Be prepared for increased complexity when implementing a restitution
process for closed accounts, or for accounts where special circumstances
exist—such as accounts that have effectively been charged-off, or accounts related to bankruptcy proceedings. These accounts can present
practical challenges, and the bank’s Remediation Policy and related procedures should outline the bank’s practices related to these issues.
Generally, restitution made on closed accounts will require the bank to
issue a check made payable to the account’s customer of record. Unfortunately,
former customers can be difficult to locate and can result in significant amounts
of returned mail. The bank’s remediation policy and procedures should describe the bank’s standards for effectively locating the former customer and
should address how the bank will handle situations where customer checks
are returned as undeliverable, or are not able to be forwarded.
Consider the following issues when developing restitution procedures
for closed accounts:
■ ■ ■ “Last known” address vs. “best known” address. Restitution procedures should
describe how the bank will attempt to locate the former account holder. When
implementing restitution on closed accounts, it is common for a bank to rely
on the “last known address” of the former customer as maintained in the bank’s
records. However, depending on the age of the account, the bank’s “last known
address” for the accountholder may be woefully out of date, likely resulting
in significant amounts of returned mail to the bank. Some regulators (and
recent regulatory orders) require that, where the bank’s use of its “last known
address” does not reach the impacted consumer, the bank must make a second
attempt to find the customer’s current address, and re-mail the restitution
check again. This process can be costly and time consuming. In response,
some banks opt to develop restitution procedures which call for the bank
to use currently available lists and databases to identify a former customer’s
“best known address” immediately, and not rely on the “last known address.”
■ ■ ■ Method of mailing restitution checks. Restitution procedures should address the manner and method of the mailing. In order to ensure prompt
handling, most banks will opt for restitution payment to be sent by first
class mail through the United States Postal Service (USPS). However in
some cases, a different class of mail delivery, or a different service provider
may be warranted or appropriate. Consider developing procedures which
establish first class mail via USPS as the standard, but allow for alternative
mailing protocol in special circumstances.
■ ■ ■ Handling returned or undelivered mail. Restitution procedures should address how returned mail will be handled. Will the bank make additional
efforts to attempt to locate the former customers? As noted, where banks
rely on obsolete customer records as a basis for making restitution, regulators may conclude that insufficient effort was made to actually find the
customer. Consider requiring that all mailings include “address correction
services requested” to increase the chances that the check will actually get
to the intended customer.
■ ■ ■ Uncashed checks. Restitution procedures should address how the bank will
handle uncashed checks due to the funds being “undeliverable” or simply
never cashed by the recipient. In either case, the bank should establish a
process for how it will handle these unclaimed funds. Practical considerations should include the impact of state unclaimed property laws and
the bank’s escheatment process.
■ ■ ■ Bankruptcy Accounts. There are many restrictions around communicating
with customers that may be in bankruptcy, particularly when the remedia-
tion involves a loan. You may need to set up separate communications for
this group of customers or communicate with the trustee.
Managing Customer Communications
POLICY TIP: A comprehensive and effective Remediation
Policy will include provisions requiring that the bank execute
an effective customer communication plan that accurately
describes the remediation event and provides additional
support to customers who have follow up questions regarding
any restitution payments they received.
A key component to a successful remediation effort is accurate and timely
communication to all impacted customers and also to key internal stake-
holders. Carefully consider the manner and message of communicating
the identified issue and the planned resolution to the current and former
As a general rule, the customer-facing communication should be a plain-
language message or statement disclosure informing the customer of what
has occurred. For simple reimbursements of fees or charges to existing ac-
countholders, it may be sufficient to simply reflect a “fee reimbursement” on
an account statement, with messaging that clarifies the nature of the credit.
In other cases, it may be appropriate to provide more formal communication
that the bank has self-identified an issue and has corrected it with appropriate
crediting to the customers’ account, or a check that has been mailed to the
customer. As a general rule, it is useful to include a website or phone number
where the customer can receive additional information regarding the cor-
rective action taken. Retain samples of all communications used during the
restitution process for audit purposes.
Remember that internal stakeholders—especially the bank’s customer
support function—must be aware of the remediation event. Particularly for
larger impact remediation events, with increased legal or reputational risks, it
is important that all internal staff are given clear and consistent information
so as to support the remediation process effectively.
Reporting and Oversight
POLICY TIP: A comprehensive and effective Remediation Policy
will include provisions requiring that remediation events will
be subject to ongoing reporting to senior management and
the board (or committee of the board) so that appropriate
oversight is maintained.
Reporting remediation events should be a standard practice so the bank
can demonstrate management and board oversight. Consider developing
a central repository and a standard reporting format so management can
easily track the bank’s progress in fixing identified issues. When developing
procedures related to reporting, consider the following data points which
may be helpful in communicating and tracking remediation events, such as:
■ ■ ■ Monetary or non-monetary harm and regulations potentially impacted;
■ ■ ■ Date customer harm was identified;
■ ■ ■ Number of customers impacted;
A primary policy consideration
is determining when it will apply,
or more specifically, describing
what events will trigger a
remediation and restitution process.