Deposits - Iowa Bankers Association

FAQs

ATMs

Question: Can you please provide me with the section/chapter of the Iowa Code that requires a privately-owned ATM to be registered?

Answer: Refer to Iowa Code section 527.4 and 527.5 which applies to satellite terminals restrictions and requirements. These sections state each ATM must be sponsored by a bank and the ATM must bear a sign identifying the name, address and telephone number of the sponsoring bank. Technically this entire section doesn’t apply to national banks, as they are most likely pre-empted under federal law, however a national bank would still be required to have a plaque displayed on the ATM noting it is the sponsoring bank.

State chartered banks would also need to send an information statement to the Iowa Division of Banking that they are sponsoring the privately-owned ATM. This information is not held in a searchable format by the IDOB so it can’t be confirmed by an auditor or another party. If additional clarification is needed for the bank, we suggest contacting the IDOB directly at 515-281-4014. Also, see the IBA Privately Owned ATM Checklist for additional things to consider when determining the risk of privately-owned ATMs.

Question: We will be removing and not replacing one of our ATMs that is not ADA compliant and has low usage. Do we have any notification requirements I’m overlooking?

Answer: There is no requirement to notify your federal regulator of the ATM removal. However, Iowa law (chapter 527.5) does require a financial institution to update its “information statement” on file with the Iowa Division of Banking:

1. 1. An informational statement shall be filed and shall be maintained on a current basis with the administrator by the financial institution controlling a satellite terminal in this state, which sets forth all of the following:
  2. a)   The name and business address of the controlling financial institution.
    b)   The location of the satellite terminal.
    c)   A schedule of the charges which will be required to be paid by a financial institution utilizing the satellite terminal.
    d)   An agreement with the administrator that the financial institution controlling the satellite terminal will maintain that satellite terminal in compliance with this chapter.

The informational statement shall be accompanied by a copy of the written agreement required by subsection 1. The informational statement also shall be accompanied by a statement or copy of any agreement, whether oral or in writing, between the controlling financial institution and a data processing center or a central routing unit, unless operated by or solely on behalf of the controlling financial institution, by which transactions originating at that terminal will be received.

Notice is also NOT required per Reg. E’s change in terms notice rules – see the exemption in the commentary:

Sec. 1005.8 Change in terms notice; error resolution notice.

(a) Change in terms notice – (1) Prior notice required. A financial institution shall mail or deliver a written notice to the consumer, at least 21 days before the effective date, of any change in a term or condition required to be disclosed under Sec. 1005.7
(b) if the change would result in:

(i) Increased fees for the consumer;
(ii) Increased liability for the consumer;
(iii) Fewer types of available electronic fund transfers; or
(iv) Stricter limitations on the frequency or dollar amount of transfers.

Commentary:

8(a) Change-in-Terms Notice
1. Form of notice. No specific form or wording is required for a change-in-terms notice. The notice may appear on a periodic statement, or may be given by sending a copy of a revised disclosure statement, provided attention is directed to the change (for example, in a cover letter referencing the changed term).
2. Changes not requiring notice. The following changes do not require disclosure:

1. 1. Closing some of an institution’s ATMs;
    Cancellation of an access device

A few other considerations when removing an ATM from a location:

SHAZAM requires a two-week advance notice be provided on the institution’s letterhead in order to avoid expedition fees.
If your ATMs are listed in your CRA public file listing of bank services, it will need to be updated to show the terminal was removed and current locations of all active terminals. (Section 228.43(a)(5) of Reg. BB states at its option, a bank may include information regarding the availability of alternative systems for delivering retail banking services such as ATMs, in its Public File.)

Finally, and most importantly, is the customer service issue – you will want to post advance notice on the machine prior to removing it, to ensure your customers who use the machine routinely are given adequate notice. You may want to consider providing alternative ATM site locations on your notice.

FIRST TIME HOMEBUYER SAVINGS ACCOUNT

Question: The Governor of Iowa signed SF 505, creating a new tax-advantaged “First-Time Homebuyer Savings Account.” Would you be able to provide more information on this and the compliance issues associated?

Answer: Senate File 505 was signed by the Governor on May 9, 2017. The Act provides for the establishment of first-time homebuyer savings accounts in Iowa. Essentially, it allows Iowa residents to obtain tax credits when they establish an interest-bearing savings account for eligible home costs related to a qualified home purchase – subject to annual and lifetime maximums and other restrictions. The account owner is responsible for tax reporting, completion of appropriate tax documents, and retaining documentation of proper use. The Act does not require any special handling of these accounts by a financial institution. Section 7 outlines that a financial institution is not responsible or liable for:

Labeling accounts as first-time homebuyer savings accounts or including name of beneficiary in title.
Verifying the purpose of a withdrawal of funds or tracking the destination or use of withdrawn funds.
Determining allocation of funds to beneficiary or account owner.
Ensuring the account meets requirements of first-time homebuyer savings account program.
Reporting any information to the state.
Tax reporting.

What this means is that your bank does not have to take any special action on this type of account, nor does a new product have to be created. These accounts can be treated the same as any other interest-bearing savings accounts offered by the bank.

Question: Must this account be used solely for deposits related to a First Time Homebuyers Savings account?

Answer: Yes. The law states while there are annual and lifetime limits for deposits qualifying under the program (e.g. those that are eligible for the income deduction on the state return), there is no limit to the amount of non-tax preferred deposits made into the account. However all funds must be used exclusively for first time homebuyer purposes.

Question: Can a person who already owns a home open a FTHSA?

Answer: Yes. A person who owns a home can open a FTHSA provided the account is opened for the purpose of assisting another person (beneficiary) who qualifies as a first-time home buyer under the rule in making a qualified home purchase.

Question: Should the bank label the account as a First Time Homebuyers Savings Account (FTHSA)?

Answer: Iowa SF 505 does not require the bank to label or title the account in any particular manner. Banks may want to note “FTHSA” in the second line of the account title just for purpose of easily identifying the account if a customer has multiple accounts with the bank but there is no state law requirement to do so. The bank is also not required to designate or label the account as a FTHSA on its systems or account contracts.

Question: Must this account be a single ownership account?

Answer: No, the account can be single or the account may be joint ownership for a married couple electing to file a joint Iowa individual income tax return. Married taxpayers filing separate returns or separately on a combined return may not establish or maintain a joint FTHSA. In either situation, the account must be opened in the name of an individual or individuals, meaning the owner(s) must be a natural person.

Question: Instead of using the example above for titling, since the person that qualifies as a first time homebuyer is referred to as the “beneficiary” in the rule, can I just use “beneficiary” in the title?

Answer: The IBA does not recommend this as the term “beneficiary” has a specific meaning under this program and use of this term in the account title could cause confusion upon death of the accountholder. Using our example, Jane Smith is the sole owner of the funds. Should Jane pass away, the funds would go to her estate – NOT to Tiffany. Tiffany is the intended user of the funds for purchasing a home, not the person to receive the funds upon the death of the account owner.

Question: Can the accountholder name a Payable on Death Beneficiary for this account?

Answer: Yes, the POD can be the same person as the FTHSA “beneficiary”/homebuyer or someone completely different. However, per the Administrative Rule, if the accountholder dies, the funds remaining in the account at the time of death are considered to be automatically withdrawn, subject to penalty and added to decedent’s final state tax return.

Question: Who can qualify as a “beneficiary” for this program? Must there be a family relationship?

Answer: The law requires the accountholder to designate a sole beneficiary who qualifies as a first-time homebuyer. The beneficiary must be an Iowa resident and qualify as a first-time homebuyer at the time the account is opened and when the funds are used. There is no requirement that the beneficiary be a family member. And the accountholder can name themselves as a “beneficiary” under the program.

Question: Is there a limitation on how many accounts can be opened by an accountholder or for a named “beneficiary”?

Answer: No, the accountholder may open multiple FTHSAs provided each account has a different designated beneficiary. Furthermore, an individual may be the designated “beneficiary” of more than one FTHSA. The account holder and designated beneficiary may be the same individual. However, an accountholder may not open/hold more than one account for the same designated beneficiary.

Question: Is the bank allowed to charge customary fees associated with a savings account to the FTHSA?

Answer: Yes, all fees and charges normally disclosed and assessed by the bank for a savings account may be deducted from the account. Such a deduction would not constitute a nonqualifying withdrawal.

Question: Whose tax identification number should be used for the account?

Answer: In the example above, Jane Smith is the accountholder and owns the funds so you would use Jane’s social security number.

Question: Who receives the tax deduction for these deposits?

Answer: Any funds contributed the account by the accountholder during the tax year may be deducted from the account holder’s net income on their Iowa tax return.

Question: Are funds deposited into a FTHSA protected from legal actions like garnishments and levies?

Answer: No. These funds are not protected from legal actions against the account holder. Withdrawals from FTHSA caused by a garnishment, levy, bankruptcy, or any other legal order are considered nonqualifying withdrawals and are subject to the rule’s penalty provisions and must be reported as additional income on the account holder’s tax return.

Question: Since the interest earned on this account may be excluded from taxes, should the bank deduct this interest from interest paid on other accounts owned by the accountholder on the 1099-INT?

Answer: No. The 1099-INT is an IRS form that could affect both federal and state taxes. The FTHSA program is a state of Iowa program. Therefore, the bank should continue to report interest paid to the accountholder using the 1099-INT IRS form, same as they do today. The rule allows the accountholder to deduct the reported interest associated with the FTHSA from the income of the accountholder on their state return.

Question: Is the bank responsible for ensuring the funds are used for the intended purpose?

Answer: No. The accountholder is responsible for tracking deposits for the named “beneficiary” and for the use of the funds, not the bank. The funds may be withdrawn at any time. However to avoid penalties, the withdrawals must be used by the named beneficiary to purchase a single family home in Iowa. Moreover, the purchase must be made 90 days or more after the date the accountholder opens the account. The rule also states the ownership of the home being purchased must pass to the beneficiary within 60 days of the date of the withdrawal and the beneficiary must occupy the residence within 90 days of the date of withdrawal.

Question: Does the bank have any reporting responsibilities for deposits or withdrawals to the account?

Answer: No, this is the accountholder’s responsibility. The law requires the owner of the FTHSA to make an annual report to the Iowa Department of Revenue with the filing of his/her state tax return. Furthermore, the accountholder must submit a withdrawal report within 90 days of the date of withdrawal but no later than the date the return for which the deduction is taken is filed.

Question: Is the bank responsible for ensuring the FTHSA “beneficiary” is a qualified beneficiary under the program?

Answer: No. The depositor is responsible for ensuring the person designated as “beneficiary” has not owned a home within the past three years, not the bank.

Question: Must bank account records reflect the beneficiary(ies) of the FTHSA?

Answer: No. However, the law and administrative rule requires a person establishing a FTHSA to designate one individual as beneficiary of the FTHSA on forms provided by the Iowa Department of Revenue no later than April 30 of the year following the tax year the account is opened. If a customer has multiple FTHSA with your bank, they may request that you provide a special notation to help differentiate this account from other funds. For Example, if Jane Smith is the accountholder depositing the funds for her daughter Tiffany Smith, the bank may, but is not required to use a label such as “Jane Smith, FTHSA, Tiffany Smith, Homebuyer” or some similar identifier.

Question: Does the bank have any additional reporting responsibilities beyond a regular savings account if the account is established as a First Time Homebuyers Savings Account?

Answer: No, there are no additional reporting requirements for the bank.

Question: Should the bank establish a new type of account when offering First Time Homebuyers Savings Account?

Answer: That is a bank management decision. There is no requirement to develop a new product or account type; the only requirement under state law is that the account be interest-bearing. The bank can use any of their existing savings accounts as defined under Reg. D section 204.2(d) for this purposes if it desires.

Question: Since the funds must be used for purchasing a home within 10-years, should the bank restrict withdrawals during or after that time?

Answer: For clarification, the rule states the funds must be used by the designed “beneficiary” for purposes of payment or reimbursement of eligible home costs connected with a qualified home purchase no later than January 1st of the tenth calendar year after the calendar year during which the accountholder first opened the FTHSA. With that said, the bank is not responsible for monitoring transaction activity. If the funds are not used for the intended purpose within the timeframe required, the funds are considered automatically withdrawn and the accountholder must include the “withdrawn” funds in his/her Iowa income. They will be assessed a tax penalty equal to 10% of the “withdrawn” amount subject to some exceptions.

Question: Should the bank close the account if funds are not withdrawn within 10 years?

Answer: No, since the funds are deemed automatically withdrawn for tax purpose, the bank is not required to close the account. The funds can remain in the account and the accountholder, after including the funds in their income for that year, can then use the funds for any purpose.

Question: Where can the bank find a copy of the tax forms the accountholder would complete?

Answer: Refer the customer to their tax advisor for the form and proper completion instructions. For the annual report or withdrawal report form, contact the Iowa Department of Revenue.

MISCELLANEOUS

Question: Are overdraft or nonsufficient fund fees subject to Iowa sales tax?

Answer: No. Iowa administrative code, 701-26.8(5) states that fees charged to a checking account which are “penalties” for a depositor’s failure to adhere to their contract with the bank are not subject to state sales tax. This would include fees assessed for overdrafts or NSF fees which are charged due to the depositor’s failure to maintain adequate funds in their account to cover checks and other payments from the account. Sales tax should be charged on service charges which relate to the checking account, such as processing a stop payment request, replacing a debit card or bill payment fees. Click here to access Sales Tax on Service Charges, IBA’s summary of the sales tax requirements on services in the Iowa Banking Guide.

Question: Can an Iowa bank accept an electronic stop payment order and consider it as their “written confirmation” of the stop pay request, thereby making the stop pay effective six months?

Answer: Yes. Iowa law was changed several years ago to permit electronically signed stop payments. The permission is found in Iowa code section 554.4403 – 2A:

554.4403 Customer’s right to stop payment — burden of proof of loss.

1. 1. A customer or any person authorized to draw on the account if there is more than one person may stop payment of an item drawn on the customer’s account or close the account by an order to the bank describing the item or account with reasonable certainty received at a time and in a manner that affords the bank a reasonable opportunity to act on it before any action by the bank with respect to the item described in section 554.4303. If the signature of more than one person is required to draw on an account, any of these persons may stop payment or close the account.
  2. A stop-payment order is effective for six months, but it lapses after fourteen calendar days if the original order was oral and was not confirmed in writing within that period. A stop-payment order may be renewed for additional six-month periods by a writing given to the bank within a period during which the stop-payment order is effective. 2A. In addition to a stop-payment order made or renewed in writing as described in subsection 2, an equivalent stop-payment order may also be made or renewed as part of a record that is stored in an electronic medium, and submitted to the bank, which may include delivery via electronic transmission.

Unclaimed Property (Escheatment) Rules

Question: We are in the process of reviewing our escheatment policy and procedures and have a couple of questions. Is an account considered “abandoned” if the only activity in the account is an auto transfer; for example, crediting of interest earned or annual safe deposit box rental debited from the account, etc.? Also, if we have an account that has had no activity for three years and is owned by a person who has another account at our bank that has had activity, is the account with no activity considered “abandoned”?

Answer: The escheatment rules are actually a matter of state law. The State Treasurer has a website page dedicated to Iowa’s unclaimed property rules and the state program to return abandoned property to its rightful owner, called “The Great Iowa Treasure Hunt.” On this website are a series of FAQ, as well as a procedures manual for financial institutions, reporting instructions, links to applicable Iowa Code provisions and more.

The manual indicates an account is considered “abandoned” when there has been no “positive owner contact” for a period of three years. “Positive owner contact” means an action which is initiated by an owner constituting the owner’s aware of an asset, including:

A deposit
A withdrawal
Correspondence from the owner in writing, including email
Updating of contact information (address, phone, email) provided by the owner
Some other indication of interest by the owner, as contemporaneously documented by the financial institution
Positive contact or activity on a related account belonging to the same owner

The manual also specifically indicates the automatic posting of interest or assessment of a fee does not constitute positive owner contact because it is the bank that is initiating the action, not the consumer.

In regard to the second part of your question related to persons with multiple accounts at the same institution, one of the FAQ on the website directly addresses this:

If a customer has both a dormant and active account, is the dormant account considered unclaimed property?

No, the dormant account is not considered abandoned as the bank has an ongoing active relationship with the owner.

Question: We have a question related to the state’s unclaimed property rules (or escheat rules). When customers notify us they wish to close their account, we issue a cashier’s check to them for the remaining account balance after all their outstanding checks have cleared. Often this check is for a very small amount, like under $10. Even more often, these small cashier checks are never cashed so we have to go through the process of turning the funds over to the state of Iowa under the State’s unclaimed property rules. Does state law provide for a “de minimis” exception? For example, we don’t have to remit unclaimed amounts under $5 or some other amount?

Answer: Unfortunately no. According to the State Treasurer’s website FAQ on the unclaimed property rules, there is no minimum reporting threshold; ALL amounts are reportable to the State of Iowa. However, the Treasurer’s rules do permit aggregating amounts together as one entry on the annual report when the owner of the funds is unknown or the property value is under $50. Institutions should note however, only one aggregate property entry is permitted per annual report.

While reporting in aggregate is an option, the State Treasurer’s office advises it does depend on financial institution records. Thus, institutions are advised to retain a detailed listing of amounts they have aggregated. This saves time and effort later should the owners come forward to claim aggregated items. Learn more information about the State of Iowa’s rules related to reporting unclaimed property.