California Banker Issue 2 2025

Our bank notified a customer that their provisional credit (following our Regulation E error resolution investigation) Q: Ask the Compliance Guru

credit could be seen as “deceptive” (a misrepresentation that misleads the customer) or “unfair” (monetary harm to the customer that they could not reasonably avoid.) While some may argue that in these instances, the customer may potential ly be getting a “windfall” via double crediting (i.e. both that from the bank and the merchant), one thing seems clear — Regulation E, being consum er-protective in its creation and spirit, does not appear to permit a bank to claw funds back once they’ve been fi nalized. Q: For Regulation O purposes, does our Board of Directors have to submit annual personal financial statements? A: Strictly speaking, there is not an explicit requirement under Regulation O to have any insiders — or the board — within scope submit an annual per sonal financial statement; such a deci sion is generally going to be more of a safety and soundness consideration,

and a determination that is reliant upon on the bank’s own internal / in vestor guidelines. But, acknowledging that the spirit and intention of Regulation O is to prevent the preferential treatment of a bank’s insiders, it is important to keep in mind that if the bank requires annual personal financial statements from other “non-insider” borrowers on similar credit transactions, then that same requirement should likely be imposed equally to any insider within scope. If ever in doubt, Compliance Hub’s Regulation O Toolkit is packed with resources that can help your bank navigate the requirements and best practices as they relate to extensions of credits to insiders. Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call (888)353 3933 or email info@compliance.com and ask for our Membership Team.

was finalized, but then the merchant issued a credit as well. Is the bank able to recapture our provisional credit? (or the merchant credit?) A: Unfortunately, Regulation E itself does not appear to encompass — or even contemplate — such a scenario (that is, the reversal of final credit due to a subsequent merchant credit be ing awarded). In a strict reading of § 1005.11, there is not any language that would expressly allow the re versal of a final credit, nor to revisit the amount of final credit provided based on later information, such as a subsequent merchant credit. Indeed, not only does the regulation not spe cifically allow for this, but there would likely be UDAAP concerns with such a practice — particularly given that the customer had already been notified of their final credit, and any ensuing attempt by the bank to reverse this

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CaliforniaBanker | Issue 2 2025