Merging deposit products? You may need to notify your customers

Given current economic and regulatory pressures, mergers and acquisitions among financial institutions are increasing in frequency. In a merger, institutions must, of course, join their brands, personnel and operations. Typically, deposit products are also consolidated, often impacting the customers who have been using those products. Institutions will need to evaluate when regulations or contractual provisions might require the surviving institution to send impacted customers notice that their products have changed..Regulatory requirements for deposit account change noticesIn general, the regulatory requirements for change notices in a merger scenario are no different from any other scenario resulting in a change to the deposit disclosures. Institutions will need to review the primary deposit regulations that have express provisions for notices of change, namely Reg E, Reg CC and Reg DD. In general, these regulations set out requirements related to when a change notice is necessary, the timing of the notice, and the form it should take. Regulation ERegulation E, which addresses electronic fund transfers under the Electronic Fund Transfers Act (EFTA) for consumers, requires that a notice of change be sent when an initial disclosure term changes, and that change results in increased fees or liability for the consumer, fewer types of available EFTs, or stricter limitations on the frequency or dollar amount of transfers.Under Reg E, a notice of change must be sent to affected consumers at least 21 days before the effective date of the change, unless an immediate change in terms is necessary for security reasons. In that case, the institution must notify the consumer in writing either with the next regularly scheduled periodic statement, or within 30 days of making the change permanent.Addressing the manner of communicating a change to the consumer, Reg E requires only that the notice must be “a written notice” that shall be “mail[ed] or deliver[ed]” to the consumer. The commentary to Reg E permits the notice to be provided as part of a periodic statement, or may be given by sending a copy of a revised disclosure statement, with the specific change highlighted either on the statement or in a cover letter, so that it is clear to the consumer what is changing.Regulation CC Regulation CC, addressing the availability of funds under the Expedited Funds Availability Act, requires that a notice of change be provided for any change to the funds availability policy, whether the change affects consumers positively or negatively. If the change results in a negative change to the customer, such as a change that further delays availability or that reduces the amount available at a given period, notice must be provided at least 30 days in advance. If the change results in a positive change for the customer, such as earlier availability or an increase in the amount available, notice must be provided within at least 30 days after the change goes into effect. While the Reg CC change notice requirements only apply to consumer accounts, it is generally considered a best practice to provide commercial customers with notice of any changes as well. Reg CC does not dictate any specific form for the notice of change, but the commentary directs that the notice must be clear and conspicuous. If the financial institution chooses to provide a completely new availability disclosure, the consumer must be directed to the changed terms in the disclosure either by using a letter or an insert that points out the change, or by highlighting the changed terms in the disclosure.Regulation DDReg DD (or Part 707 for credit unions), which covers Truth in Savings Act (TISA) disclosures, requires a notice of change if an initially disclosed term is changing, and the change may reduce the APY, or adversely affect the consumer.Notices of change must be provided at least 30 calendar days prior to the effective date of the change. Reg DD does not require notices for variable-rate changes, check printing fee changes, or time accounts with maturities of one month or less. Under Reg DD, the notice must include the effective date of the change — really a best practice for all change notices. The commentary to Reg DD states a change-in-term notice may be provided as part of a periodic statement or in another mailing. If revised account disclosures are provided that include the change, the specific change must be highlighted in some way.Summary of timing requirementsThe table below summarizes the time requirements for change notices under the different regulations. Note that if Reg E and another regulation apply to the change, the best practice is to go with the longer time period.Change notice requirementsReg CC: No later than 30 days after implementation, 30 days advance noticeReg E: No requirement, 21 days advance noticeReg DD: No requirement30 days advance noticeNon-regulatory reasons to send a change noticeIn addition to regulatory requirements, a merger may present an institution with an opportunity to consolidate its account agreements and send a notice of change. Doing so can help the institution minimize operational complexity by having all its customers on the same agreement. The institution can also take the opportunity to update the account agreements to reflect current regulations, institution policies, updated technologies, or even to add an arbitration agreement. The institution may need to review any change in terms provisions in its existing account agreements for requirements on sending these types of change notices. In addition, if adding an arbitration agreement, financial institutions will want to be aware of the extensive litigation in this area, and should consult an attorney in their state to help ensure that any such addition can survive a legal challenge. ConclusionIn summary, when consolidating deposit accounts, institutions should carefully compare disclosures to see whether the surviving account policies trigger change notice requirements for impacted customers under Reg E, Reg CC, or Reg DD. In addition, institutions may wish to take the opportunity to update their account agreements for all customers, thus ensuring their relationships are governed by the most up-to-date terms. Finally, when rolling out a change, institutions will want to be aware of regulatory requirements, best practices and litigation concerns to help ensure the change will be successful.