Imagine a consumer not being able to recalculate a fee on their monthly deposit account statement based on the information in the statement? It could happen, and it could be a UDAAP as well as a violation of Truth-In-Savings (TISA) Regulation DD.
Assume Bank XYZ has a specialty deposit account. The specialty deposit account was so popular it was carved out in the Compliance Department for its own monitoring and testing, as opposed to being included in the TISA/Regulation DD testing of all other deposit accounts. However, the individuals conducting the testing for the specialty deposit product didn’t include any detailed TISA/Regulation DD testing – inclusive of actually recalculating monthly fees – because they believed it was being conducted in the TISA/Regulation DD review. The monitoring did include a review of disclosures, but never any calculating of fees. In other words, they didn’t do the math. Similarly, the individuals conducting the TISA/Regulation DD testing excluded the specialty deposit account because they thought “it has its own review.” This went on for years. The end result was that for years detailed TISA/Regulation DD testing was never performed for this specialty deposit product.
However, when a third-line-of-defense auditor conducted a full TISA/Regulation DD audit, that auditor included all deposit products. Upon testing periodic statements, and actually recalculating fees that appear on periodic statements, the auditor was not able to tie out to the same fee amount on the statements for the specialty deposit product. The auditor read the disclosure about how the fee was calculated, tried to recalculate the fee amount, but each time calculated a different number. Upon asking the monitoring team about the discrepancies, they replied “must be a technology issue, maybe?” The auditor asked if the issue had been revealed during testing/monitoring, the monitoring team replied, “No, our monitoring program would never reveal something like that because we don’t do the math.”
If the institution couldn’t recalculate the fee, a customer would never be able to. This would lead to a TISA/Regulation DD finding, as well as a potential UDAAP violation.
- When monitoring reviews have potentially overlapping scope, be careful when carving out items. Don’t assume something is being reviewed in another monitoring review. Always verify.
- You need to do the math. For TISA/Regulation DD reviews and TILA/Regulation Z reviews, reading policies/procedures and disclosures won’t likely reveal all issues.