B Account Agreements AND COMPLIANCE CONSIDERATIONS FOR BANKS BY JEFFERSON SORLEY, COMPLIANCE ALLIANCE Banks provide account agreements to consumers, outlining critical terms and conditions that govern their business interactions. These agreements serve as essential documents that clarify the rights, obligations and expectations of the banking relationship. Typically, banks provide two types of agreements: one for bank accounts and another for loans. The details included in these agreements vary depending on the type of account or service. Common categories of information in the agreements include bank and customer liability, deposit and withdrawal rules, check processing, rights to setoff (offset), account information security, and procedures for addressing disputes and errors. Additionally, they serve to ensure that consumers are well-informed about their relationship with the bank, enhancing transparency and fostering a better understanding of each party’s responsibilities. Content Requirements and Disclosures in Agreements Banks have some flexibility in determining the content of their account agreements; however, state and federal regulations mandate that certain disclosures be provided to consumers at specific stages, such as at application or at account opening. Integrating these disclosures directly into their account agreements helps banks streamline processes and mitigates the risk of regulatory breaches. In addition to regulatory compliance, banks often incorporate legal disclaimers and waivers to minimize liability and clarify any limitations on the bank’s obligations to customers. Ensuring Compliance Through Clear Disclosures Regulatory requirements extend beyond simple disclosure mandates. Banks must also ensure that disclosures are clear, accurate and not misleading. Ambiguities or inaccuracies can expose banks to litigation and regulatory penalties. Effective disclosures empower consumers by providing them with the knowledge they need to make informed decisions about their banking relationships. Consequently, banks must review their agreements regularly to ensure that the language used remains consistent with current legal standards and consumer protection regulations. Prohibited Terms and Conditions in Consumer Agreements While banks have considerable leeway in crafting their agreements, certain terms and conditions are explicitly prohibited by law. In June 2024, the Consumer Financial Protection Bureau released a circular1 highlighting unlawful and unenforceable terms that banks must avoid. It outlines a range of prohibited practices that banks need to be aware of. Prohibited terms and conditions commonly seen in agreements that need to be corrected or clarified include: 1. Prohibited Arbitration Clauses in Mortgage and Credit Agreements The inclusion of certain terms in contracts for consumer financial products or services may violate the prohibition when applicable federal or state law renders such contractual terms, including those that purport to waive consumer rights, unlawful or unenforceable. The Truth COMPLIANCE CONNECTION 18 HOOSIERBANKER
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