
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you promptly review your statement, and notify the
Bank of any errors, forgeries, or alterations within
fourteen (14) days from the date the Bank first
mailed, or made available to you, your statement or
advice. However, if the error involves an electronic
service, refer to the Bank’s electronic banking
services disclosures for the services you are using.
If you cannot balance your statement and do not
bring it to the Bank’s attention before you receive
your next statement, the Bank may charge you an
hourly reconcilement fee to locate the error.
The Bank may stop sending account statements if
you stop using your account or have not given the
Bank your current address. If the post office returns
as "undeliverable" any statement that the Bank sent
you, and if you do not provide the Bank with a
correct mailing address, the Bank will retain only
images of the statements and enclosures, not the
original items, for six years. Copies of your
statement are available by request during this six
year period in accordance with the Terms and
Charges Disclosure.
CHANGE OF ADDRESS
You (or an authorized person) must notify the Bank
promptly of any change of your address. The Bank
may require written notice or written confirmation
of this change. All statements and advises will be
sent to you by ordinary mail at the address last
recorded by the Bank.
DORMANCY AND ABANDONED PROPERTY
When an account is inactive the Bank follows
special procedures.
An account is considered inactive when:
No customer initiated deposits or only direct
deposits by a third party are made to your account;
no withdrawals or only preauthorized automatic
withdrawals are made from your account; AND the
Bank does not receive anything in writing from you
that indicates that you knew your account exists, or
if your account is a passbook account and you have
not presented the passbook to the Bank for entry of
any dividend or interest credit.
When a checking or savings account remains inactive
for three (3) consecutive years it is considered
dormant. If your account is considered dormant, the
Bank may prohibit access to your account until you
contact the Bank in person or in writing. Before your
account is classified as dormant, the Bank may try to
contact you to reactivate the account.
If your account remains inactive for the time period
specified by law, it may be deemed abandoned. If
your account is considered abandoned, the Bank
may cease to pay interest on the account, may close
the account, and, if required, turn the funds over to
the appropriate state abandoned property
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POST-DATED CHECKS
The Bank may certify or pay a check before the date
written on it and charge your account without being
liable to you. The Bank can also refuse to certify or
pay a post-dated check before its date. The Bank
may dishonor and return unpaid other items drawn,
accepted or made by you as a consequence of the
Bank having certified or paid a post-dated item.
CHECKS MORE THAN SIX MONTHS OLD
The Bank is not required to pay an uncertified check
six months after its date. The Bank may pay it,
however, and not be liable to you.
INTEREST BEARING CHECKING
The Bank’s interest bearing checking accounts are
really savings accounts against which you can write
checks. The Bank has the right to ask you for seven
days advance notice of withdrawal. If the Bank does,
the Bank will not be liable to you for dishonoring
your checks during the seven-day notice period.
EARNINGS CREDIT ANALYZED ACCOUNTS
Positive earnings credit is the amount of credit
earned depending on the positive investable balance
maintained throughout the cycle, which will be
applied toward the payment of service expense.
Negative investable balance is the total of all days
with a negative available balance, averaged over the
total number of days in the current analysis period;
reserves are not deducted from this balance.
RECORDCHECK® SERVICE
By choosing this service that does not provide image
copies of the front of cancelled items with your
statement, you have instructed the Bank to hold copies
of the cancelled items for you in accordance with the
IMAGE STATEMENT SERVICE
By choosing this service that provides image copies of
the front of cancelled items with your statement, you
have instructed the Bank to hold copies of the
cancelled items for you in accordance with the
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Your account may be debited on the day an item is
presented, or at such earlier time as notification is
received by the Bank by electronic or other means,
that an item drawn on your account has been
deposited for collection in another financial
institution. You understand that the Bank reserves
the right to pay items into overdraft, to impose
overdraft fees as permitted by law, and to apply any
later deposits (including direct deposits of social
security or other government benefits) to those
overdrafts or overdraft fees, by way of setoff. An
"item" includes checks, substitute checks, remotely
created checks, withdrawal slips or other in-person
transfers or withdrawals, service charges, electronic
items or transactions, including withdrawals made
from an automated teller machine, one-time or
recurring debit card transactions, pre-authorized
payments or transfers, ACH transactions, telephone
initiated transfers, online banking transfers or bill
payment instructions, and any other instruments or
instructions for the payment, transfer or withdrawal
of funds including an image or photocopy of any of
these. A determination of your account balance for
purposes of making a decision to dishonor an item
for insufficiency of available funds may be made at
any time between the receipt of such presentment or
notice and the time of return of the item, and no
more than one such determination need be made.
PAYMENT OF YOUR ITEMS
FOR YOUR ACCOUNT
The Bank generally pays the largest debit items
drawn on a depositor’s account first.
STOPPING PAYMENT
You can ask the Bank to stop payment on a check
drawn on your account in person, by mail, by phone,
or by using Hexagon®, the Bank’s internet banking
product and secure Bank e-mail. The Bank needs a
reasonable amount of time to apply the stop payment
request to your account and to verify that the check
has not already been paid. You (or an authorized
signer on your account) must give the Bank the
account number, payee, date, exact amount of the
check, and the correct check number. Without
completely accurate information on the amount of the
check and the check number, the Bank cannot ensure
a stop payment will occur. Your stop payment request
takes effect when the Bank records it on your account.
If you phone in your stop payment, you must confirm
it in writing within 14 days. Your written stop
payment request is good only for six months unless
you renew it in writing. Special procedures apply to a
stop payment for a funds transfer. Please refer to the
“Amendment and Cancellation” paragraph in the
“Funds Transfers” section of these Rules. The Bank
may charge you the fee shown on your Terms and
Charges Disclosure for each stop payment request.
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administrator. Note: Consecutive inactivity periods
for determining actual escheatment requirements
vary by the abandoned property laws of the
individual states, and by type of account. The Bank
is required to base the period for escheatment on the
state of the depositor’s last known address on the
Bank’s records, and that state’s corresponding
consecutive inactivity period.
At any time after the funds in the abandoned
account have been turned over to the appropriate
state abandoned property administrator, the
depositor (or other person entitled to the funds) may
reclaim this money from the state abandoned
property administrator.
TAXPAYER IDENTIFICATION NUMBER
Federal regulations require the Bank to record your
taxpayer identification number (Social Security
Number). If you do not give the Bank your number
on or shortly after the day you opened your account,
federal law requires the Bank to withhold a portion
of the amount of interest paid on your account each
time interest is credited.
CURRENCY TRANSACTION REPORTING
Federal regulations require the Bank to disclose
certain transactions involving your account. The
Bank may request information from you and
disclose information about your account whenever
the Bank believes it is necessary or appropriate to
comply with those federal regulations. Until you
provide sufficient information, the Bank may hold
your account or refuse any transaction.
POWER OF ATTORNEY
If the Bank receives a power of attorney
authorization in a form the Bank determines
complies with applicable state law, your attorneyin-fact can do whatever you could do with your
account. The Bank may honor an acceptable power
of attorney where you are one of the persons named
on a joint account. In that case, your attorney-in-fact
can do whatever you could do with your joint
account. The Bank is not required to seek the
consent of the other persons named on the joint
account before honoring the power of attorney. The
Bank may request the attorney-in-fact to indemnify
and hold the Bank harmless before the Bank honors
the power of attorney.
The Bank does not have to accept an out-of-state
power of attorney or a power of attorney which does
not comply with applicable state law.
ACCOUNT CLOSING
You can close your account at any time by notifying
your branch during normal business hours. The
Bank also has the right to close your account at any
time by sending you a notice and/or check for the
29
balance. If your account is closed, the Bank shall
send you any finally collected and available balance
in the account at the time the account is closed. The
Bank may return unpaid any items presented on
your account after it is closed.
The Bank may charge you a fee shown on the Terms
and Charges Disclosure.
SERVICE
The Bank may terminate any service at any time
without notice. If you wish to terminate a service,
you shall give the Bank prior written notice of your
intention to terminate. Termination by you shall
become effective no sooner than five (5) business
days after the Bank’s receipt of the termination
notice. The Bank may complete all requests and
instructions accepted on the day termination is to
become effective.
LEGAL PROCEEDINGS
Unless the Bank receives an order from a court of
competent jurisdiction that directs the Bank not to
act, the Bank will comply with legal proceedings in
any jurisdiction in which the Bank has offices even
if the legal proceeding occurs in a jurisdiction where
you are not located.
You agree that if you and/or your account become
involved in legal proceedings and the Bank receives a
legal document or other notice that the Bank believes
requires it to supply information on your account, to
restrict your account or to pay money from your
account, the Bank is authorized to do so regardless of
whether you appeared in those proceedings and
regardless of whether those proceedings occurred
within the jurisdiction where you and/or your account
are located. If this occurs, use of your account or
services that access your account may become
restricted and the Bank may charge you the fee shown
on your Terms and Charges Disclosure.
LIMITATION OF CLAIMS
You agree to make any claim or bring any legal
action relating to the Bank’s handling of your
account, in writing, within one (1) year of the date
the problem occurred, unless these Rules or
applicable law or regulation require earlier action by
you. You agree that if the problem involves a series
of events, such as a number of forgeries over a
period of time, then the date the first event occurred
shall be the date by which the period to make any
claim or bring any legal action shall begin to run.
LIMITATION OF LIABILITY
THE BANK ASSUMES NO LIABILITY FOR
SPECIAL, INCIDENTAL, CONSEQUENTIAL,
PUNITIVE OR INDIRECT LOSS OR DAMAGE
TO YOU INCLUDING LOST PROFITS
WHETHER OR NOT THE BANK HAS BEEN
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against your account that is presented for payment
over the counter at the Bank.
REMOTELY CREATED CHECKS
If you authorize a third party (such as a
telemarketer) over the phone or via the Internet to
debit from your account the amount(s) of one or
more “remotely created checks,” the third party may
create a check drawn on your account that the Bank
may pay, although it does not bear your signature.
While the Bank is authorized to honor such
remotely created checks, the Bank is not required to
do so and may refuse to honor any such remotely
created checks at its discretion. The Bank may
return such remotely created checks even if it has
honored similar remotely created checks in the past.
You agree that the Bank is not liable to you for any
losses that may result from either honoring or
dishonoring any such remotely created checks
drawn on your account. You are responsible for
reviewing your statement in a timely fashion and
reporting promptly to HSBC any claims of
unauthorized remotely created checks.
For HSBC business account-holders who originate
and deposit remotely created checks into an HSBC
account you affirm that such items are properly
authorized in accordance with applicable law and
that you will provide evidence of such authorization
to the Bank upon request. In the event such items
are not properly authorized or you are unable to
provide proof of proper authorization, you agree to
hold the Bank harmless from any losses arising
from this deficiency.
OVERDRAFTS AND OVERDRAFT FEES
An overdraft occurs when you do not have enough
money in your account to cover a transaction, but
we pay it anyway. We can cover your overdrafts
through our standard overdraft practices or through
an overdraft protection plan. Through our standard
overdraft practices, we authorize and pay overdrafts
for checks and we can also cover overdrafts for
preauthorized automatic bill payments. Under our
standard overdraft practices, we will charge you the
fee listed in our Terms & Charges disclosure. We
pay overdrafts at our discretion, which means we do
not guarantee that we will always authorize and pay
any type of transaction. If we do not authorize and
pay an overdraft, your transaction will be declined.
For consumer accounts, we do not authorize and
pay overdrafts for the following types of
transactions: ATM transactions and everyday debit
card transactions.
If you have a consumer or qualifying business
deposit account, you can use the available balance
on your qualifying credit account with the Bank to
fund any overdraft amount automatically. The
overdraft protection plan is subject to application
and credit approval.
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and partnerships. Be assured that we recognize the
importance of protecting your privacy and
safeguarding the confidentiality of the information
you provide to us.
CHECKING ACCOUNTS
TYPES
The Bank offers interest bearing and non-interest
bearing accounts to eligible consumers. The Bank also
offers a variety of non-consumer checking accounts.
See Terms and Charges Disclosure for details.
INTERNAL ACCOUNTING OF BALANCES
Your checking account may consist of two “subaccounts” on the books of the Bank. In that event, one
sub-account will be a checking account and the other
a savings account. The two will be treated as a single
account for customer use, and will not affect your
Bank statement, your account balance or the interest,
fees, and features of your account. For interest
bearing checking accounts, we will pay the same rate
of interest on balances in both sub-accounts.
All deposits and other credits will be posted to, and
checks and debits will be deducted from, the
checking sub-account. Whenever the checking subaccount balance exceeds a “threshold amount”
(which we may establish and change at our
discretion), we may transfer funds above that
amount to the savings sub-account. As these funds
are needed to pay items presented against your
checking account, the appropriate amount will be
transferred back to the checking sub-account, up to
six times per statement period. If the sixth transfer is
needed, the entire balance of the savings sub-account
will be transferred into the checking sub-account.
This process may be repeated each month.
Although the Bank has no present intention to
exercise this right, federal regulations require the
Bank to reserve the right to require at least seven
days written notice prior to withdrawal or transfer of
any funds in a savings account.
WRITING CHECKS
The Bank requires you to use the Bank’s checks.
Depending on style and number of checks you order
and what kind of checking account you have, the Bank
may charge a fee to your account for your checks.
SIGNATURES ON CHECKS OR DRAFTS
The Bank may, in its discretion, return unpaid a check
or draft that does not bear a signature reflected on the
signature card unless you have notified the Bank in
advance you want the check or draft to be paid.
CONVENIENCE CHECK CASHING FEE
You agree that the Bank may impose a fee on the
payee or other holder of a check or other item drawn
2
ADVISED OF THE POSSIBILITY OF SUCH
DAMAGE. You agree the Bank shall be liable only
for damages which are the direct result of the
Bank’s misconduct. If the Bank’s conduct results in
an inappropriate delay of transfer or withdrawal, the
Bank’s liability, as liquidated damages and not as a
penalty, shall be an amount equal to the interest, at
the Federal Funds rate, payable on the amount of the
funds which were directed by you to be transferred
in the Payment Order for the period of delay.
COOPERATION WITH INVESTIGATION
You agree, in the event of any claim arising from
your account to cooperate and assist both the Bank
and any law enforcement authorities in connection
with any investigation and prosecution of any
suspected wrongdoer. You understand and agree that
failure to cooperate may result, in the Bank’s sole
discretion, in the Bank dishonoring any claim which
you have made.
INDEMNITY AGAINST ACTIONS
OF AUTHORIZED PERSONS
In order to induce the Bank to honor requests for
services, including but not limited to those
enumerated above, you hereby agree to indemnify
and hold the Bank, its successors, assigns,
correspondents, directors, officers, employees and
agents harmless for all losses, costs, damages,
expenses (including attorney’s fees) and liability for
any claim or demand occasioned by or action
brought by virtue of any misconduct, negligence,
action or omission on the part of any individual who
has been listed as a person authorized to act on your
behalf in any document provided by you to
the Bank.
FORCE MAJEURE
The Bank shall not be liable for any loss or damage
to you caused by the Bank’s failure to provide any
service requested by you resulting from an act of
God, fire, catastrophe, electrical, mechanical or
computer failure, telecommunications failure or
failure of any agent or correspondent or any other
cause beyond the Bank’s control, provided it
exercises such diligence as the circumstances
may require.
NOTICES
Any notice we send you will take effect when it is
personally delivered to you or mailed to the last
address we have for you in our records. A notice
from you will be considered received when received
at the Bank’s Customer Service Department and
will take effect following the expiration of any
notice period that may be specified in the Deposit
Account Agreement.
31
CHANGES TO THE RULES
The Bank can change these Rules or impose other
restrictions on your account, as the Bank deems
necessary or appropriate, in the course of its business
at any time.
Before the change goes into effect you will be
notified:
• either by mail,
• by a posting in your branch, or
• by a published statement in the newspaper.
If notice is sent to you, use of ordinary mail or inbranch notification shall be sufficient. Changes to
these Rules which are required by law may be
implemented immediately or as required by law.
SEVERABILITY
If any provision(s) of these Rules shall be held to be
illegal or unenforceable, the validity of the remaining
portions of these Rules shall not be affected.
WAIVER
No waiver of any term, provision, or condition of
this Agreement, whether by conduct or otherwise, in
any one or more instances, will be deemed, or shall
constitute, a waiver of any other provision hereof,
whether or not similar, nor will such waiver
constitute a continuing waiver, and no waiver shall
be binding unless executed in writing by the party
making the waiver.
OTHER TERMS AND CONDITIONS
Other terms and conditions, not stated herein, may
apply to your account. All such other terms and
conditions remain in full force and effect and
continue to govern your account except as stated in
these Rules.
BANK SECRECY ACT - REGULATORY
REPORTING REQUIREMENTS
As part of the Bank Secrecy Act recordkeeping
requirements, the Bank is responsible to obtain,
verify and record customer information for certain
transactions and report this information to U.S.
Government agencies. The information obtained
includes, but is not limited to:
• Name and home address (photo identification
required) for an individual or Business name and
business address
• Social Security or taxpayer identification number
• Date of birth for an individual
• Occupation
• Information for anyone on whose behalf you are
conducting transactions
The above information may be required when
conducting certain cash transactions, including, but
not limited to:
32
OUR AGREEMENT
These Rules are part of the Agreement between you
and HSBC Bank USA, National Association (the
“Bank” or “HSBC”), and contain some of the terms
and conditions for deposit accounts. The Bank offers a
variety of products and services, including checking,
savings, money market, certificates of deposit (CDs),
escrow accounts, retirement plans and electronic
banking services. Any Terms and Charges Disclosure
applicable to your account is also a part of the
Agreement. By signing a contract to open any deposit
account or by using a Bank product or service, you
agree that these Rules, as amended from time to time,
shall apply to all your deposit accounts.
If there is a conflict between these Rules and
something one of our employees says, the Bank will
follow these Rules. These Bank Rules supersede and
replace all prior Bank Rules.
GOVERNING LAWS AND REGULATIONS
These Rules shall be governed by and interpreted
according to federal law, and by applicable state
law, clearing house rules, ACH rules and general
commercial bank practices applicable to the
services provided, to the extent not superceded by
federal law. The applicable state law (to the extent
not superceded by federal law) shall be the law of
the state where the deposit account is opened, if
opened in person. For deposit accounts opened by
telephone, Internet, or through our Payments &
Cash Management Division, applicable New York
law will govern to the extent not superceded by
federal law. If these Rules conflict at any time with
the applicable federal or state law or regulation, the
Rules will be considered changed to the extent
necessary to comply. The Bank's failure to enforce
these Rules or waiver of any of the provisions of
these Rules in any instance will not prevent the
Bank enforcing these Rules at any other time.
PROCEDURES FOR OPENING
A NEW ACCOUNT
To help the government fight the funding of
terrorism and money laundering activities, Federal
law requires all financial institutions to obtain,
verify, and record information that identifies each
person or entity that opens an account.
What this means to you: If you open a personal
account, we will ask for your name, address,
taxpayer identification number, date of birth, and
other information that will allow us to identify you.
Additionally, we will take certain steps to verify
your identity, such as asking for your driver’s
license or other identifying documents or checking
other sources. Similar identification requirements
apply to non-personal accounts such as corporations
1
TABLE OF CONTENTS
Our Agreement
1
Checking Accounts
2
Savings Accounts
7
Certificates Of Deposit
8
Special Deposit Accounts
8
Deposits
8
Availability Of Funds
10
Withdrawals
19
Funds Transfers
20
Interest
24
Joint Accounts
25
Relationship Between Joint Depositors
25
Your Agreement With The Bank
25
More About Your Account
26
Currency Transaction Reports
If you make cash withdrawals, cash deposits,
currency exchanges or other payments or transfers
with cash, exceeding $10,000, the Bank is required
to complete a Currency Transaction Report.
Monetary Instrument Reports
The Bank reserves the right to obtain identification
and additional information from customers who
purchase U.S. Dollar Drafts (Cashier’s Checks),
Foreign Drafts, Money Orders or Traveler’s
Cheques (including gift checks) for any amount.
Structuring Transactions
Any person who conducts or assists in transactions
designed to evade U.S. Government reporting
requirements, which may include splitting
transactions into smaller amounts, can be subject to
criminal penalties, including fines, imprisonment
or both.
The Bank complies with recording and
recordkeeping requirements under the Bank
Secrecy Act including monitoring accounts on a
periodic basis for compliance.
The Bank reserves the right to close any account
that attempts to avoid these requirements.
PROHIBITED TRANSACTIONS
The Unlawful Internet Gambling Enforcement Act
of 2006 (UIGEA) prohibits any person engaged in
the business of betting or wagering from knowingly
accepting any payment in connection with the
participation of another person in unlawful Internet
gambling (a"restricted transaction"). You
acknowledge and agree that you are prohibited from
processing a restricted transaction through your
account or banking relationship with HSBC. Your
participation, or attempted participation, in any
restricted transaction through your account or
banking relationship with HSBC may result in the
termination of your banking relationship with
HSBC and/or the closure of your account.
WAIVER OF TRIAL BY JURY
YOU AND THE BANK AGREE TO WAIVE THE
RIGHT TO TRIAL BEFORE A JURY IN ANY
ACTION FOR ANY CLAIMS THAT MAY ARISE
FROM OR RELATE TO YOUR DEPOSIT
ACCOUNT INCLUDING, BUT NOT LIMITED TO,
CONTRACT, NEGLIGENCE, USE, ATTORNEYSIN-FACT, RESTRAINT AND EXECUTION.
33
RULES FOR
DEPOSIT
ACCOUNTS
HSBC Bank USA, N.A.
G 2333 SF (Rev. 6/10)
APS # 074767
EXHIBIT C
HSBCID
BUSINESS
CHECKING ACCOUNTS
TERMS & CHARGES DISCLOSURE
The following information was correct as of:
PRODUCT
(X) INDICATES
ACCOUNT SELECTED
Free Business
Checking
(
ANNUAL
INTEREST RATE
ANNUAL YIELD
No interest earned
)
MONTHLY
TRANSACTION
LIMITS/FEES
Up to 300 transactions*
can be processed per
month without any
additional Transaction
Fee.**
MAINTENANCE
MONTHLY FEE
FEE
WAIVED WITH
$0
NIA
$25.00
A combined*** average daily
available balance of $25,000 in your
Extra Vantage" for Business account,
A Transaction Fee of
$25 will be- assessed for
each transaction over 300.
ExtraVantage.,
No interest earned
for Business
(
)
Up to 750 transactions*
can be processed per
month without any
additional Transaction
Fee.
any related I:ISBC_busine~s- ~a_viJJgs_
aCc'Ount(s) and Certificate of
Deposit Account(s).
A Transaction Fcc of
$.25 will be assessed for
each transaction over 750.
Participation in the above products is subject to
bank approval.
* We define transaction as each deposit, each
item appearing on a deposit ticket and each
check or other withdrawal from your account
including any electronic transactions. The
transaction limit is based on a total of all
transactions conducted in your Business
Checking account for the calendar month.
***Combined balances include your
Extra Vantage" for Business checking,
business savings, commercial money
market accounts, and business Certificate
of Deposit accounts. Special purpose
accounts, retirement accounts and checking
accounts, other than your Extra Vantage for
Business checking account, are excluded.
Personal accounts are also excluded.
We reserve the right, with notice, to transfer your
account to a higher transaction limit product.
Account transfers will be based upon a review of
transaction activity. Businesses with more than
750 checking transactions per month should
consult HSBC for information on the banking
relationship most advantageous to them.
** We will charge a cash handling service fee
ofS2.00 per $1,000 of cash (currency and
coin) deposited at an HSBC branch. The
fee will be assessed on a per transaction
basis and applies to teller, ATM and night
deposit transactions.
HSBC
CIS 208 AMB!DEIFL/LlfMH!NYCIPAIWCfWD - to 1/102/1 04/123/l 53/154/155/180/!81/201/203/373 (Rev. l 0/09)
APS # 714385
BALANCE COMPUTATION- The Average Daily Available Balance is determined by adding the available balance in the account for each day of the
period and dividing that figure by the number of days in the period. Available Balance is the balance in your account each day minus (-) any deposited noncash
item (e.g., checks) for which we have not yet received credit.
STATE:MENTS ARE l\1AILED PERIODICALLY- The monthly statement date for your account depends on what day of the month we prepare your
statement. There can be from 28 to 35 calendar days in a monthly statement cycle.
RECORDCHEC~- With Recordcheck, we will keep a record of your cancelled checks instead of returning them with your statement. If you need a copy
of your cancelled check, contact your branch and one will be mailed to you.
SERVICE FEES which may apply when services are rendered:
We will notify you 30 days in advance of any increase in the following Account Related Service Fees.
Account Closing ................ .
if you close your account within six months
of opening.
..... S25
Balance Verification Letter . . . . . . . . . . . . . . . ............. S 20
for original letter provided verifying your
deposit account(s) with us; may be notarized.
Additional Copies.
. ... 5 5 each
Cash Handling
................ .
per $1,000 of cash deposited at an HSBC
branch. See first page for further details.
.$ 2each
Legal Papers. . . . . . . . . . . . . . . . . . . .
. .. $ I 00 each
for each court order, restraining notice, levy or other
legal paper that requires us to put a hold on your account
or to pay out money from your account to someone else.
Reconcilement .
. . . . . . . . . .......... $50 hour
if you cam10t balance your statement and do not bring it
to our attention before you receive your next statement,
we may charge you an hourly fee to locate the eJTor.
Research Requested on your account:
Photocopy of item/statement .......................... $ 5 each
Reconstroction of statement (plus copy fees).........
. . $40 hour
Chargeback.
.................
. ............. $10 each
for each check or other item that you deposit
that is returned to us unpaid.
Roll of Coin Furnished (charged monthly)
. ................. $ 35 each
Insufficient Ftmds (NSF) Checking. .
for each withdrawal, check or electronic fund transfer
we pay or return that overdraws your account.
Stop Payment . . . . . . ........ .
for each Stop Payment Order placed.
Insufficient Funds (NSF) Savings ......................... $35 each
applies only to ACH debits presented against
insufficient funds.
Special Statement. ............ .
............ $.15 each
. ................. $ 6each
. . $30 each
Unavailable Funds (UNA).
for each withdrawal, check or electronic fund
transfer we pay or return that is drawn against
unavailable funds.
. .... $35each
Interested Party Statement ............................... $ 5 each
for each statement sent to a third party at the
customer's request.
The following Miscellaneous Bank Service Fees are subject to change without notice:
Canadian Check Processed. . . . . . . . . . . . . . . . .
. . $ 2 each
Funds Transfer-In, per incoming transfer.
Canadian Dollar Draft Purchased ..
.. $10each
....... $25 item
Domestic Collection .
. ....... .
for each check drawn on a United States bank
that must be sent for collection.
Foreign Currency Draft ......................... . . . $25 each
. ... $15 each
Funds Transfer-Out, per outgoing transfer ........... .
Money Order ..
. ... $ Seach
Protest Letter ..
U.S. Dollar Draft .
. $30 each
. $20 each
. ...... $10each
See EFT FACILITY CHARGES folder for service fees applicable to functions performed at an HSBC ATM or other Electronic Facility.
BANK RULES - This document is part of tbe "Rules for Deposit Accounts". In case of inconsistency between this document and the rules, this
document governs.
C!S 208 AMBffiEIFULIMH!NYCIPA/WCfWD- !0!/!021!041l231153/l54il551180/l81/20!/203/373 (Rev. 10/09)
APS # 714385
EXHIBIT D
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
[Docket No. 05-03]
FEDERAL RESERVE SYSTEM
[Docket No. OP-1198]
FEDERAL DEPOSIT INSURANCE CORPORATION
NATIONAL CREDIT UNION ADMINISTRATION
Joint Guidance on Overdraft Protection Programs
AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC); Board of
Governors of the Federal Reserve System (Board); Federal Deposit Insurance
Corporation (FDIC); and National Credit Union Administration (NCUA).
ACTION: Final Guidance.
SUMMARY: The OCC, Board, FDIC, and NCUA (the Agencies), are issuing final Joint
Guidance on Overdraft Protection Programs (guidance). This guidance is intended to
assist insured depository institutions in the responsible disclosure and administration of
overdraft protection services.
FOR FURTHER INFORMATION CONTACT:
OCC: Michael Bylsma, Director, Margaret Hesse, Special Counsel, or Deana Lee,
Attorney, Community and Consumer Law Division, (202) 874-5750; or Kim Scherer,
National Bank Examiner/Credit Risk Specialist, Credit Risk Policy, (202) 874-5170.
Board: Minh-Duc T. Le, Senior Attorney, Daniel Lonergan, Counsel, or Elizabeth
Eurgubian, Attorney, Division of Consumer and Community Affairs, (202) 452-3667; or
William H. Tiernay, Supervisory Financial Analyst, Division of Bank Supervision and
Regulation, (202) 452-2412. For users of Telecommunications Device for the Deaf
(“TDD”) only, contact (202) 263-4869.
FDIC: Mark Mellon, Counsel, (202) 898-3884, Legal Division; James Leitner,
Examination Specialist, (202) 898-6790; Patricia Cashman, Senior Policy Analyst, (202)
898-6534; or April Breslaw, Chief, Compliance Section, (202) 898-6609, Division of
Supervision and Consumer Protection.
NCUA: Elizabeth A. Habring, Program Officer, Office of Examination and Insurance,
(703) 518-6392; or Ross P. Kendall, Staff Attorney, Office of the General Counsel, (703)
518-6562.
SUPPLEMENTARY INFORMATION:
I.
Background
The Agencies have developed this final joint guidance to address a service offered
by insured depository institutions commonly referred to as “bounced-check protection” or
“overdraft protection.” This service is sometimes offered to transaction account
customers as an alternative to traditional ways of covering overdrafts (e.g., overdraft lines
of credit or linked accounts).
While both the availability and customer acceptance of these overdraft protection
services have increased, aspects of the marketing, disclosure, and implementation of
some of these programs have raised concerns with the Agencies. In a 2001 letter, the
OCC identified some of these particular concerns.1 In November 2002, the Board sought
comment about the operation of overdraft protection programs.2
In response to concerns raised about overdraft protection products, the Agencies
published for comment proposed Interagency Guidance on Overdraft Protection
Programs, 69 FR 31858 (June 7, 2004).3 The proposed guidance identified the historical
and traditional approaches to providing consumers with protection against account
overdrafts, and contrasted these approaches with the more recent overdraft protection
programs that are marketed to consumers. The Agencies also identified some of the
existing and potential concerns surrounding the offering and administration of such
overdraft protection programs that have been identified by federal and state bank
regulatory agencies, consumer groups, financial institutions, and their trade
representatives.
In response to these concerns, the Agencies provided guidance in three primary
sections: Safety and Soundness Considerations, Legal Risks, and Best Practices. In the
section on Safety and Soundness Considerations, the Agencies sought to ensure that
financial institutions offering overdraft protection services adopt adequate policies and
procedures to address the credit, operational, and other risks associated with these
services. The Legal Risks section of the proposed guidance outlined several federal
consumer compliance laws, generally alerted institutions offering overdraft protection
services of the need to comply with all applicable federal and state laws, and advised
institutions to have their overdraft protection programs reviewed by legal counsel to
ensure overall compliance prior to implementation. Finally, the proposed guidance set
forth best practices that serve as positive examples of practices that are currently
observed in, or recommended by, the industry. Broadly, these best practices address the
marketing and communications that accompany the offering of overdraft protection
services, as well as the disclosure, and operation, of program features.
The Agencies together received over 320 comment letters in response to the
proposed guidance. Comment letters were received from depository institutions, trade
associations, vendors offering overdraft protection products, and other industry
representatives, as well as government officials, consumer and community groups, and
individual consumers.
II.
Overview of Public Comments
The Agencies received comments that addressed broad aspects of the guidance, as
well as its specific provisions. Many industry commenters, for instance, were concerned
about the overall scope of the guidance and whether it would apply to financial
institutions that do not market overdraft protection programs to consumers but do cover
1
OCC Interpretive Letter 914, September 2001. 67 FR 72618, December 6, 2002. The Board received approximately 350 comments; most were from
industry representatives describing how the programs work. 3
The Office of Thrift Supervision joined the Agencies proposing the interagency guidance. 2
2
the occasional overdraft on a case-by-case basis. Commenters also addressed the three
specific sections of the proposed guidance.
In regard to the Safety and Soundness section, for example, many industry
commenters suggested extending the proposed charge-off period from 30 days to a longer
period such as 45 or 60 days, in part because they believed a longer charge-off period
would provide consumers with more time to repay overdrafts and avoid being reported to
credit bureaus as delinquent on their accounts. Comments were also received addressing
technical reporting and accounting issues.
The Agencies received numerous comments regarding the Legal Risks section –
particularly the Equal Credit Opportunity Act and Truth in Lending Act (TILA)
discussions. For instance, many consumer and consumer group comments stated that
overdraft protection should be considered credit covered by TILA’s disclosures and other
required protections. Some of these comments likened the product to payday lending,
which is covered by TILA. Many industry commenters argued against the coverage of
overdraft programs by TILA and Regulation Z, and argued that the payment of overdrafts
does not involve credit and finance charges requiring TILA disclosures and protections.
Lastly, many commenters also offered specific criticism or recommended edits
with respect to particular best practices identified in the proposal. Several industry
commenters sought general clarification on whether examiners would treat the best
practices as law or rules when examining institutions offering overdraft protection
services.
III.
Final Joint Guidance
The final joint guidance incorporates changes made by the Agencies to provide
clarity and address many commenter concerns. In particular, language has been added to
clarify the scope of the guidance. The Safety and Soundness section expressly states that
it applies to all methods of covering overdrafts. The introduction to the Best Practices
section clarifies that while the Agencies are concerned about promoted overdraft
protection programs, the best practices may also be useful for other methods of covering
overdrafts.
In response to the comments regarding the Safety and Soundness section, the
Agencies have extended the charge-off requirement to 60 days.4 Other technical edits
have been made to further clarify reporting and accounting aspects of this section of the
guidance.
The discussion regarding the applicability of TILA has been shortened to more
closely focus on the relevant, existing regulatory provisions. In the proposed guidance,
the discussion of TILA and Regulation Z, like the individual discussions of other laws
4
Federal credit unions are required by regulation to establish a time limit, not to exceed 45 calendar days,
for a member to either deposit funds or obtain an approved loan from the credit union to cover each
overdraft. 12 CFR § 701.21(c)(3).
3
and regulations (e.g., the Federal Trade Commission Act), was not intended to represent a
full explication of the scope, terms, and exceptions to those provisions. Rather, it was
intended to highlight that, commonly, fees charged in connection with overdraft
protection programs and traditional methods of paying overdrafts fall within an existing
regulatory exception to the “finance charge” definition. Disparate commenters urged the
Board to take positions on various aspects of TILA and Regulation Z that are unnecessary
in light of the exception addressed and the appropriate scope of the guidance. The
revisions to this section, and the addition of language to the Safety and Soundness section
to address the credit nature of overdrafts, is not intended as a commentary on the statute,
nor the adoption of any particular commenter point of view. As indicated in the proposal,
the existing regulatory exceptions were created for the occasional payment of overdrafts,
and as such could be reevaluated by the Board in the future, if necessary. Were the
Board to address these issues more specifically, it would do so separately under its clear
authority.
Lastly, in the final joint guidance, the Agencies reaffirm that the best practices are
practices that have been recommended or implemented by financial institutions and
others, as well as practices that may otherwise be required by applicable law. The best
practices, or principles within them, are enforceable to the extent they are required by
law. In addition, as mentioned above, the final guidance explicitly states that while the
Agencies are particularly concerned about promoted overdraft protection programs, these
practices may be useful in connection with other methods of covering overdrafts. The
Agencies have also revised numerous best practices for clarity, in response to particular
commenter suggestions.
The text of the final Joint Guidance on Overdraft Protection Programs follows:
Joint Guidance on Overdraft Protection Programs
The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal
Reserve System (Board), Federal Deposit Insurance Corporation (FDIC), and National
Credit Union Administration (NCUA), collectively “the Agencies,” are issuing this joint
guidance concerning a service offered by insured depository institutions that is
commonly referred to as “bounced-check protection” or “overdraft protection.” This
credit service is sometimes offered on both consumer and small business transaction
accounts as an alternative to traditional ways of covering overdrafts. This joint guidance
is intended to assist insured depository institutions in the responsible disclosure and
administration of overdraft protection services, particularly those that are marketed to
consumers.5
5
Federal credit unions are already subject to certain regulatory requirements governing the establishment
and maintenance of overdraft programs. 12 CFR § 701.21(c)(3). This regulation requires a federal credit
union offering an overdraft program to adopt a written policy specifying the dollar amount of overdrafts
that the credit union will honor (per member and overall); the time limits for a member to either deposit
funds or obtain a loan to cover an overdraft; and the amount of the fee and interest rate, if any, that the
credit union will charge for honoring overdrafts. This joint guidance supplements but does not change
these regulatory requirements for federal credit unions.
4
Introduction
To protect against account overdrafts, some consumers obtain an overdraft line of credit,
which is subject to the disclosure requirements of the Truth in Lending Act (TILA). If a
consumer does not have an overdraft line of credit, the institution may accommodate the
consumer and pay overdrafts on a discretionary, ad-hoc basis. Regardless of whether the
overdraft is paid, institutions typically have imposed a fee when an overdraft occurs,
often referred to as a nonsufficient funds or “NSF” fee. Over the years, this
accommodation has become automated by many institutions. Historically, institutions
have not promoted this accommodation. This approach has not raised significant
concerns.
More recently, some depository institutions have offered “overdraft protection” programs
that, unlike the discretionary accommodation traditionally provided to those lacking a
line of credit or other type of overdraft service (e.g., linked accounts), are marketed to
consumers essentially as short-term credit facilities. These marketed programs typically
provide consumers with an express overdraft “limit” that applies to their accounts.
While the specific details of overdraft protection programs vary from institution to
institution, and also vary over time, those currently offered by institutions incorporate
some or all of the following characteristics:
• Institutions inform consumers that overdraft protection is a feature of their accounts
and promote the use of the service. Institutions also may inform consumers of their
aggregate dollar limit under the overdraft protection program.
• Coverage is automatic for consumers who meet the institution’s criteria (e.g., account
has been open a certain number of days; deposits are made regularly). Typically, the
institution performs no credit underwriting.
• Overdrafts generally are paid up to the aggregate limit set by the institution for the
specific class of accounts, typically $100 to $500.
• Many program disclosures state that payment of an overdraft is discretionary on the
part of the institution, and may disclaim any legal obligation of the institution to pay
any overdraft.
• The service may extend to check transactions as well as other transactions, such as
withdrawals at automated teller machines (ATMs), transactions using debit cards,
pre-authorized automatic debits from a consumer’s account, telephone-initiated funds
transfers, and on-line banking transactions.6
6
Transaction accounts at credit unions are called share draft accounts. For purposes of this joint guidance,
the use of the term “check” includes share drafts.
5
• A flat fee is charged each time the service is triggered and an overdraft item is paid.
Commonly, a fee in the same amount would be charged even if the overdraft item
was not paid. A daily fee also may apply for each day the account remains
overdrawn.
• Some institutions offer closed-end loans to consumers who do not bring their
accounts to a positive balance within a specified time period. These repayment plans
allow consumers to repay their overdrafts and fees in installments.
Concerns
Aspects of the marketing, disclosure, and implementation of some overdraft protection
programs, intended essentially as short-term credit facilities, are of concern to the
Agencies. For example, some institutions have promoted this credit service in a manner
that leads consumers to believe that it is a line of credit by informing consumers that their
account includes an overdraft protection limit of a specified dollar amount without clearly
disclosing the terms and conditions of the service, including how fees reduce overdraft
protection dollar limits, and how the service differs from a line of credit.
In addition, some institutions have adopted marketing practices that appear to encourage
consumers to overdraw their accounts, such as by informing consumers that the service
may be used to take an advance on their next paycheck, thereby potentially increasing the
institutions’ credit exposure with little or no analysis of the consumer’s creditworthiness.
These overdraft protection programs may be promoted in a manner that leads consumers
to believe that overdrafts will always be paid when, in reality, the institution reserves the
right not to pay some overdrafts. Some institutions may advertise accounts with
overdraft protection coverage as “free” accounts, and thereby lead consumers to believe
that there are no fees associated with the account or the overdraft protection program.
Furthermore, institutions may not clearly disclose that the program may cover instances
when consumers overdraw their accounts by means other than check, such as at ATMs
and point-of-sale (POS) terminals. Some institutions may include overdraft protection
amounts in the sum that they disclose as the consumer’s account “balance” (for example,
at an ATM) without clearly distinguishing the funds that are available for withdrawal
without overdrawing the account. Where the institution knows that the transaction will
trigger an overdraft fee, such as at a proprietary ATM, institutions also may not alert the
consumer prior to the completion of the transaction to allow the consumer to cancel the
transaction before the fee is triggered.
Institutions should weigh carefully the risks presented by the programs including the
credit, legal, reputation, safety and soundness, and other risks. Further, institutions
should carefully review their programs to ensure that marketing and other
communications concerning the programs do not mislead consumers to believe that the
program is a traditional line of credit or that payment of overdrafts is guaranteed, do not
mislead consumers about their account balance or the costs and scope of the overdraft
6
protection offered, and do not encourage irresponsible consumer financial behavior that
potentially may increase risk to the institution.
Safety & Soundness Considerations
When overdrafts are paid, credit is extended. Overdraft protection programs may expose
an institution to more credit risk (e.g., higher delinquencies and losses) than overdraft
lines of credit and other traditional overdraft protection options to the extent these
programs lack individual account underwriting. All overdrafts, whether or not subject to
an overdraft protection program, are subject to the safety and soundness considerations
contained in this section.
Institutions providing overdraft protection programs should adopt written policies and
procedures adequate to address the credit, operational, and other risks associated with
these types of programs. Prudent risk management practices include the establishment of
express account eligibility standards and well-defined and properly documented dollar
limit decision criteria. Institutions also should monitor these accounts on an ongoing
basis and be able to identify consumers who may represent an undue credit risk to the
institution. Overdraft protection programs should be administered and adjusted, as
needed, to ensure that credit risk remains in line with expectations. This may include,
where appropriate, disqualification of a consumer from future overdraft protection.
Reports sufficient to enable management to identify, measure, and manage overdraft
volume, profitability, and credit performance should be provided to management on a
regular basis.
Institutions also are expected to incorporate prudent risk management practices related to
account repayment and suspension of overdraft protection services. These include the
establishment of specific timeframes for when consumers must pay off their overdraft
balances. For example, there should be established procedures for the suspension of
overdraft services when the account holder no longer meets the eligibility criteria (such
as when the account holder has declared bankruptcy or defaulted on another loan at the
bank) as well as for when there is a lack of repayment of an overdraft. In addition,
overdraft balances should generally be charged off when considered uncollectible, but no
later than 60 days from the date first overdrawn.7 In some cases, an institution may allow
a consumer to cover an overdraft through an extended repayment plan when the
consumer is unable to bring the account to a positive balance within the required time
frames. The existence of the repayment plan, however, would not extend the charge-off
determination period beyond 60 days (or shorter period if applicable) as measured from
the date of the overdraft. Any payments received after the account is charged off (up to
the amount charged off against allowance) should be reported as a recovery.
Some overdrafts are rewritten as loan obligations in accordance with an institution’s loan
policy and supported by a documented assessment of that consumer’s ability to repay. In
those instances, the charge-off timeframes described in the Federal Financial Institutions
7
Federal credit unions are required by regulation to establish a time limit, not to exceed 45 calendar days,
for a member to either deposit funds or obtain an approved loan from the credit union to cover each
overdraft. 12 CFR § 701.21(c)(3).
7
Examination Council (FFIEC) Uniform Retail Credit Classification and Account
Management Policy would apply.8
With respect to the reporting of income and loss recognition on overdraft protection
programs, institutions should follow generally accepted accounting principles (GAAP)
and the instructions for the Reports of Condition and Income (Call Report), and NCUA
5300 Call Report. Overdraft balances should be reported on regulatory reports as loans.
Accordingly, overdraft losses should be charged off against the allowance for loan and
lease losses. The Agencies expect all institutions to adopt rigorous loss estimation
processes to ensure that overdraft fee income is accurately measured. Such methods may
include providing loss allowances for uncollectible fees or, alternatively, only
recognizing that portion of earned fees estimated to be collectible.9 The procedures for
estimating an adequate allowance should be documented in accordance with the Policy
Statement on the Allowance for Loan and Lease Losses Methodologies and
Documentation for Banks and Savings Institutions.10
If an institution advises account holders of the available amount of overdraft protection,
for example, when accounts are opened or on depositors’ account statements or ATM
receipts, the institution should report the available amount of overdraft protection with
legally binding commitments for Call Report, and NCUA 5300 Call Report purposes.
These available amounts, therefore, should be reported as “unused commitments” in
regulatory reports.
The Agencies also expect proper risk-based capital treatment of outstanding overdrawn
balances and unused commitments.11 Overdraft balances should be risk-weighted
according to the obligor. Under the federal banking agencies’ risk-based capital
guidelines, the capital charge on the unused portion of commitments generally is based
on an off-balance sheet credit conversion factor and the risk weight appropriate to the
obligor. In general, these guidelines provide that the unused portion of a commitment is
subject to a zero percent credit conversion factor if the commitment has an original
maturity of one year or less, or a 50 percent credit conversion factor if the commitment
has an original maturity over one year. Under these guidelines, a zero percent conversion
factor also applies to the unused portion of a "retail credit card line" or "related plan" if it
is unconditionally cancelable by the institution in accordance with applicable law.12 The
phrase “related plans” in these guidelines includes overdraft checking plans. The
8
For federally insured credit unions, charge-off policy for booked loans is described in NCUA Letter to Credit Unions No. 03-CU-01, “Loan Charge-off Guidance,” dated January 2003. 9
Institutions may charge off uncollected overdraft fees against the allowance for loan and lease losses if such fees are recorded with overdraft balances as loans and estimated credit losses on the fees are provided for in the allowance for loan and lease losses. 10
Issued by the Board, FDIC, OCC, and Office of Thrift Supervision. The NCUA provided similar guidance to credit unions in Interpretive Ruling and Policy Statement 02-3, “Allowance for Loan and Lease Losses Methodologies and Documentation for Federally Insured Credit Unions,” 67 FR 37445, May 29, 2002. 11
Federally insured credit unions should calculate risk-based net worth in accordance with the rules contained in 12 CFR Part 702. 12
See 12 CFR Part 3, Appendix A, Section 3 (b)(5) (OCC); 12 CFR Part 208, Appendix A, Section III.D.5 (Board); and 12 CFR Part 325, Appendix A, Section II.D.5 (FDIC). 8
Agencies believe that the overdraft protection programs discussed in this joint guidance
fall within the meaning of “related plans” as a type of “overdraft checking plan” for the
purposes of the federal banking agencies’ risk-based capital guidelines. Consequently,
overdraft protection programs that are unconditionally cancelable by the institution in
accordance with applicable law would qualify for a zero percent credit conversion factor.
Institutions entering into overdraft protection contracts with third-party vendors must
conduct thorough due diligence reviews prior to signing a contract. The interagency
guidance contained in the November 2000 Risk Management of Outsourced Technology
Services outlines the Agencies' expectations for prudent practices in this area.
Legal Risks
Overdraft protection programs must comply with all applicable federal laws and regulations, some of which are outlined below. State laws also may be applicable, including usury and criminal laws, and laws on unfair or deceptive acts or practices. It is important that institutions have their overdraft protection programs reviewed by counsel for compliance with all applicable laws prior to implementation. Further, although the guidance below outlines federal laws and regulations as of the date this joint guidance is published, applicable laws and regulations are subject to amendment. Accordingly, institutions should monitor applicable laws and regulations for revisions and to ensure that their overdraft protection programs are fully compliant. Federal Trade Commission Act / Advertising Rules
Section 5 of the Federal Trade Commission Act (FTC Act) prohibits unfair or deceptive acts or practices.13 The banking agencies enforce this section pursuant to their authority
in section 8 of the Federal Deposit Insurance Act, 12 U.S.C. § 1818.14 An act or practice is unfair if it causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. An act or practice is deceptive if, in general, it is a representation, omission, or practice that is likely to mislead a consumer acting reasonably under the circumstances, and the representation, omission, or practice is material. In addition, the NCUA has promulgated similar rules that prohibit federally insured credit
unions from using advertisements or other representations that are inaccurate or
misrepresent the services or contracts offered.15 These regulations are broad enough to
prohibit federally insured credit unions from making any false representations to the
public regarding their deposit accounts.
Overdraft protection programs may raise issues under either the FTC Act or, in
connection with federally insured credit unions, the NCUA’s advertising rules, depending
13
15 U.S.C. § 45. See OCC Advisory Letter 2002-3 (March 2002); and joint Board and FDIC Guidance on Unfair or
Deceptive Acts or Practices by State-Chartered Banks (March 11, 2004).
15
12 CFR § 740.2.
14
9
upon how the programs are marketed and implemented. To avoid engaging in deceptive, inaccurate, misrepresentative, or unfair practices, institutions should closely review all aspects of their overdraft protection programs, especially any materials that inform
consumers about the programs. Truth in Lending Act
TILA and Regulation Z require creditors to give cost disclosures for extensions of consumer credit.16 TILA and the regulation apply to creditors that regularly extend consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments.17
Under Regulation Z, fees for paying overdraft items currently are not considered finance charges if the institution has not agreed in writing to pay overdrafts.18 Even where the institution agrees in writing to pay overdrafts as part of the deposit account agreement, fees assessed against a transaction account for overdraft protection services are finance charges only to the extent the fees exceed the charges imposed for paying or returning
overdrafts on a similar transaction account that does not have overdraft protection. Some financial institutions also offer overdraft repayment loans to consumers who are unable to repay their overdrafts and bring their accounts to a positive balance within a specified time period.19 These closed-end loans will trigger Regulation Z disclosures, for example, if the loan is payable by written agreement in more than four installments. Regulation Z will also be triggered where such closed-end loans are subject to a finance charge.20
Equal Credit Opportunity Act
Under the Equal Credit Opportunity Act (ECOA) and Regulation B, creditors are prohibited from discriminating against an applicant on a prohibited basis in any aspect of a credit transaction.21 This prohibition applies to overdraft protection programs. Thus, steering or targeting certain consumers on a prohibited basis for overdraft protection programs while offering other consumers overdraft lines of credit or other more favorable credit products or overdraft services, will raise concerns under the ECOA. In addition to the general prohibition against discrimination, the ECOA and Regulation B
contain specific rules concerning procedures and notices for credit denials and other
16
15 U.S.C. §§ 1601 et seq. TILA is implemented by Regulation Z, 12 CFR Part 226.
See 15 U.S.C. § 1602(f) and 12 CFR 226.2(a)(17). Institutions should be aware that whether a written
agreement exists is a matter of state law. See, e.g., 12 CFR § 226.5. 18
See 12 CFR 226.4(c)(3). Traditional lines of credit, which generally are subject to a written agreement, do not fall under this exception.
19
For federal credit unions, this time period may not exceed 45 calendar days. 12 CFR § 701.21(c)(3). 20
See 12 CFR 226.4. 21
15 U.S.C. §§ 1691 et seq. The ECOA is implemented by Regulation B, 12 CFR Part 202. The ECOA
prohibits discrimination on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to contract), the fact that all or part of the applicant’s income
derives from a public assistance program, and the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.
17
10
adverse action. Regulation B defines the term “adverse action,” and generally requires a creditor who takes adverse action to send a notice to the consumer providing, among other things, the reasons for the adverse action.22 Some actions taken by creditors under overdraft protection programs might constitute adverse action but would not require notice to the consumer if the credit is deemed to be “incidental credit” as defined in Regulation B. “Incidental credit” includes consumer credit that is not subject to a finance charge, is not payable by agreement in more than four installments, and is not made pursuant to the terms of a credit card account.23 Overdraft protection programs that are not covered by TILA would generally qualify as incidental credit under Regulation B. Truth in Savings Act
Under the Truth in Savings Act (TISA), deposit account disclosures must include the amount of any fee that may be imposed in connection with the account and the conditions under which the fee may be imposed.24 In addition, institutions must give advance notice to affected consumers of any change in a term that was required to be disclosed if the change may reduce the annual percentage yield or adversely affect the consumer. When overdraft protection services are added to an existing deposit account, advance
notice to the account holder may be required, for example, if the fee for the service
exceeds the fee for accounts that do not have the service.25 In addition, TISA prohibits
institutions from making any advertisement, announcement, or solicitation relating to a
deposit account that is inaccurate or misleading or that misrepresents their deposit
contracts.
Since these automated and marketed overdraft protection programs did not exist when
most of the implementing regulations were issued, the regulations may be reevaluated.
Electronic Fund Transfer Act
The Electronic Fund Transfer Act (EFTA) and Regulation E require an institution to
provide consumers with account-opening disclosures and to send a periodic statement for
each monthly cycle in which an electronic fund transfer (EFT) has occurred and at least
quarterly if no transfer has occurred.26 If, under an overdraft protection program, a
consumer could overdraw an account by means of an ATM withdrawal or POS debit card
transaction, both are EFTs subject to EFTA and Regulation E. As such, periodic
statements must be readily understandable and accurate regarding debits made, current
balances, and fees charged. Terminal receipts also must be readily understandable and
accurate regarding the amount of the transfer. Moreover, readily understandable and
accurate statements and receipts will help reduce the number of alleged errors that the
22
See 12 CFR §§ 202.2(c) and 9. See 12 CFR § 202.3(c).
24
12 U.S.C. §§ 4301 et seq. TISA is implemented by Regulation DD at 12 CFR Part 230 for banks and savings associations, and by NCUA’s TISA regulation at 12 CFR Part 707 for federally insured credit
unions. 25
An advance change in terms notice would not be required if the consumer’s account disclosures stated
that their overdraft check may or may not be paid and the same fee would apply.
26
15 U.S.C. §§ 1693 et seq. The EFTA is implemented by Regulation E, 12 CFR Part 205.
23
11
institution must investigate under Regulation E, which can be time-consuming and costly
to institutions.
Best Practices
Clear disclosures and explanations to consumers of the operation, costs, and limitations
of an overdraft protection program and appropriate management oversight of the program
are fundamental to enabling responsible use of overdraft protection. Such disclosures
and oversight can also minimize potential consumer confusion and complaints, foster
good customer relations, and reduce credit, legal, and other potential risks to the
institution. Institutions that establish overdraft protection programs should, as applicable,
take into consideration the following best practices, many of which have been
recommended or implemented by financial institutions and others, as well as practices
that may otherwise be required by applicable law. While the Agencies are concerned
about promoted overdraft protection programs, the best practices may also be useful for
other methods of covering overdrafts. These best practices currently observed in or
recommended by the industry include:
Marketing and Communications with Consumers
• Avoid promoting poor account management. Institutions should not market the
program in a manner that encourages routine or intentional overdrafts. Institutions
should instead present the program as a customer service that may cover inadvertent
consumer overdrafts.
• Fairly represent overdraft protection programs and alternatives. When
informing consumers about an overdraft protection program, inform consumers
generally of other overdraft services and credit products, if any, that are available at
the institution and how the terms, including fees, for these services and products
differ. Identify for consumers the consequences of extensively using the overdraft
protection program.
• Train staff to explain program features and other choices. Train customer service
or consumer complaint processing staff to explain their overdraft protection
program’s features, costs, and terms, including how to opt out of the service. Staff
also should be able to explain other available overdraft products offered by the
institution and how consumers may qualify for them.
• Clearly explain discretionary nature of program. If payment of an overdraft is
discretionary, make this clear. Institutions should not represent that the payment of
overdrafts is guaranteed or assured if the institution retains discretion not to pay an
overdraft.
• Distinguish overdraft protection services from “free” account features.
Institutions should not promote “free” accounts and overdraft protection programs in
12
the same advertisement in a manner that suggests the overdraft protection program is
free of charges.
• Clearly disclose program fees. In communications about overdraft protection
programs, clearly disclose the dollar amount of the fee for each overdraft and any
interest rate or other fees that may apply. For example, rather than merely stating that
the institution’s standard NSF fee will apply, institutions should restate the dollar
amount of any applicable fee or interest charge.
• Clarify that fees count against the disclosed overdraft protection dollar limit.
Consumers should be alerted that the fees charged for covering overdrafts, as well as
the amount of the overdraft item, will be subtracted from any overdraft protection
limit disclosed.
• Demonstrate when multiple fees will be charged. If promoting an overdraft
protection program, clearly disclose, where applicable, that more than one overdraft
fee may be charged against the account per day, depending on the number of checks
presented on, and other withdrawals made from, the consumer’s account.
• Explain impact of transaction clearing policies. Clearly explain to consumers that
transactions may not be processed in the order in which they occurred, and that the
order in which transactions are received by the institution and processed can affect
the total amount of overdraft fees incurred by the consumer.
• Illustrate the type of transactions covered. Clearly disclose that overdraft fees may
be imposed on transactions such as ATM withdrawals, debit card transactions,
preauthorized automatic debits, telephone-initiated transfers or other electronic
transfers, if applicable, to avoid implying that check transactions are the only
transactions covered.
Program Features and Operation
• Provide election or opt-out of service. Obtain affirmative consent of consumers to
receive overdraft protection. Alternatively, where overdraft protection is
automatically provided, permit consumers to “opt out” of the overdraft program and
provide a clear consumer disclosure of this option.
• Alert consumers before a transaction triggers any fees. When consumers attempt
to withdraw or transfer funds made available through an overdraft protection
program, provide a specific consumer notice, where feasible, that completing the
withdrawal may trigger the overdraft fees (for example, it presently may be feasible at
a branch teller window). This notice should be presented in a manner that permits
consumers to cancel the attempted withdrawal or transfer after receiving the notice.
If this is not feasible, then post notices (e.g., on proprietary ATMs) explaining that
transactions may be approved that overdraw the account and fees may be incurred.
13
Institutions should consider making access to the overdraft protection program
unavailable through means other than check transactions, if feasible.
• Prominently distinguish balances from overdraft protection funds availability.
When disclosing a single balance for an account by any means, institutions should not
include overdraft protection funds in that account balance. The disclosure should
instead represent the consumer’s own funds available without the overdraft protection
funds included. If more than one balance is provided, separately (and prominently)
identify the balance without the inclusion of overdraft protection.
• Promptly notify consumers of overdraft protection program usage each time
used. Promptly notify consumers when overdraft protection has been accessed, for
example, by sending a notice to consumers the day the overdraft protection program
has been accessed. The notification should identify the date of the transaction, the
type of transaction, the overdraft amount, the fee associated with the overdraft, the
amount necessary to return the account to a positive balance, the amount of time
consumers have to return their accounts to a positive balance, and the consequences
of not returning the account to a positive balance within the given timeframe. Notify
consumers if the institution terminates or suspends the consumer’s access to the
service, for example, if the consumer is no longer in good standing.
• Consider daily limits on the consumer’s costs. Consider imposing a cap on
consumers’ potential daily costs from the overdraft program. For example, consider
limiting daily costs from the program by providing a numerical limit on the total
overdraft transactions that will be subject to a fee per day or by providing a dollar
limit on the total fees that will be imposed per day.
• Monitor overdraft protection program usage. Monitor excessive consumer usage,
which may indicate a need for alternative credit arrangements or other services, and
inform consumers of these available options.
• Fairly report program usage. Institutions should not report negative information to
consumer reporting agencies when the overdrafts are paid under the terms of
overdraft protection programs that have been promoted by the institutions.
This concludes the text of the final Joint Guidance on Overdraft Protection Programs.
14
[THIS SIGNATURE PAGE PERTAINS TO THE FINAL “JOINT GUIDANCE ON
OVERDRAFT PROTECTION PROGRAMS”]
Dated: February 15, 2005
Julie L. Williams (signed)
Julie L. Williams, Acting Comptroller of the Currency.
15
By order of the Board of Governors of the Federal Reserve System, February 17, 2005.
Robert deV. Frierson (signed)
Robert deV. Frierson, Deputy Secretary of the Board. 16
Dated at Washington, D.C., the 16th day of February, 2005.
By order of the Federal Deposit Insurance Corporation.
Robert E. Feldman
Robert E. Feldman,
Executive Secretary.
(signed)
17
By the National Credit Union Administration Board on February 17, 2005.
Mary F. Rupp (signed)
Mary F. Rupp,
Secretary of the Board.
18
EXHIBIT E
verdr ft
rotection
A Guide for
Bankers
Table of Contents
A Guide foJ: Ba.nlJ:.eJ:S
Bow J.l'o~·m.al;lzed Overdraft
7
Protect~OX!-
Wb:y AJ::e More Bankers Consid0ring
J?rog,l.'ams Work
Fo:~.·xn:;.Uiilecl
Overdraft Protect1ou'l
10
J.~
Common ConoeJ:us
13
Addressmg the Reguia.tory Concerns
16
Recommended llest Pl:aotb~e "Po's a.nd Pon'ts"
18
Co».cht.dlng E.emarks
21
Append.ts';
23
rage .,
,...,., .... ~ .... 41"
'P ...
h,,,.,t.tnn
A
c;,,1rif1:
for
B;,_nk".,;~
OVERDRAFT PROTEC.l'lUJ.\1
A GUIDE FOR BANKERS
Opinions abound about overdtaft services- those f~)rroalized syst~m~ handling
NoH Snftlcient Funds (NSFs) presented on a customers account. Nessa Feddis,
Senior Federal Cou11sel of the ABA. offers her insights in a recent article stating
"the basics of bouXJce prolection are sound.") At the same time, lhe ConsutneJ·
Federation of Amo:::rica as~erts that finunciaJ orga1llzations are deliberately entic"customer-odel'lted" virtues, while tne news media presont overdraft users as
pictures of despair. CEOs of some financial organizations tout the benefits to
their customers, while others disparage the p1·actice. Some bunking organizations sign deals with vendors to endorse the. programs, while a few publisb negutiYe opinions about them.
With tbis wide range of opinions, it i$ no wonder that mtmy, inside the industry
and out, question the practice and/or the methods of overdraft servi<;es. As a
fioancial executive, how arc you to approach overdraft services in order to best
serve ym1.r customers, shareholder!>, and the pu!)Jic welfare?
Offering an overdraft protection program Js a decision unique to each executive
and organizatiQn. However, sometimes lost in tbe beat of the debate is the clntity crented from a common set offsets. Concerns and fears grow in the
absence of facts. Lcgitinu1t.e questions exist about ovcrdr<~ft services, and they
deserve an analytical answer. Why ha> tbe overd~;aft issue ;;.rise:o J>O fe.rvently
nmv and not 20 years ago? What arc tbe beMfits or rcaso!l.sfor a tormalized
overdraft progrnm at your financial institution? What arc the regulatory compliance components? What Me recommended best practices, a!ld what practices should be more cautiously considered or even avoided'? furthermore,
concems of the media and consumer gr:oups alike have made it clear: thal there
are defioitely potential riskl; 5$!'iOciatt:d with overdraft pl'o~rams, in the event
the bank makes a mistake or "over-rc::nche:~" io the implementation.
Before. mald1lg a decision, each bank should review any program being considered wlth a cl'itical eye towards what is "right" for (he customer and the bank.
We hope that this guide will equip you with the background and knowledge
you need to roa.k.e tbe <ight decision fol' yotlr bank.
'l'i"""',
r:ilt'<:n Fcddi~. "Will w~ )'(J)I ~''"'rut ser~·ttoe?· •.,.m I>InkiiiJJ.k>ttmal, Aprill(~)3, 4~.
'(;''"'"""' Fcltl<\1(0~ (>J" A!ncrl("ll end Nmion:>l c,;n•umcr Ull'" C•nltr. ''SJVI!IX' f'ro\C\)U{)n: How l<ml:.<
"1\\ttll~bb<:f \11\0 On!~ b}" t;ihtidng C<lii>UIIIOC. to Wr1tt l:'lld C~0.:~1," !7 bn. ~(~)3,
4ll<p>l•''"":e<msumcrleu.urglb<;un«<>ppcndh<ll2603,pdr..('l7 SO~lcl!1ber;:!!Xl3), !l<ctinn 6.
Tlte Origins of the "Late Payment" Choice
Overall, conS\Imet• perceptions nbout debt and late pnyinents are changing. A
few years ngo. some consumers I.!Ollr\ted on "float" to carry them throt1gh times
WI\ e.) they might have beet1 low on funds betweel'l paychecks. Over the past
few years, 11oat has been considerably decreased due to improved, automation of
processing sys~eros, the increased \ISnge of Internet banking, and the reqttiremeot$ of the Expedited l-"r.mds Availability Acl. The ill creased time to dear a
check that so many C~1tU1ted Ol) before is no longer there.
Currently; on most of the bills lbat consumers pay on a mot'l.thly basis, the
recipient is given the oppottunity to pay the bill ~)11 time for one amount anti
late for a different (higher) amount. Consumers who choose: to utilize the late
paymc1Jt ortion arc awnrc of the late fee they will pay fol' this service. While
one could certainly argue ~bl;l.t this ls financially impntdet)t, it is n choice tbat
many malcc on a montiJly basis.
Utility companies sucb as phone, gns, wa1e1·, cable, and electric providers made
this adju~bocnl towards late paymc:mts in their policies in the 1990s. Prior to
~heir change in approac;h. the$e industrie~ often faced custmner and public policy embarrassments when they discontinued set'vicc due. to Jack of pay,nern. In
order to meet c~•stomc,;s' payment needs. they changed their apptoo.ch, finding
ways lo sQrve customers who ha.ppe1\ed to be strapped for cnsh between paychecks. Below is a s~1mple disclosure statement from a utility company that
uHows cu~tomcrs to pay their bill~ ut a later date for an additional char~e.
aample Wa.ter UttUty l>ol.loy Statement
P<lyments:
Utility pay~nents are due by the 15th ~,f the ll1Ql\th.
Utility payments CruJ be deposited in the drop slot located in tile door of the City Ofticc.
J..ate Pavwents:
Payment$ receive(! ~fter tbc 15t}l of the month are considered late.
A late ch\lrg~: of $.25.()0 will he added to any bill not p~1id oy tbc 15th.
Dis~QJmcct:
"""''~ wH\ bo "'oo'"~'"' if •''m'"' '' ••' "~\ood by '"' ~~~ .U.y of ' ' ' mon<b.
Reconnect fee l5 $25.00.
I
I
Ii
!
I
Overdraft Proteetlon
A Guide for
Bax:>l<~rQ
~y cBflsu'H1frs~•an'iflV'ot&~ sYfrilf!t?rMt'H~'6u~'1IV8Y'IY!'«-tll~~A·~Yl~P\"'t-ll,r.\?"Plfllil(.'ifl.
if paid by a certain date, and a higher nmoUJ)! if puid by a latet date. In defin~
ing why customers paid late fees, <me utility study found lhut a significant segment djd so even though they have sufficient fiiHUJci~l resources.-'
Bankers may want to C011sider the way they communicate with thei1' customers
regarding ov~tdl.'awn accounts. Compa1·e the sample utility bill referenced
a'b~we with the method fim~ncial institutions commonly use to communicate
'''ith their customers. Non-bn11k companic~> typically lnfo1·m the c<,nllll(J.1e~ of
their methods of handling thelr account in tbe cveut the consumer d<>es not
meot tb.eir obligations on time, and they communic~te tbe fee associated with
this. They do not actively entice customers to pay their bills late, but they
communica~c how the account will be handled should the consumer pay late.
Contrast this with the co1mnunication sent out by the bank. When an item is
presented to an acco\l!lt with insufficicmt funds to pay the check, the bank generally sends out a terse notice iodicnting that the customet did not have the
futJds in their account to cover the check. The communication usually Jndicates that, although the bank may have pl;l.id the check, the practice of falling
bei<Jw the m~nimutn balanc~ in the account is not something the bank encourage~;.
The New Dynamics of Cheoking Accounts and Customer
Communicatiou
As new payment option$ have nourished over tbe past several ycn:rs, the methods and means hi wnicb consumers use checkiog accounts have also changed.
Rather thn.o. having on I)' checks tlow through their checking account, consumers now have many ways to access their funds, such as Internet a~::cess,
ATM acce!l~, etc.
A by-product of having multiple <ieHveJ·y channels is that c.:onsumers now need
betteA·, mom specific conm1UI1icatlon from tinancial institutions regarding use of
these accounts. financial institutions should be awal'e that in regard to COA1sunu:n:' attitudes toward late payments, the en\'ironmcnt is changing . .Banks
l)ecd to be able to clearly articulate polices so that con5uAncts can make
'I'P£!0< D. t:o!t~n. •!Jot<m•i•l;o~ tho C<\11 Slc;.:llv~no" t11' Utilit)·l.nto P•yn••nt Cb~t~," July 19':14,
hllp:il""~v.f<~<,,nline.c,mW~\\'Uio:)drJLA:r'B.FE.!l.ptlr I 17 S.pl<n,b<< :U11)3).
informed dedsions as well as ''nde1·stand the banki; policy I'Cgarding NSF fees
when a customer m~stnkenly overdraws.
The Dilemma
Many bankers believe that a response tnnt discourages overdrafts l!'J the accepted
course of a.clion. They believe that ove1'clt·afting a checking account is simply
"wrong." They believe that banks should actively discourage ovcrdrans and they
view NSF feel; as "pul)itive" fees that are designed to d.i~co,lrage the activit}:
Other bankcl's believe th~1t most of theil' custom~rs u.re good customers t\l.u.t w\11
ultimately clear l'P theh accounts, and that paying an insufficient item is better
for th~ custon1e1" than returning il. Wb.lle not encouraging overdrafts, these
bankers bdicv~; that tbey are actually helping theit customers avoid other fees
and
providi.~:~g
them a \'aluable service when they pay ovcrdnl.\\'11 items.
Which view is a.pp:eopria.te<l Or more ptecJsely, which view is
appropriate fol' yout• ba.nk?
In I"X'!ally case$, these two views are not mutually e>(dusivc.. Bu.nl<ers do not
want to actively encourage overdrafts, but they do wn.nt to provide g~md cm;l~)mel' service whenever and wherever prudont.
HOW FORMALIZED OVERDRAFT
PltOTECTION PROGRAMS WORK
The first qucstiou you migbt a.c;k is, "How do these pfograms wo1·k?" An example may help illustrate the programs' underlying concepts.
Jo!zn Smit/r is a customer at ABC Bank. John sirs down to j)£~~· his !?ills 011 the
9tlt of the month. He gets to his credit card bill atzd he m;tices that the paymem is dlle on ffw 15rll. or he can wait and pay it on the Tst oj the followiJtg
month, in which case he will be charged a $36 !all: fr;e. He decides to wait and
pay the credit card bill late because lze has a11 unexpected emergency expense
that he /leeds to pay immediately, John wzderstmzds "the deal" with the credit
card compa11_v ~ rhey hl).vq <;ommunlcatad this to him wltlz every bill. John
1/.rzderstands tlzat Jze will inc~r the late fee, but in spite of this. he makes the
decision to defer tlze payment.
Jolm isn r,mre how ABC Bank WO!Ild gel!erally handle it if he were lO preseut
I;!/ I NSf' check. In the past he has presented checks thCil were paid wlzan ju11ds
were not a1•ailoble. lmt lze ltas also preset1ted some that were returned. The
bal!k s communication in both cases was ver:v s/lorr and did not inform Joht!
how they made their decision. As a re.~ult. Jolm lza.y no <-"'mjort at all as to how
the bank might handle the next check he presents.
ABC Bank decides to begin o!fari11g a formal overdraft progr<1m. Through a
variety of teclmiqucs. tlte ballk commtmico.tcts clearly with John t;mr) gcmerally
makes him aware of t/leir decision-making process. When Jolm is m!.l!t faced
with making the decision of whether or not to pay the credit card bill, l!e now
CO!Isiders his options. ffe can COiltinue to pay the bill/ate as he !las 011 occasion
in the past, or he em; go ahead and write tlze check to the credit card compa11y
today mzd have some C011!/ort that the bank will probably pay it. He wottld pay
the; bank $20 (their NSF fee) v~·. payi1Jg the credit catd company $36.
The Informed Consumer Effect
By aommunicating with custome(S, banks that offer formalized ovcrdrl!ft protection progrums achieve the "lnformed Consumer Effect," helping participants
to make an informed decision on how to utilize thj~ sen•ice, should tbc need
adse. 13ecause John is give11 soluc comfort on how his clu~ck wiH be hWJ.dled,
he shifts a fee from the credit card company to the bank and pays less In fees.
Just b.~'>V\' does a hank comm\znicate with a customer? This Js an area whcrt~
bankers shmtld proceed with caution. A non-recommended method ~,f communlcating witll customers is to market the service aggres:;ivc::ly. A ft:w banks put
\tp billb~)ard!!, take out radio ads, and do regular monthly statement stuffers.
But as th~ Office of the Comptroller of the Currency pointed out ~o. hHerpretive
Letter 914 (IL914), thit1 could have tne appearance that the bank is attempting
to entice customers to c..>Ve.rdraw their accounts, I.I,U ~totivity that at best is
"frowMd upon" by consumer groups, and at worst could be considc~·cd an
unsafe pmctkc. At a typical bank, 60% to 70% ofthc customer base ocver (or
raJ·e)y) present an insufficient item, and marketing to thetn is wasteful.
However, an efficient, fah·, and consistent process could also be considered an
O{Jpol."tunity for clen1· communicatlon to customers- a way to enhance a customer relationship. Customers are often confused by tb.e NSF dcch;ion-making
process in tho!le banks that do not have a formalized program, since there ls
often inconsisteocy in payment of NSF items. Banks that o1l'l!r a formalized
overdraft program have the opportunity to establish consistent guideHnes for
paying NSF items and to inform and educate customer$ who usl': the service.
WHY ARE MORE
B~NKERS CONSID~RING
li:'"O:RMAL:XZJ:I:D OV;B:J:R:D!RAJIII'JL'I
P:CI..O'.I'lli!C'TT.O.~TQ
As of Jmw:ary 2()03, the Consumer FcdcmtitJU. of America estimated that more
th~:~n l,OOO banks i1) the United St1,1te:. use form~H:l:cd overdraft protection programs, and that number is steadily growing.• Why are more \)al)kers c=onsidering these programs'?
1. A New DeOnition of Customer Service
Ooe of the most conJmon complaints by consumer groups about ovcrd.raft protection S~:Jrvices is tbat banks with these programs are providing "bad" customer
service. Some consumer groups equate the paying of ove!'drafts with "payday''
lending. They believe that paying an overdrall item is equivalent to taking
ad,•antagc <)fan unh1formed cus(On1eJ·.
However. this sc::erns to be an oversimplification of a much broader issue.
Think about it from the perspective of your customers- would they consider it
better customer service lfthe bank paid their check or returned it?
Bank cmplo}'lles also benefit from ~.t. consistent overdraft progt·am that offc::rs
them .(;!\\id<tJ1Ce 011 how and when to cove~; overdraft items. Sillce tltey ca11 now
dofiuc their overdraft policy aJHI explain it lo tbe customer, they c:an offer better Cl,l$tomcr service. Defined overdraft program guidelines cHminale banker
and customet confusion and lead to hnprovcd customer service.
2. A Way to Avoid Discrbninatory Practices
Organized overdrnt't protection program$ formalize a process th~tl has been han-
v
y u
,&
" A ">A . . . . . . .
u ...... ..,., .. ..,-
,.,,.
.,. - - - -
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ctled inlonnally aud in a dlscreliouary manner in the pnst, making it more equitabl~ and consistent. In ger)eral, banks have historically paid items for some
customers and not paid them for others, based mostly on a variety of factors,
including account hi11lory and the relationships the customer has with the personal bankers or CSRs working in the branch. By using ovetdraft protection
software and more efficient a,utomation, the banks th.at implernent these progmms state that tbey are attempting to treat all customers more fairly.
3. lnet:eased. Opportunity
Wb.cn banks formalize thcit programs and di:;dose them, they lc!!rXI. that some
custt)mers find lhis w be a valuable ~>en· icc. These customer~> ch~)o$e to w!'ite a
check a few days before a deposit a)ld pay the NSF fee rather than pay a. l<J.te fee
lo the check recipient. They choose the bank option because the costs are general!;' lower than th~)Se imposed by the me1·chant or olher payee, and it prc:~ents
. less of u hassle. Financial inslit\ltions that formali7,e thel~ process and disclose it
to custo~;ncrs allow their Cl,llltoroers to make intonnt.~d decisions for;- themselves.
COMMON CONCERNS
Bartl\ers need to address a nmnber of concerns before tbey decide to implemc~1t
such a tonnal overdmtl program, Questions raised by the media aA'd consumers groups alike have spawned a variety of concerns.
Perceptions of "Abuslng'' the Customer
Medin and co11sum.cr groups have "~'iced concerns that some overdruft protccUon prog1·ams arc by nature deceptive and designed to t~kc advantage of consumers. Q{her media l'eports discuss cases ix) \Vhkh banks have allowed custonw:rs to overdraw with their ATM or dcbil card, at ejther the Al'M or the
pt;Jint of sale, w~thout notitication that they we~c overdrawing the accouiJt oJ'
that tl\ey would be charged a fee. (Reg DD requh·es fcc disclosure at account
opening and on pt?.riodic statements.)
It is interc:-ling ltJ note tha.t in most overdraft discussions \be media and con~umer )!rouvs ofte11 11loss over individual con~uroer responsibility. PX~.nk!'J only
cbarge these fees to consu.mers that present NSP items. Overdrawing i~ a dis-
i"t>.
ge
13
cretionary activity and is completely avoidable, much like the decision to US~;> a
foreign ..O:fM. ln both cases, tl~e service provided Is merely responding to ctiStoroc• !'ICed and bch~vior.
Although the ultimate responsibility lies with the consumer, situations may
arise in which a customer becomes overextended and is unable to pay back the
overdrawn amnunt and :;Ub$equent fees, As t.:UStt)tner service organ)7;ations,
bank:> should be aware ofthe~>e sittJ.ations and work with the customer lo
resolve the ilil!Ue. Any prqgraw allowing dm:>nk cyve!'drafts tht\l put the customer in difficttlt fim'!llCAnl circumstance)) may seem to take advantage of a customer and, of course, should be avoided. Banks should communicate cleat·Iy
and frcqut:ntly with their customers ~·egarding the status of their accoMt balance. Th.t: bauk may th~n offer the overextended customer a repayment plan,
perhaps at a low interest ~.ate, or reduced NSF fees to help d10 uustomer reco,·cr
lrom the Situation. The checl<ix1g .account could be left open and available. as
long as the c\lstomer meets their repayment obligations.
App19arance of Violating C1•edit Laws.
1"'1 ...... .,.... - •• t ,.. ,.1'1!-t ..... ··h:.tl•a,..t't l'h:.+ h71nk<'t Af"("' .... AfcircinF" ~r~dit )a,,.,t!~
\Vhen thev
0~\V
overdrafts. The reasoning applied was that an overdraft is a short-term loan
l!nd the NSf fee imposed is interest. Some cons\Jmet advocates have stt>tcd that
overdrafts amount l~) toaltS with very high intetest rates. somt:tim"s exceeding
1,000%.
These allegations ig.note the fact that many banks charge the same fee whether
the itcn~ is paid or returned, and there is no differential for over<h:awil:f~phc
<~,ccount. Mol'e specifically, at mos~ banks customers do nol pay any additional
fee for overdrawitlg (heir accoullts- they me only charged a fee for presenting
an insufficient item and tlte bank subsequently ha!)d}ing the item.
Credit laws apply when a ba11k extends credit to a co\lsUmet. According to the
Truth in Lending Act, 15 USC 1601 et seq. (TtLA) and its implem~nting
Fuder"l R"~".r''e R.!-nul-:atir.m Z, l? CFR P"r' ?.?.6. "CtP.dit tnt>:~ns the rieht tn
defel" payment of a debt l)f lo ~ncur debt aud defer its paymen l." Th~!. bank
UUt::l> llUl ~HUll U
H~l!L
LV
<.n·et Ullll.l'". h I» 11
l..ll~'l..l"-'<l'-1110.l)
<>'-'•1
tl•y v•• •I•'- .fl'-'" vr
the ban~- Credit laws have not applied to bank overdraft feos in the past, and
it is unlikely thal (b.ey will in the fuh•te.
As sta~ed \)1 the American &uke(S Association letter from ABA Chaitnlan-Elect
Ken Fcrgeson, date(! Mal'ch 21.2003. "Overdrat\ protectio•J has been around
for a long time, hut has evolved over the years. Under automated bo\1!1.Ce prot~ction systems that are now gaining in p1)puladty, banks disclose that they may
pay ovc:rd:ralls up tQ a limit-usually between $100 and $500, depending: on
th~ customer. The fc:aLu:rc is typically uvnilabJe to all those eligible to t1pen a:n
accoulJL Tbere is no creditworthiness test as there:: i~; for an overdraft line: of
crediL. A Hat fee is cl\1l1'ged for lh~ overdraft, regardless oftbe amount.''
Scvcrl:ll bal)ke.rs have showJ'l. hesitancy toward overdraft protection programs
because of potent~al changes (O Regulation Z (Truth in Lendhtg), which would
en use an ovc.rdrafl to be considered a Joan nnd rc:h!tc:d charges to be interest for
APR purposes. For decades, ~lllder the terms of Regulation Z, regulators have
not generally considered ovordtaft. fees to be a loan when the item is paid. Prior
hisl~)ry with other regulatj~)11S has shown that the Federal Reserve changes
them only after careful consideration.
Moreover, any change: iJ1 tegulation would likely impact the p~1yment of all NSI..itcms, not just those items at banks with formal ovcrdtllft programs. It would
be a Yery detrimental ch~nge to consumers for the regulators to alter regulations in snch u mal:))ter that banks could effectively no longer pay any over-
drat'ts.
Incurring Too Much Risk
lt may appear upon iJ'l.itiaJ review that paying ovordrnfts would increase the
qveran riSK JeVO!S ~11 a 11SIHI.. t'\.,llt:r au, Utl:i o.u:i~\1111"'' 11:1 LYJ''"ct."Y u'" '"''-~"'""'"' '"
complete. any type of application for the serv\ce. Most banks do not subject
customers ro a formal underwriting proc~::ss pdor to allqwing the customer to
overdraw thtlir a<:c.:Otln t. "l'he bank typically does no~ obtain credit scores.
Prudt::nt ban\<:crs must approach ~Il overdraft program as they would any oth~r
new product or service offering. Analysis of the particular program must be
performed with the l;!anl.ci: overall risk tolcnmce in mind. Acceptable levels of
dsk must be determined \)dor to entering uny prog~arn and monitored after
implemexHation.
Mc1!lt bankers who have imphm:1e11ted a formal overdraft program indicate that
charge-offs do, io fad. increase. However, they also indicate that tbe overall
level of charge-oft's is within acceptable levels of risk and the benefits of the
ovei'drafl progrttn1 outweigh the inct·ease in charge-offs.
ADDRESSI.NG THlil Rl!:GULATORY CONCE:SNS
Regulators ha.ve e"pt·cssed concerns whc.11 ~cvi.c~vhtg overdraft protection p~:o
grnms, and all bankers couside)'ing this service should ra.J.;:e care to address
and further defined in the ABA leHer dated March 21, 2003, fwm Ken
r'ergeson, ABA Ch~;~irroan-Elect. IL914 outlines three types of regula.tory concerrll> wHh re~puct to one particular overdraft protection program. They
include: l) Compliance Issues, 2.) Supervillory Concerns, and 3) Polley lssues.
We recommend studying IL9l4 in depth and reviewing the COJ)Cetns of the
OCC with legal counsel. Howevel', there arc basic steJ?S bankers can take to be
proactive in addrussillg these regulatory concern:>-
Define the J.>J"ocess Specifically.
For mauy years banks have paid checks on au inconsistent basis, oftel1 times
lacking uni\·ersal guidelines that employees could follow. Often, banks did not
have a, formal policy in place to guide ban.kers o.o b.ow and when to cover an
overdraft. Defining the proc-ess spncit1cally will help to allovinte compliaJ)ce
concenJS. Due to simple human nature, when paying Ol' returning an overdraft
using only personal discretion as a guide, inconsistencies will result. By applying consistent criteria across the b~)I\J'd, the entire prot'ess should become:: consiw~ntly impl~Io.ented with all customers.
Pg.ge
16
Use Detailed Reporting and Tracking.
As pnrt of the banks formal process, the bank should use detailed reporting and
lrncking of accounts in the overdraft prolcc::t.o.u program. This
ensure that
all levels of management rernaln apprised of the program, and that potential
abusers of Ulc service can be ::;potted and addfcsscd appropriately, iJ;~,cludin.g
being removed ftwn the program .
wm
.Avoid Statements that Seem Like Commitments.
In oJJ written communication to customers, be certain to stay away from statcInents that sound like absolute cornmitments to pay ovcrdnlft$ (e.g .. "never
inc1,u a mca:chant charg-e again"). The Office of the CQmptroller of the
Curn::ncy in its Interpretive Letter 914 (IL914) (JOints Oltt that the Federal
Trade Commission Act prohibits dec-eptive acts or practice1i, including representations or omh;sions that an: likely to mislead reasonable consumers, Carefully
word all the ba11k customer comm\mtcations to explaio the overdraft proces!l
clearly and directly. )3e sure to acknowledge that the process to pay NSFs is
complete.ly discrcti(mary and that all 1werdrnfts will not be paid a.utornatically.
s
Avotd ".Entlcin,g" Customers to :6egin l'resenting N'Sli's.
St\1dies bave shown that most customers do not overdl'aw their accounts, nor
do they want to. ln 2002, Rnddon financial Group estimated tnat nearly 60%
of customers hal'e little or no interest in NSl; sen·ices. Heavy marketing or an
overdraft proteclAon program could give the llJ?pearance that the bank. is
attempting to entice customers who currently do not oVel'draw acco11nts to
begin overdrawing them. Aggt·cssive marketing can potentially back.fifc:, even
though the i1Hent may simply be to inform the customer of a helpftll, ucw scrv~
icc: that ls now available. Instcl,ld, establish sound, custon:u::r-setv{ce responseM
oriented policies for customets who overdraw their nccou11ts. Abovl:' all, do not
sluto ~ht'l~ overdrawing is an acccptublc practice; offct• alternatives. The bnAtk
should also provide appropriate disclosures at the ATM and teller '"'indow if
customers are allowed to ov~rdmw their accoullts at those channels.
Use the Same Fee for .Both PayiXI.g and Returojng.
One of the "tests'' offered in 1L914 for determining if an overdraft fee is a
tinance charge or not, ns stated under Regulation Z, is whether an NSF fee is the
same regardless of whether a check is paid or retut·ned. By charging: the same
fee in both insranc~s, th,e fee is unlikely to be considered a ''finance charge.."
Page
~
7
Utilize Eff~etive Risk Management Techniques.
Bmlks tbat monitor customer behavior can r;ontact those custom~;~rs \Vho exhibit
c;x.cessive or abusive 11s:1ge and inform them of bani:: programs that can help
them m<tnage their account balances. This practic~ should identify customers
who sho'" a serious lack of accou11t management so that bank o1anagement can
make decisions on the C\lstome~l> continued invoh•ement in the banks overdraft program.
RECOMMENDED BEST PRACTICE
"DO'S AND DON•TS"
ln addition to taking ptoactive steps to address t'egulatory conceJ:ns, adhering
to certain "bc~t practices"' will help ensure that an ovcrdrafl protecti<>n program
take:; the right approach. The ma~n best practices that all bnnkel's should know
include;
Best :Practice "DO'$"
l. Do h'fonn customers that tbe bank has other ws.ys to handle oveJ;"·
dm(ts, such al5 liPes of credit and auton~atlc tl-a•tsfers. Clear cornrounicntion will give customers all the information they need t\1 ~nal\e at) informed
decision. Let your customers know that the bank h~s othq·, potentially less
expensive ways to hnndle overdrafts,
2. Do proactively offer an "opt-out'' giving the customel"S a choice. Some
customcl's may not want to nave their items paid, nod they should be given this
choice. By sending each qualified customer a letter with ao opt-out clause
before the program is implemented, bankers arc ensuring that all customers are
duly jnformcd u1~d a~e aware of their altcmatives.
3. Do monitor customllt aetivlty, and don't let customers abuse the service.
Utilize software tools to generate detailed reports that will allow the hank lo
track CliS\omets who ll.)ay he abusing the privilege. Coxlsidel' contacting and
notifying freque.nt overdraftcrs of (he c~1$t of these services, and suggest a n'Jecting with bank officers to consider other altcrnalive~ to ovetdrafting.
P "-!!' e
18
4.l)o apply good risk management teclmlques, using software to monitor
usage. IL914 notes that overdraft protection programs co\ll<.i increase a bank's
credit risk J?rofHe (e.g .. higher delinquency and loss rates) by extending credit
t\1 borrowers whQ may not have normally quallfi.ed for payment of overdrafts or
oYerdraft protection, By utilizing software ~ools with rob\tst rQpottlng capabilities. you should be able to .minimize this ri$ls. and manage it nc:cotdiugly.
5. Do communicate -with customers often, using :multiple channels (i.e.,
letters, phone calls, email). Tt is imperative that bankers notify custO!\,ei'S as
overdrafts are presented and then contintle to communicate with tbe customer
while tbey a~e overdrawn. A$ ABA Senior Federal Counsel Nessa Feddis states
in :a.XJ. April 2003 ABA Bankins Journal artklc, "A con!iUll.ler underst:mdiJlg of
bank practices ill I h. iS matti>J," (s absolutely critic(l} to avoid charges Of tU)fair
play."' Cotnmunication and educatiou of customers will help to dispel the
mystery ofthe p\\1Cess and enhance the overall customer rela!jonship as well.
Best
P:~:aetice
"llon'ts"
1. Don"'; use aggJ:essive marketiJJ.g, ODe of the biggest red fl~;~.gs for (egulators
and consumer grours allJ<e is n progrmn that tries to achieve increased revel)uc
through aggressive marketing techniques. This kind of customer communication ~lso makes )t seem as if lhr, btln.k is attempting to encourage customers
who have not prc;!:;entcd NSF!i to begin presenting lhcro.
2. Don't step over the line from a compllance pen;pective. Regulators may
q\testion programs that give the wro1~g Jmprm;sion about the scope of protection offered by the program and in turn ovcrscll its benefits. When communicating with customers. it is important to use clear, precise, mld nccUI'ate language Lbat U~)vS 11'-'t attempt to ovcn;cJl the cu~torner. Keep in mind Lhat thi$
servic:e is disc)'etional')'. and therefore uvoid pro\-ni~c5 ~1r w~,mls that sound like
commitments to customers. Claims nf"no more charges from ret~ilers fqr
insufficic::nt chect-s," "make a mistak~ -you 'Te covc::red!' <Hid "wdte a check or
u::;e an ATM for more than you have ill \be hank - you're covered" are overly
broad statements, given the limitation~ of these progr:m-~s.
·'l'oddi.•, 4(1.
3. Donl allow customers the opportunity to access funds that will pnt
their account into a negative balance at tbe ATM, through "VOS, or teller
w~ndow without customer knowledge. .Banll:s should communicate dearly
witb theil." customers and disclose all fees and charge!> associated with
If bankers make the decisioo to .allow customers to over<i ~.nv tb.eir account b~l
ance at the ATM, tlll'ougb POS. or toller windowj if technically feasible the bank
should inform the customer at the time of the transaclion that they will incur
an additional fee for overdra,ving under (he circumstanctlS. rf this is not technically foasil:>lc, the bank sho\Ild place notices at the ATM or h.avc a policy An
()Jace th.at does not alh)w tbe customer to Qv~rdraw the account ul the .A:rM .
.LAU.~I.\...J
"'&AV,•A..J.
A.,~o,•~
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account and they should clearly present balances t~1 their customers in a format
th.u.t is easy to understand. For e,:ample, if the ovcrd.rnft limit is included in an
''available balance," tbc tcx.t on the ATM scrccx~ a1~d receipt should :;pecificaUy
state that the balance irJcludes the overdraft limit. Mistakes are easily made if
this infr;m•)atiot\ is not communicated to the customer clearly at the time of the
transaction. Additionally, bnnks should consider waivh1g any initial NSF fees
for cll$tomers who inadvcrtenUy t)Verdrew their checking a,ccount due to any
lypc: of COilfusion at electro1~ic chnnoels.
4. Donrt l~ave Qut effective risl\ mnnage~ent. Given the h.)~S history of bank
overdraft programs. bank management should develop reasonable loss recognition guidelines and establish loan loss reserve methodologies to ensure timely
!~151.1 recog,lition and estimated loss c~we~age. This is imperative. Strict lossrecognition prograrns and tracking are l'ecommeJJdcd.
CONCLUDING REMARKS
With the \\'Ade rangC' of opinions and heartfelt emotions concerning 0\'erdrafl
programs, it is no wonder that maoy inside and outside tbc indust•·y question
either the pmctice or ~he methods of overdrat\ services. ln sorting th<o~1gb the
facts and opinions, history can be n.o. excellent guide. Jn the lv1ay 20, 1961,
issue of Busi,zess Week, the h~adline read, ..With tbe Fed showing no signs of
easing lts regulations, bnoks are doubting the wisdom. of offering certificates of
deposit.''~ Belitve it or not, thi:; ~tatement was made concerning negotiable
CDsl
Even the most pedestrian of bank product::: todny, certificates of deposit, were
once the subject of nmch debate and con~;ern. Consumer needs often are a!)ead
of regulato<y management and public policy. Such may be the ~;nse with for"
maHzed overdr~;~.fl programs. Ba\1kcrs, however, ml).:;t carefully conside!' all
sic;les of the r~)fma.li7;ed overdraft \)ption. to make the bet;l decision for lht:jr
banks.
APPENDIX
Letter to Bank CEOs f1•om tbe ABA Cba.i.l:'man-Eleot.
Date: March 2 J , 2003
1o; Bunk C:EOs
from! l<cn Fcrgeson, ABA Chairman-Elect
7T •• ,...,,l..~., ... ...l..,. ,..,,C J,... •.,..,t,..,. n""A n.W.o..t•lna ~ttft'\n'\OtPt"t hnnnr&- :ntf'\fP.£".tinn On Checlcinll
accounts, a new version of bi.l.nkcrs' traditional practice of pnyi:og overdr~fts.
Many other banks are con.~idering it Tl'lat's why rm writing. As ABAS
Cbl\itroan-F.Iect andll c:ommunity banker. I'm hearine a lot of conceto about
this producland the consequences of offering and promoting it.
AJl l)anl5.ers wa.nt a lau: return. oul vau,11.cu, UH>v 1, .. ,.,.," '"'"l'v''"'v'"'' ,..., .. ,.,,...
customers f~tirly and provide them with clear, conspicuous disclosures. One
misleading phrase or questionable ad can destroy your customets' trust in a
heartbeat, an s.wfuUy high price lo pny. As one compliance officer wrote about
paying interest on investable l;>alaJlces, "Its cut~. lt's legal. Don't do it!'' Wbcn
put under a spotlJgbt, that practice Jed Congress to e~Jnct the Truth-i1,-SuviA1gs
Act and the F~d to iss\Ie Reg DD. That example could ben preview of coming
attractions if bankers don't look carefully before they leap into this.
;ctul'!1cd. ch..,ck fear,
t:l'editors or roerchants and avoid turnb;hing their credit rating in credit
bureat1s and databases. But some of tbese products have drawn fire from the
rr:gnlators and in lhe medin-and litigation won\ be far behind, n5 customers
stat•t complaining l.l.bout unfair treatment.
Consurocrll Jill.~: uvtm.h tt:fl P'~'to:t.:ti<"lll. It can s;,:vc thc.:m
fr\1m
Overdraft protection has been uround fo~ a long time, b\st has evolved over the
years. Undcs: automated bounce protection systems thai are HO\V gahl\ng in
popularity, bauks disclose that they may pay mertlrafts up to a. limit-usually
bct'l'\·een $100 and $500, depending on the customer. The feature ls typically
available to all those eligible to open an account. There is no ct·editworthin.css
test as th~r~ is for an overdraft line of c;rcdit. A t1at fee is charged for th~: overdraft, regardleS$ of the amount.
Page
:
:;-
23
Befo1·c you offer a bounce protcctiou ptoduct, decide if you'd want to detend
the one you're considering in yoUt local newspaper or to your regulator. To
protect you~:self and your institutions reputation. you should, ul a minimum;
• Disclose, disclose, disclose. Disclose costs and terms in thr:: agreement fully
and conspicuottsly. including treatment of debit card ovet•drafts. And
disclose charges pl.'ominentl;y in statements.
• Make clear that toe bank is t)ot promising to pay checks, even jf the
consumer meet~ the criteria for payi:ng an overdraft.
• Do not e)lcouragc overdrafts hl your marketing materials, advertising or
co1nmunications. Some customers have bounced checks b!:'C<IU$e, on
to their true baiMce, leadh1g them to beli~:n'c they have more tb.at~ they do.
Some bm1k messages encourage them to use the product anytime,
• Monitor the account for frequent use of the service. Customers may not
understand how t(J U.Stl i£ appropriately,
,..'\ll of these efforts may still not be enough, Done carefully, automated bounce
protecti<m programs can be good for your c~Istomm·.~ and for the banks. But
\l.rithout undcrslaodh1g how your program wHI be seen and judg~d ill your
communitY, in lh" O::l:eocies and in co1,1rt, i_t could ber.-omr Y''''' Wf\l'!';t nirlh!·
\U~~t:~
A'A ,t0u
Ull\..1
uh\:1., ~.11\t\..'-'-''1.,1
"'-'""" '"-UUH....,u
u.uv niiY""'~
v"•A'O.I , ....
w
...........
""ev-·
If you ho.vo nny <j\\<lCt.ionc Ol' conc11rno:, pl.,nj)P. r.-•:>llf<>l'>t AP.A 'R<>glll,tnry DirP.rtnr
Jim Mcuu•ghl\o, at 1-800-BANKERS.
BIBLIOGRAPHY
Bercnsen. Alt!x,. "Some Bank~ Encoucage Ovc,:rdrafts. Reaping Profit" NtM York Tinws,
22 January 2003 1 A\.
Board ofGovern<JfS of the Federal Reser,•e System. Allll!l(l{ Rt!.porl fr> flirt
Congre.~> IJII
Retail Fee.~ and Set·vh-es of Depository lrtstitutio/ls. June 2002.
Consumer FcderQ.tio.n of America Md National Consumer Law Center. "BoUt)Ce
Protcclion: How &'ulks Turn Rubber into Gold by Entlclng Con~urners ro Write &"d
Checks.'' 27 Jan. :l-003; http://www.cons\Lmerred.org/bouncenppendix012803.pdf,
17 September 2003.
C<1lton, Roger D.
Chafge~:·
"D~ternlitlhlg
tb.c Cost
Eff~:r.:tiveuess
of Utility l..<ltl;l P:).yment
July 1994. http:l/www.fsconlinc.com/downloads/LATE-FF.iB.pdf.
17 Septc111ber 2003.
Fed dis, Nessa Eileen. "Will We Kill a Useful
Ser~·icc'?"
ABA Bwtf::ing JOUI"fi(Jl, Arfil
2003. 38-42.
Fergcson. Ken. LcUcr to B:mk CEOs
f1'0il1
tile ABA Chairmm\-Eicct.
~I
March 2003.
Office o( the Comptroller of the Currency. btterpretive Letmr #9 /4. 15 USC 169 I, I Z
CFR 2 I5, I:2 CFR 226, S.BJ CONS, Septeml)IH 2001.
Rutldon Finandal Group.
''S~1me s~cond
··con~umer
Thoughts on CDs."
Trends in CnecKillg AccQU11ls:' Spring :Z.002.
Busille.1·.~
Week. 20 May 1961, 138.

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW

Transcription

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