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Taking the branches out of branch banking – tips for banks looking to increase their digital footprint

on Friday, 19 June 2020 in Technology & Intellectual Property Update: Arianna C. Goldstein, Editor

While the move to digital banking has been swift in many circles, some financial institutions have been slow to adopt processes and technologies to make it easier for their customers to bank remotely. The COVID-19 Pandemic is changing this, forcing all financial institutions to re-think their in-branch offerings and speed up their development of digital banking services.

Below are a few tips for those banks who are looking to make the move from an in-person to a mobile banking environment  

  • E-SIGN and UETA

Due to their regulated nature, banks provide a lot of disclosures to their customers. A lot of disclosures.

Whether the customer is seeking a line of credit, a home loan, or simply opening a deposit account, banks must comply with various disclosure obligations relating to fees, interest rates, and other important service details (as applicable). Moreover, disclosures provided by banks must also comply with timing and form requirements. In most cases, this means that the bank is required to provide the disclosures “in writing,” meaning a physical copy, either in-person or via mail.

This presents a question of how a bank operating in a digital environment provides required disclosures to its customers? The answer is E-SIGN and UETA.

E-Sign (the Electronic Signatures in Global and National Commerce Act) is a federal law that validates electronic records and signatures for transactions impacting interstate commerce. UETA (the Uniform Electronic Transactions Act) is E-Sign’s state law counterpart.

In addition to validating signatures for contracts, E-Sign allows banks to provide required disclosures electronically, provided that the bank first obtains a consumer’s consent in an E-Sign compliant manner.

In practice, many financial institutions and Fintechs include E-Sign / UETA disclosures and consent requirements as part of their account opening procedures and require a customer’s consent as a pre-condition to obtaining services. In this way, financial institutions offering digital banking services ensure that they may lawfully provide any required disclosures electronically.

  • Non-Documentary Review of Account Opening Materials

One service that continues to take place in-branch at many financial institutions is account opening. Some banks have been slow to adopt an online or digital account opening process out of a concern that they are required by the Bank Secrecy Act (“BSA”) to review a prospective customer’s government issued photo identification in order to verify his or her identity. The BSA, however, does not require documentary review of an individual’s driver’s license in order to open an account and, in fact, provides an alternative verification method that a bank may use to verify a prospective accountholder’s identity remotely.

In particular, the BSA expressly allows banks to verify a customer’s identity through “non-documentary methods.” Such non-documentary methods” include the following (31 CFR  Section 1020.220(a)(ii)(B)):

contacting a customer; independently verifying the customer’s identity through the comparison of information provided by the customer with information obtained from a consumer reporting agency, public database, or other source; checking references with other financial institutions; and obtaining a financial statement.

In practice, companies like IDology routinely provide non-documentary verification services that are relied on by digital banks and Fintechs to verify the identity of their customers in a mobile environment. The same non-documentary process can be leveraged by other financial institutions to boost their capability to operate remotely.

  • Mobile Deposit and MRDC Technology

Despite the ever growing prevalence of digital payments, paper checks still play an important part in the payments ecosystem, particularly at the local bank level. Thus, the need remains for customers to be able to deposit paper checks into their bank accounts. Some of this deposit volume can be completed remotely at ATM locations. However, a real convenience for bank customers is the ability to deposit a paper check remotely via mobile remote deposit capture (MRDC) technology.

MRDC technology is not new, but many banks have been slow to adopt it, partly out of a fear of the so called “double presentment” issue. The “double presentment” issue occurs where a customer remotely deposits a check via MRDC and then goes to deposit or cash that same check at a different institution, thereby receiving a double payment on the item and creating a question as to which institution – the MRDC accepting bank or the institution accepting the original paper check – bears the risk of loss.

Many banks remain unaware, however, that certain changes in law have developed to help clarify this issue.  Specifically, a relatively recent change to Regulation CC instituted a “remote deposit capture indemnity.” This indemnity requires a MRDC deposit bank to indemnify a depository bank that accepts an original check for deposit from losses incurred by that depository bank due to the check already having been paid. However, this indemnity is not available where the MRDC depository bank has required a restrictive endorsement on the check (e.g., “for remote deposit only”). This latter provision is based on the theory that a restrictive endorsement clearly denoting that the check is intended for mobile or remote deposit puts any future institution presented with the original check on notice that it was already for submitted for MRDC. (See 12 CFR Section 229.34(f))

Thus, a bank can adopt MRDC technology, require that any remotely deposited check include a compliant restrictive endorsement, and be relatively secure from the risk of a “double presentment.”

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