So last time we talked about Privacy. It seems most of you were pretty comfortable with the privacy policy, so we’ll move on to the meat of the disclosures; the account agreement.

Now, as I go through this, I’ll actually be using the terms and verbiage from my credit union’s disclosure booklet. Your financial institution’s policies may vary and what I say here is not necessarily representative of all financial institutions. Ok, now that my personal disclosure is out of the way, let’s move on.

Eligibility

The first thing you’ll find in a credit union’s policy is the membership eligibility. Such eligibility is defined within a credit union’s bylaws. However, bank’s have a similar clause within their policies, as well. What’s important to take away from this section is that your financial institution has the right to check your accounts, credit, and employment history to determine eligibility. Now, I’ve never seen a case where your employment has been a matter of concern – except when it’s a check cashing business – however, checking credit reports and Chexsystems or Telecheck is done on every account.

There are two reasons for this, of course. The first, as I’ve mentioned above, is to ensure that you qualify for an account with the financial institution you’ve chosen. If you are on Telecheck or Chexsystems, then you are ineligible to open an account unless the institution makes an exception. If you are on either list, you will run into problems at any institution you do business with. The other reason financial institutions view your credit reports is to see what products and services they can offer you. To be fair, their first priority is to make sure you’re not a dead beat that’s going to rip them off. But secondly, they’re in the business of offering products and services and a credit report offers a lot of information to make that sales pitch.

Account Types

The next section will generally refer to the different account types and how they’re set up with the financial institution. I actually won’t spend a lot of time on this section because I have another post coming that goes into great detail of this section specifically. However, suffice it to say that only those parties listed on the account have access to the account and it’s information.

Deposit of Funds Requirement

This particular section basically clears your financial institution of any responsibility for deposits until they are received by the financial institution. That means deposits you mail in, deposit at an ATM – particularly an offsite ATM – or at unstaffed facilities or service centers are not the responsibility of the financial institution until it is received by an employee of the institution. Furthermore, this section gives the financial institution the right to refuse or return any deposit.

Now, I know what you’re thinking…why would an institution choose to refuse a deposit. There are a few reasons, so let’s talk about them in some detail.

Endorsement Issues

First on the list is endorsement issues. This is always a big problem with people because banks will refuse a check for improper endorsement, then the person gets upset because they think we’re choosing to be difficult. It’s not about being difficult. It’s about avoiding a loss and ensuring timely payment of the item.

So, let’s talk about the difference between an endorsement and a restriction. An endorsement is a signature of the person the check is made payable to. They are endorsing that they believe the item to be good and accept payment from or responsibility of the item. A restriction limits what can be done with an item. My personal favorite are the ones where people put “For Deposit Only” on the back of the check and assume that’s an endorsement. Well, no it’s not. That’s a restriction. That’s telling me that I can only deposit the check to the account.

Now, nine times out of ten, we’ll go ahead and use an endorsement guaranteed stamp on items such as this; however, some checks we will hand back and ask to have signed. Government and insurance checks must ALWAYS have proper endorsements on them, and you will likely have your check handed back to you if it is not. The reason for this is that the government and insurance companies have up to 7 years to return a check for improper endorsements, which means the bank or credit union takes a loss, or they charge it back to you if you still maintain accounts with them. So, if you have a check, just sign the back of it. It makes life simple for everyone involved.

The other endorsement issue that seems to be a problem for some folks is having ALL parties endorse the check when it’s paid to multiple parties. Again, if it’s an insurance or government check, your financial institution will be more strict. If there is more then one party on the check, ALL parties must sign – even if it’s your mortgage company. We’ve had a lot of insurance checks come through lately because of a recent hail storm that’s caused some damage. But, because the checks have included the mortgage company on them, we’ve had to turn them away until the mortgage company has signed.

People think that just because a mortgage company doesn’t have a local standing office they don’t have to get an endorsement, and that’s just not true. There’s snail mail and any other method the mortgage company requests. But, as lien holders to the property, it is their right to be aware of the damages and to authorize usage of the proceeds from the check – because the reality is, if you choose not to repair the roof or property, then it devalues it altogether. Lien holders want to protect their assets and it is very difficult to get insurance agents to issue a check without the lien holder on it.

With private party checks, the endorsement is only an issue if the receiving bank makes it one. For example, if you bank with Chase and a Bank of America customer writes you a check that you deposit without an endorsement, it’s unlikely that Bank of America will send it back for improper endorsement, particularly given that Chase has probably stamped it. However, if they do, then it is charged back to the depositing customer’s account and there’s usually a fee assessed for doing so. The good news is that the receiving bank only has a limited time frame to return the checks – I believe it’s 60 days, but I would actually have to double check that number.

Collection Items

Every once in awhile, we get some collection items in. These are things like receiving a check or money order drawn outside the United States, from Canada, as an example. In this case, we can’t process the item like normal, which goes through the Federal Reserve to route to the receiving bank, who then routes the money back to the initiating bank. Now we’re dealing with foreign money and currency exchanges. So, when you take these items to the bank,  they are not immediately available for deposit. We become your agent in collecting the funds and take no responsibility for any damages or losses in transit. We also advise you that the amount deposited may be less due to fees and currency exchange. We ship it out and in about two weeks you have your money.

However, having to work collection items is a bit of a process and some smaller banks and credit unions may choose not to do collection items. In which case, you’ll be forced to find other means with which to collect the funds. However, the deposit funds requirements section does give your bank or credit union the right to refuse the deposit, so there’s not much you can in that case.

Final Payment and Direct Deposit

Under this section of your financial institution’s disclosures, it covers the fact that any deposits electronically made to your account are provisionary and based on receiving final payment from the sending party. Many of you may be familiar with this come payday. For those of you who are paid on Fridays, but receive your direct deposit Thursday night, you are receiving a provisional credit from your institution with the expectation that the payment file will be sent on Friday. If for whatever reason the payment is not received or is returned, the financial institution will debit the amount of the provisional credit and may even charge you a fee, depending on the circumstances surrounding the return.
This section also explains that if an account is overdrawn, when funds are directed deposited to the account, any amounts owed to the bank are automatically deducted from the deposit and the remainder is left in the account. It amazes me the number of people who do not understand that financial institutions will take the money owed to them from a direct deposit.

I had a lady come in yelling at me because her direct deposit was $300 short. Well, her account had been overdrawn, so that $300 went towards the negative balance. She seemed to think we weren’t able to do that and demanded to be shown in writing where that was. When I showed her, she was beyond being reasonable and stated she would be getting an attorney. We never heard back. At any rate, whenever you owe your financial institution money, just be aware that it will be deducted from your direct deposits when they come into the account.

And I’m going to stop there for this installment because I’ve covered quite a lot and I don’t want to overwhelm you too much. What questions do you have so far? Are there any sections here you’ve never heard of, or never seen within your own financial institution’s disclosures?

Related posts:

1. Reading and Understanding Your Bank’s Disclosures: Part I
2. Bank Collapse Survival Guide
3. Understanding Debit vs. Credit With Your Debit Card
4. Bank of America Review
5. Banking 101: Deposit Account Holds