Page 38 - December 19. 2024 Bulletin

BUSINESS PARTNERfeature article

Account Agreements

and Compliance

Considerations for Banks

Jefferson Sorley, Jur. M, CRCM

Director of Reviews & Products
Compliance Alliance

Banks provide account agreements to consumers, outlining accurate, and not misleading. Ambiguities or inaccuracies can
critical terms and conditions that govern their business expose banks to litigation and regulatory penalties. Effective
interactions. These agreements serve as essential documents disclosures empower consumers by providing them with the
that clarify the rights, obligations, and expectations of the knowledge they need to make informed decisions about their
banking relationship. Typically, banks provide two types of banking relationships. Consequently, banks must review
agreements: one for bank accounts and another for loans. The their agreements regularly to ensure that the language used
details included in these agreements vary depending on the remains consistent with current legal standards and consumer
type of account or service. Common categories of information protection regulations.
in the agreements include bank and customer liability, deposit
and withdrawal rules, check processing, rights to setoff (offset), Prohibited Terms and Conditions in Consumer
account information security, and procedures for addressing Agreements
disputes and errors. Additionally, they serve to ensure that
consumers are well-informed about their relationship with While banks have considerable leeway in crafting their
the bank, enhancing transparency and fostering a better agreements, certain terms and conditions are explicitly
understanding of each party's responsibilities. prohibited by law. In June 2024, the Consumer Financial
Protection Bureau (CFPB) released a circular highlighting
Content Requirements and Disclosures in unlawful and unenforceable terms that banks must avoid. The
Agreements circular, "Unlawful and Unenforceable Contract Terms and
Conditions" (CFPB Circular 2024-03) , outlines a range of
Banks have some flexibility in determining the content of their prohibited practices that banks need to be aware of. Prohibited
account agreements; however, state and federal regulations terms and conditions commonly seen in agreements that need
mandate certain disclosures to be provided to consumers at to be corrected or clarified include:
specific stages, such as at application or at account opening.
Integrating these disclosures directly into their account 1. Prohibited Arbitration Clauses in Mortgage and
agreements helps banks streamline processes and mitigates Credit Agreements
the risk of regulatory breaches. In addition to regulatory
compliance, banks often incorporate legal disclaimers and The inclusion of certain terms in contracts for consumer
waivers to minimize liability and clarify any limitations on the financial products or services may violate the prohibition
bank's obligations to customers. when applicable federal or state law renders such
contractual terms, including those that purport to waive
Ensuring Compliance through Clear Disclosures consumer rights, unlawful or unenforceable. The Truth
in Lending Act (TILA) prohibits the inclusion in a
Regulatory requirements extend beyond simple disclosure residential mortgage loan or open-ended consumer credit
mandates. Banks must also ensure that disclosures are clear, plan secured by the principal dwelling of terms requiring

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