Does Your Bank Have A Tiered Rate Reward Checking Account? Then You Really Need To Read This.

There is a major compliance issue still circling around the industry for tiered interest checking accounts. The basic premises are that banks are incentivizing their customers to use their debit cards. They do this by offering a higher APY on checking account balances if a customer uses their debit card so many times a month. The problem lies in how they are disclosing the transaction requirements to their customers.

I will use a common version of this problem. Let’s say that your program requires 10 debit card uses in a month to earn a higher rate, and if a customer doesn’t meet that threshold, they get a substantially lower rate for that month. Your account opening disclosure states this, but it doesn’t clearly spell out how transactions are counted.

The problem now lies with whether or not a transaction has to simply be initiated in the month or actually processed and posted in the month. If a customer has two more to go on the last day of the month, so they use their debit card for lunch and then gas on the way home, do those transactions count towards that month? If they have to post in the calendar month, they likely won’t qualify since they won’t post until the 1st day of the next month or even later; however, most disclosures I’ve seen do not specify. If they must post, but you don’t tell that to your customers, you likely have a large UDAAP issue. A customer thinks they have their 10, but in reality, they will end up with 8 and miss out on the higher interest rate.