UNITED STATES DISTRICT COURT EASTERN DISTRICT …cs.foley.com/12.9129_UDAAP/NY_HSBC_ClassAction.pdf · UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK ... expectation that

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

DAREK JURA, on behalf of himself and all others similarly situated,

Plaintiff,

-against

HSBC BANK USA, N.A., HSBC USA INC., and HSBC NORTH AMERICA HOLDINGS INC.,

Defendants.

Case No. __________

CLASS ACTION COMPLAINT

Plaintiff, through undersigned counsel, on behalf of himself and all others similarly

situated, alleges the following based on personal knowledge as to allegations regarding the

Plaintiff and on information and belief as to other allegations.

INTRODUCTION

1. This is a civil action seeking monetary damages, restitution, and injunctive relief

from Defendants HSBC Bank USA, N.A., HSBC USA Inc., and HSBC North America Holdings

Inc. (collectively herein “HSBC” or “Defendants”), arising out of their unfair, deceptive, and

unconscionable assessment and collection of excessive overdraft fees.

2. HSBC provides debit cards and/or ATM cards (collectively herein “check cards”)

to its checking account customers, which include individual consumer and small business

depositors. Through those check cards, customers may engage in transactions using funds directly

from their accounts or may withdraw money from their accounts at automatic teller machines.

These are called “point of sale” (“POS”) or “debit” transactions.

3. If, according to HSBC’s accounting practices detailed below, a customer does not

have sufficient funds in the account, the transaction is considered an “overdraft.” HSBC may

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honor or allow an overdraft to go through despite the lack of funds in the account. If HSBC allows

such a POS or debit transaction to proceed, HSBC charges the customer’s account $35 for each

separate overdraft. These fees are known as “overdraft fees.”

4. Before check cards existed, banks occasionally extended the courtesy of honoring

paper checks written on overdrafted or otherwise deficient accounts for customers who were

typically in good standing. Banks extended this courtesy largely because the third party involved

in a sales transaction allowed the customer to purchase goods or services with a check with an

expectation that funds would be available and that the check would clear. For example, if a

customer used a check to purchase groceries, the grocery store would only know if the check

cleared after the groceries had been purchased.

5. The same considerations are not present when the transaction is one with a check

card. HSBC could simply decline to honor debit or POS transactions made with check cards

where there are insufficient funds in the account. Retail and service transactions would simply not

take place if the consumer were unable to present an alternative form of payment. ATM

transactions could proceed if HSBC provided a warning that an overdraft fee would be incurred

and the consumer chose to proceed nevertheless. In fact, until a few years ago, most banks simply

declined debit and/or POS transactions that would overdraw an account.

6. Instead of declining debit and/or POS transactions when there are insufficient

funds, however, or warning the customer that an overdraft fee will be assessed if he or she

proceeds with the transaction, HSBC routinely processes such transactions in order to charge its

customers an overdraft fee of $35, even when the transaction is for only a few dollars. This

automatic fee-based overdraft scheme is designed and intended solely to increase overdraft fee

revenue.

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7. Although it is possible to do so, HSBC does not alert its check card customers at

the time a POS transaction or ATM withdrawal is made that the transaction will overdraft their

account and cause them to incur fees.

8. Because HSBC’s check card customers are not notified of the potential overdraft

and are not given the option to decline the check card transaction or to provide another form of

payment, the customers incur monetary damages in the form of overdraft fees.

9. HSBC seeks to maximize the number of overdraft fees it charges check card

customers because overdraft fees are a primary source of revenue for HSBC.

10. On August 9, 2009, an article was published in the Financial Times that stated

that United States banks “stand to collect a record $38.5 [billion] in fees for customer overdrafts

this year,” and that “fees are nearly double those reported in 2000.” The article goes on to state

that “[o]verdraft fees accounted for more than three-quarters of service fees charged on customer

deposits.” See Exhibit A.

11. HSBC’s overdraft fees can cost the account holders hundreds of dollars in a

matter of days, or even hours, when they may be overdrawn only by a few dollars. Even more

egregious, a customer’s account may not actually be overdrawn at the time the overdraft fee is

charged or at the time of the POS transaction.

12. In an effort to cause as many overdrafts as possible, HSBC manipulates and

reorders debits from highest to lowest during the course of a day.

13. Upon information and belief, HSBC has a computer-automated overdraft system

programmed to maximize the number of overdrafts, and thus the amount of fees charged, per

customer.

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14. As a result of HSBC’s manipulation of customers’ transactions, funds in a

customer’s account are depleted more rapidly and more overdraft fees are likely to be charged for

multiple smaller transactions. Indeed, overdraft charges are likely to occur at times when, but for

the manipulation, there would be adequate funds in the account and no overdraft would occur. For

example, if a customer has an account with a $50 balance and makes four transactions of $10 and

one later transaction of $100 the same day, HSBC debits the transactions from the account largest-

to-smallest, thus subjecting the customer to four overdraft fees. Conversely, if the $100

transaction were debited last (in the order it was made), the customer would only be subject to one

overdraft fee. See FDIC Study of Bank Overdraft Programs, November 2008, available at

http://www.fdic.gov/bank/analytical/overdraft/, at p. 11, n.12.

15. Thus, it is through manipulation of customers’ transaction records that HSBC

maximizes overdraft penalties imposed on customers.

16. As described below, HSBC reorders transactions for no reason other than to

increase the number of exorbitant overdraft fees it can charge. This practice is a violation of New

York’s consumer protection laws and the implied covenant of good faith and fair dealing in

HSBC’s Rules For Deposit Accounts.

17. Prior to July 1, 2010, banks like HSBC could automatically enroll consumers in

their standard overdraft practices for all types of transactions when a customer opened an account.

Pursuant to new Federal Reserve System rules enacted last year, however, for new accounts

opened after July 1, 2010, customers were required to opt-in to receive overdraft protection.

Similarly, customers with existing accounts with overdraft protection who did not affirmatively

opt-in to overdraft protection by August 15, 2010 ceased receiving such protection. The opt-in

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requirement applies to all accounts covered by Regulation E, including payroll card accounts, but

not to check transactions, recurring debits, or ACH transactions.

18. Thus, prior to the middle of last year, it was not clearly disclosed to check card

customers that they have the right to “opt out” of HSBC’s overdraft scheme. Moreover, after the

new Federal Reserve System rules went into effect, customers still were not given a meaningful

opportunity to “opt in,” as the nature of HSBC’s wrongful overdraft practices, as alleged in greater

detail herein, was not clearly disclosed to customers.

JURISDICTION AND VENUE

19. This Court has original jurisdiction of this action under the Class Action Fairness

Act of 2005. The amount-in-controversy exceeds the sum or value of $5,000,000 exclusive of

interest and costs, and there is minimal diversity because certain members of the classes are

citizens of a different state than any defendant as required by 28 U.S.C. § 1332(d)(2).

20. Venue is proper in this Court because Defendants have, at all relevant times, been

doing business in the Eastern District of New York and throughout the State of New York.

THE PARTIES

21. Plaintiff Darek Jura is, and at all relevant times has been, a citizen of the State of

New York and a resident of Erie County. At all relevant times, Mr. Jura was a customer of HSBC

who was charged improper overdraft fees.

22. Defendant HSBC Bank USA, N.A. is a Delaware corporation, who main office is

located in McLean, Virginia. It has a principal office located in New York City and maintains

offices and numerous branches, and conducts significant business, in New York State.

23. Defendant HSBC USA Inc. is a Maryland corporation with principal offices

located at 452 Fifth Avenue, New York, New York 10018.

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24. Defendant HSBC North America Holdings Inc. (“HSBCNA Holdings”) is a

Delaware corporation with principal offices located at 26525 North Riverwoods Boulevard, 4

North East, Mettawa, Illinois, 60045.

CLASS ACTION ALLEGATIONS

25. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23, on behalf of himself and all others similarly situated. The proposed classes are

defined as:

All HSBC customers in the United States who, within the applicable statute of limitations preceding the filing of this action to the date of class certification, incurred an overdraft fee as a result of HSBC’s practice of re-sequencing debit card transactions from highest to lowest (the “National Class”).

All HSBC customers who have accounts at branches in the State of New York for the purpose of asserting claims under New York’s consumer fraud statute – New York General Business Law § 349 – and incurred an overdraft fee as a result of HSBC’s practice of re-sequencing debit card transactions from highest to lowest (the “New York Subclass”).

The National Class and the New York Subclass are collectively referred to as the “Classes.”

26. Plaintiff reserves the right to modify or amend the definition of the proposed

Classes before the Court determines whether certification is appropriate.

27. Excluded from the Classes are Defendants and their parents, subsidiaries,

affiliates, officers and directors, any entity in which Defendants have a controlling interest, all

customers who make a timely election to be excluded, governmental entities, and all judges

assigned to hear any aspect of this litigation, as well as their immediate family members.

28. Certification of Plaintiff’s claims for class-wide treatment is appropriate because

Plaintiff can prove the elements of his claims on a class-wide basis using the same evidence as

would be used to prove those elements in individual actions alleging the same claims.

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(a) Numerosity Under Rule 23(a)(1): The members of the Classes are so numerous

that individual joinder of all the members is impracticable. Plaintiff is informed and believes that

there are at least many thousands of HSBC customers who have been damaged by HSBC’s

unfair, deceptive, and illegal conduct alleged herein.

(b) Commonality Under Rule 23(a)(2): This action involves common questions of

law and fact, including, but not limited to, whether HSBC:

did not clearly disclose to check card customers that they have the right to “opt out” of HSBC’s overdraft scheme, or meaningfully explain the nature of such scheme before check card customers “opted-in”;

does not obtain affirmative consent from checking account customers prior to processing a transaction that would overdraw the account and result in an overdraft fee;

does not alert its customers that a check card transaction will trigger an overdraft fee and does not provide customers the opportunity to cancel such transactions;

manipulates and reorders transactions so that it can increase the number of overdraft charges it imposes on customers;

manipulates and reorders debits from highest to lowest in order to maximize overdrafts;

imposes overdrafts and overdraft fees when, but for reordering transactions, there would otherwise be sufficient funds in the account;

engages in practices that have damaged Plaintiff and members of the Classes;

engages in deceptive or unfair acts and practices in violation of the New York’s Unfair and Deceptive Business Practices Act, for which Plaintiff and the other members of the New York Subclass are entitled to recover;

converts the funds of Plaintiff and members of the Classes;

breaches the implied covenants of good faith and fair dealing;

is unjustly enriched as a result of its overdraft fee policies and practices;

causes injury to Plaintiff and the other members of the Classes; and

engages in practices that warrant equitable and injunctive relief.

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(c) Typicality Under Rule 23(a)(3): The named Plaintiff’s claims are typical of

(and not antagonistic to) the claims of the members of the Classes. Plaintiff, like all members of

the Classes, has been subject to HSBC’s overdraft charge policies and practices and has damaged

by HSBC’s misconduct in that he incurred unlawful overdraft charges. Furthermore, the factual

bases of HSBC’s misconduct are common to all members of the Classes and represent a common

thread of unconscionable, unfair and/or deceptive misconduct resulting in injury to all members

of the Classes.

(d) Adequacy of Representation under Rule 23(a)(4): Plaintiff is committed to the

vigorous prosecution of this action. Plaintiff will fairly and adequately protect the interests of the

members of the Classes, and Plaintiff’s interests are coincident with and not antagonistic to those

of the other class members they seek to represent. Plaintiff has retained competent counsel

experienced in the prosecution of class actions to represent him and the Classes.

(e) The Classes Can be Properly Maintained Under Rules 23(b)(2) and(c). HSBC

has acted or refused to act, with respect to some or all issues presented in this Complaint, on

grounds generally applicable to the Classes, thereby making appropriate final injunctive relief

with respect to the Classes as a whole.

(f) The Classes Can Be Properly Maintained Under Rules 23(b)(3) and (c).

Questions of law common to the members of the Classes predominate over any questions

affecting only individual members with respect to some or all issues presented in this Complaint.

A class action is superior to other available methods for the fair and efficient adjudication of this

controversy. Individual litigation of the claims of all class members is impracticable because the

cost of litigation would be prohibitively expensive for each class member and would impose an

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immense burden upon the courts. Individualized litigation would also present the potential for

varying, inconsistent, or contradictory judgments and would magnify the delay and expense to

all parties and to the court system resulting from multiple trials of the same complex factual and

legal issues. By contrast, the conduct of this action as a class action, with respect to some or all

of the issues presented in this Complaint, presents fewer management difficulties, conserves the

resources of the parties and of the court system, and is the only means to protect the rights of all

class members.

SUBSTANTIVE ALLEGATIONS

HSBC

29. HSBCNA Holdings is a financial holding company. According to its website, as

of December 31, 2009, HSBCNA Holdings is one of the ten largest bank holding companies in the

United States with assets (in U.S. and Canada) of $391 billion. HSBCNA Holdings’ businesses

serve customers in personal financial services, credit cards, specialty insurance products,

commercial banking, private banking, and global banking and markets.

30. HSBC USA Inc. is an indirect, wholly-owned subsidiary of HSBCNA Holdings.

HSBC USA Inc.’s principal subsidiary is HSBC.

31. HSBC Bank USA, N.A. operates more than 475 bank branches throughout the

United States, with over 370 in New York state as well as branches in Connecticut, Washington,

D.C., Florida, New Jersey, Pennsylvania, Maryland, Virginia, California, Delaware, Illinois,

Oregon and Washington state. HSBC, with total assets of $171 billion as of December 31, 2009,

offers its 3.8 million plus customers a full range of banking products and services to, among

others, individuals, small businesses, corporations, and institutions through its personal financial

services, commercial banking, private banking, and global banking and markets segments.

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32. HSBC is a national bank subject to the National Bank Act, 12 U.S.C. § 1, et seq.,

and OCC regulations.

HSBC’S Customer Documents Regarding Overdrafts

33. The terms of HSBC’s checking accounts are contained in a written standard

account holder agreement, which was drafted and imposed by HSBC and presented to its

customers on a “take it or leave it” basis. The “Rules For Deposit Accounts” is attached as Exhibit

B. The Rules For Deposit Accounts is currently a 33-page, single-spaced document written in

small font.

34. The Rules for Deposit Accounts states that:

An overdraft occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway. We can cover your overdrafts through our standard overdraft practices or through an overdraft protection plan. Through our standard overdraft practices, we authorize and pay overdrafts for checks and we can also cover overdrafts for preauthorized automatic bill payments. Under our standard overdraft practices, we will charge you the fee listed in our Terms & Charges disclosure. We pay ourdrafts at our discretion, which means we do not guarantee that we will always authorize and pay any type of transaction. If we do not authorize and pay an overdraft, your transaction will be declined. For consumer accounts, we do not authorize and pay overdrafts for the following types of transactions: ATM transactions and everyday debit card transactions.

Rules for Deposits, Ex. B at p. 3.

35. The Rules For Deposit Accounts then states:

Your account may be debited on the same day an item is presented, or at such an earlier time as notification is received by the Bank by electronic or other means, that an item drawn on your account has been deposited for collection in another financial insitution. You understand that the Bank reserves the right to pay items into overdraft, to impose overdraft fees as permitted by law, and to apply any later deposits (including direct deposits of social security or other government benefits) to those overdrafts or overdraft fees, by way of setoff. An “item” includes checks, subsititute checks, remotely created checks, withdrawal slips or other in-person transfers or withdrawals, service charges, electronic items or transactions, including withdrawals made from an automated teller machine, one-time or recurring debit card transactions, pre-authorized payments or transfers, ACH transactions, telephone initiated transfers, online banking transfers or bill payment insructions, and any other instruments or instructions for the payment, transfer or

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withdrawal of funds including an image or photocopy of any of these. A determination of your account balance for purposes of making a decision to dishonor an item for insufficiency of available funds may be made at any time between the receipt of such presentment or notice and the time of return of the item, and no more than one such determination need be made.

Rules For Deposit Accounts, Ex. B at p. 4.

36. The Rules For Deposit Accounts then states that “[t]he Bank generally pays the

largest debit items drawn on a depositor’s account first.” Rules For Deposits, Ex. B at p. 4.

37. The Rules for Deposit Accounts does not set forth the dollar amount of fees that

will be charged for purported overdrafts. Instead, a separate document, the “Terms & Charges

Disclosure” (“Charges Disclosure”) (copy attached as Exhibit C), lists the dollar amount of fees

that will be charged for purported overdrafts, in a chart entitled “Service Fees.” In small print, the

chart states:

Insufficient Funds (NSF) Checking ……………….. $35 each

for each withdrawal, check or electronic fund transfer

we pay or return that overdraws your account.

HSBC’S Re-Ordering of Checking Account Transactions

38. In an effort to maximize overdraft revenue, HSBC manipulates and reorders

debits from highest to lowest during given periods of time. HSBC reorders transactions for no

reason other than to increase the number of exorbitant overdraft fees it can charge.

39. HSBC misleads its customers regarding its reordering practices. Instead of

unequivocally telling its customers that it will reorder debits from highest to lowest, HSBC states

in its Rules for Deposit Accounts that “[t]he Bank generally pays the largest debit items drawn on

a depositor’s account first.” This statement is deceptive and/or unfair because it is, in fact,

HSBC’s practice to always reorder debits from highest to lowest, and because HSBC groups

together POS transactions that occurred on subsequent days with POS transactions that occurred

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on earlier days, and reorders them so that higher debits that occurred on subsequent days are

posted to its customers’ accounts before lower debits that occurred on earlier days, contrary to the

terms of the Rules For Deposit Accounts and its customers’ reasonable expectations.

40. In addition, the Charges Disclosure also fails to disclose how transactions are

reordered from highest to lowest.

41. Transactions involving debit cards used by HSBC’s customers, including the

withdrawal of cash from ATM machines and POS transactions with vendors, are processed

electronically. As a result, HSBC is notified instantaneously when the customer’s debit card is

swiped, and has the option to accept or decline these transactions.

42. Notwithstanding the instantaneous nature of these electronic debit card

transactions, under HSBC’s posting system, it fails to post charges in the order in which they are

incurred or received. HSBC developed a policy and employs a practice whereby account charges

and debits are posted to its customers’ accounts out of chronological order for the sole purpose of

maximizing the number of overdraft transactions and, therefore, the amount of overdraft fees

charged to its customers.

43. Instead of processing such transactions in chronological order, HSBC processes

them starting with the largest debit and ending with the smallest debit, so as to generate the largest

possible number of overdrafts and the greatest possible amount of overdraft fees.

44. HSBC refrains from immediately posting charges to a customer’s account as it

receives them – sometimes for multiple business days. By holding charges rather than posting

them immediately to an account, HSBC is able to amass a number of charges on the account.

Subsequently, HSBC posts all of the amassed charges on a single date. When the group of

charges is eventually posted to the customer’s account, HSBC posts them in order of largest to

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smallest – not in the order in which they were received or in the order in which they were charged.

This delayed posting results in the imposition of multiple overdraft fees that would not otherwise

be imposed. The delayed posting also prevents customers from ascertaining the accurate balances

in their accounts.

45. HSBC’s policy and practice of posting charges from largest to smallest, rather

than chronologically, or from smallest to largest, is specifically designed to maximize the

generation of overdraft fees by triggering overdraft fees for account charges that would not

otherwise result in such fees.

46. HSBC enforces an unconscionable policy whereby charges incurred are posted to

customers’ accounts in a non-chronological order, from highest to lowest, and are held for

multiple days and then batched together, to maximize the number of overdraft transactions and

fees. HSBC’s processing practices substantially increase the likelihood that customers’ smaller

charges will result in multiple overdraft fees. The practices provide HSBC with substantially

higher service fee revenues than it would otherwise achieve absent these practices.

47. As a result, Plaintiff and members of the Classes have been assessed overdraft

fees for transactions which occurred when they actually had sufficient funds in their accounts to

cover those transactions.

HSBC Fails to Notify Customers of Overdrafts or Advise Customers of Right to Opt Out

48. At the time that HSBC’s check card is used, for example at a POS or at an ATM,

HSBC is able to determine almost instantaneously whether there are sufficient funds in a

customer’s account to cover that particular transaction. HSBC has the technological capability to

decline transactions or notify customers at that very moment that the particular check card

transaction would result in an overdraft. HSBC could give customers the option to decline the

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transaction to avoid incurring the overdraft fee, but it does not do this because it seeks to

maximize its overdraft fees.

49. Notwithstanding its technological capabilities and actual knowledge, HSBC fails

to provide notice to customers that a particular debit card transaction will result in an overdraft

and, hence, an overdraft fee. Because HSBC’s customers are not notified of the potential

overdraft, and are not given the option of declining the debit card transaction or providing another

form of payment, the customers incur monetary damages in the form of overdraft fees.

50. The Rules For Deposit Accounts fails to clearly or reasonably disclose to

depositors that they have the option to “opt out” of HSBC’s overdraft scheme.

HSBC’S Overdraft Policies and Practices are Contrary to Best Practices

51. According to rules proposed by the Board of Governors of the Federal Reserve

System, the Office of Thrift Supervision, Treasury, and the National Credit Union Administration

(the “Agencies”): “Injury [caused by overdraft charges] is not outweighed by countervailing

benefits. . . . This is particularly the case for ATM withdrawals and POS debit card transactions

where, but for the overdraft service, the transaction would typically be denied and the consumer

would be given the opportunity to provide other forms of payment without incurring any fee.” 73

F.R. 28904-01, 28929 (May 19, 2008).

52. HSBC’s overdraft policies make it difficult for a customer to avoid injury even if

a customer carefully tracks the balance in his or her account. In fact, the Agencies have stated that

“injury” resulting from such policies “is not reasonably avoid[able]” by the consumer. 73 F.R.

28904-01, 28929 (“It appears that consumers cannot reasonably avoid this injury if they are

automatically enrolled in an institution’s overdraft service without having an opportunity to opt

out. Although consumers can reduce the risk of overdrawing their accounts by carefully tracking

their credits and debits, consumers often lack sufficient information about key aspects of their

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account. For example, a consumer cannot know with any degree of certainty when funds from a

deposit or a credit for a returned purchase will be made available.”).

53. Prior to when the new Federal Reserve System rules went into effect, HSBC did

not follow the list of “best practices” with respect to overdraft programs set forth in the “Joint

Guidance on Overdraft Protection Programs” (herein “Joint Guidance”) (attached hereto as

Exhibit D), issued by the United States Department of the Treasury, the Office of the Comptroller

of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit

Insurance Corporation and the National Credit Union Administration. These “best practices”

include: “Provide election or opt-out of service. Obtain affirmative consent of consumers to

receive overdraft protection. Alternatively, where overdraft protection is automatically provided,

permit consumers to ‘opt out’ of the overdraft program and provide a clear consumer disclosure of

this option.” 70 F.R. 9127-01, 9132.

54. Even after those rules went into effect, HSBC still does not follow the Joint

Guidance’s “best practices.” The “best practices” listed in the Joint Guidance also advise banks to

“[a]lert customers before a transaction triggers any fees. When consumers attempt to withdraw or

transfer funds made available through an overdraft protection program, provide a specific

consumer notice, where feasible, that completing the withdrawal may trigger the overdraft fees.”

70 F.R.D. 9127, 9132. The “best practices” go on to advise that “[t]his notice should be presented

in a manner that permits consumers to cancel the attempted withdrawal or transfer after receiving

the notice.” Id.

55. The list of “best practices” set forth in the “Overdraft Protection: A Guide For

Bankers” issued by the American Bankers Association includes offering customers the option of

“opting out” of any overdraft programs, and informing customers, before they access funds, that a

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particular POS or ATM transaction will cause them to incur overdraft fees. (See Exhibit E,

attached, at pp. 18, 20).

56. HSBC did not clearly or reasonably disclose to its customers that they have the

right to opt out of HSBC’s overdraft scheme, nor did they clearly or reasonably disclose such

scheme when customers began to opt-in as required by the new Federal Reserve System’s new

rules. HSBC also fails to notify consumers when use of a check card, such as an ATM or POS

transaction, will cause an overdraft fee.

57. HSBC’s lack of reasonable disclosure regarding the ability to opt out of the

overdraft scheme and its failure to notify customers when the use of a check card, such as an ATM

or POS transaction, will cause an overdraft fee, is a violation of New York’s consumer protection

laws and the implied covenant of good faith and fair dealing in HSBC’s “Rules For Deposit

Accounts” – the agreement which governs its checking accounts.

HSBC’s Unconscionable Provisions and Policies

58. Under New York General Business Law § 349, HSBC’s overdraft policies and

practices are unfair, deceptive and unconscionable in the following respects, among others:

(a) HSBC did not clearly or reasonably disclose to customers that they have the

option to “opt out” of HSBC’s overdraft scheme, nor did they clearly or reasonably disclose such

scheme when customers began to opt-in as required by the new Federal Reserve System’s new

rules;

(b) HSBC does not obtain the affirmative consent from checking account

customers prior to processing a transaction that would overdraw the account and result in an

overdraft fee;

(c) HSBC does not alert its customers that a check card transaction will trigger an

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overdraft fee and does not provide the customer the opportunity to cancel that transaction;

(d) The Rules For Deposit Accounts, to the extent it may be deemed a contract, is a

contract of adhesion in that it is a standardized form, imposed and drafted by HSBC, which is a

party of vastly superior bargaining strength, and relegates to the depositor only the opportunity to

adhere to it or reject it;

(e) The Rules For Deposit Accounts provided to HSBC’s customers is ineffective,

ambiguous, deceptive and misleading in that it does not unambiguously state that it always

reorders debits from high to low (even though HSBC always reorders transactions in this way so

as to maximize overdrafts and revenue for HSBC), or that its reordering of debits will necessarily

increase the number of overdraft charges; and

(f) The amounts of overdraft fees are disclosed in an ineffective, ambiguous,

misleading and deceptive manner, since they are not contained in the Rules For Deposit

Accounts.

59. The Rules For Deposit Accounts also contains a “Waiver of Trial by Jury”

provision, which states “YOU AND THE BANK AGREE TO WAIVE THE RIGHT TO TRIAL

BEFORE A JURY IN ANY ACTION FOR ANY CLAIMS THAT MAY ARISE FROM OR

RELATE TO YOUR DEPOSIT ACCOUNT INCLUDING, BUT NOT LIMITED TO,

CONTRACT, NEGLIGENCE, USE, ATTORNEYS-IN-FACT, RESTRAINT AND

EXECUTION.”

60. Such agreements are procedurally and substantively unconscionable and

unenforceable under New York law in that, inter alia, the Rules For Deposit Accounts, to the

extent it may be deemed a contract at all, is a contract of adhesion because, among other reasons,

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it is a standardized form, imposed and drafted by HSBC, which is a party of vastly superior

bargaining strength, and relegates to the depositor only the opportunity to adhere to it or reject it,

and because it leads to overly harsh results for consumers and prevents consumers from having a

meaningful opportunity to redress their grievances.

ALLEGATIONS SPECIFIC TO PLAINTIFF

61. Plaintiff Darek Jura was, at all relevant times, a checking account customer of

HSBC. He opened his checking account with HSBC in the late 1990s. During the relevant time

period, Mr. Jura was issued a check card by HSBC.

62. During his time as a checking account customer of HSBC, Mr. Jura was charged

with overdraft fees when there were sufficient funds in his account to cover the transaction at

issue.

63. For example, on August 7, 2008, Mr. Jura was charged with five (5) overdraft

charges for a total of $140. The overdraft fees were based on the following ordering of

transactions:

Balance Sheet per HSBC Reordering Scheme

(Debits Processed from Highest to Lowest)

Debits Deposits Fees Balance

Beginning Balance on 8/6/08:

$151.34

Date Posted Description

8/6/08 Purchase (on 8/5/08) at PayPal

60.13 91.21

8/6/08 Purchase (on 43.50 47.71

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8/2/08) at Tilt

8/6/10 Purchase (on 8/2/08) at Tilt

29.00 18.71


26.00 -7.29


20.00 -27.29


12.50 -39.79

8/6/08 Purchase (on 8/4/08) at J&P Pappas Restaurant

11.00 -50.79


10.50 -61.29

8/7/08 140.00

64. Although Mr. Jura’s account statement notes that Mr. Jura incurred overdraft fees

based on “5 ITEM(S),” he was only charged for four (4) overdrafts for a total of $140.00. In any

event, if HSBC had not manipulated and reordered Mr. Jura’s transactions from highest to lowest,

Mr. Jura would have only incurred two overdraft fees:

Balance Sheet per HSBC Reordering Scheme

(Debits Processed in Chronological Order)

Debits Deposits Fees Balance

Beginning Balance on 8/6/08:

$151.34

Date Posted Description

20


43.50 107.84


29.00 78.84


26.00 52.84


20.00 32.84


12.50 20.34


11.00 9.34


10.50 -1.16

8/5/08 Purchase (on 8/5/08) at PayPal

60.13 -61.21

8/7/08 70.00

65. At all relevant times, HSBC did not reasonably provide Mr. Jura with notice that

he could opt out of HSBC’s overdraft program.

66. HSBC has never notified Mr. Jura at the time he made check card transactions,

including POS transactions, that his checking account was overdrawn or that it would charge him

an overdraft fee as a result of the transaction.

21

67. HSBC never declined to pay any of Mr. Jura’s check card charges, even when his

account was overdrawn. Rather, HSBC has always paid such charges and charged Mr. Jura with

overdraft fees.

FIRST CAUSE OF ACTION

(On Behalf of Plaintiff and the National Class)

(Breach of Contract and the Implied Covenant of Good Faith and Fair Dealing)

68. Plaintiff repeats and realleges all of the foregoing paragraphs as though fully set

forth herein.

69. As described above, Plaintiff and all other members of the National Class entered

into a contract with HSBC.

70. Plaintiff and all other members of the National Class performed all, or

substantially all, of their responsibilities under the contract.

71. HSBC materially breached its contract with Plaintiff and all other members of the

National Class by engaging in the deceptive acts and practices described above, and thus, deprived

Plaintiff and all other members of the National Class of the benefit of their bargain.

72. As a consequence of the foregoing, HSBC is liable to Plaintiff and all other

members of the National Class, the amount of such damages to be determined at trial.

73. In addition, under common law, a covenant of good faith and fair dealing is

implied into every contract.

74. HSBC breached the implied covenant of good faith and fair dealing by charging

Plaintiff and all other members of the National Class by engaging in the deceptive acts and

practices described above.

75. HSBC destroyed or injured the rights of Plaintiff and all other members of the

National Class to receive the fruits of the contract.

22

76. As a consequence of the foregoing, HSBC is liable to Plaintiff and all other

members of the National Class, the amount of such damages to be determined at trial.

SECOND CAUSE OF ACTION


(Conversion)

77. Plaintiff repeats and realleges all of the foregoing paragraphs as though fully set

forth herein.

78. Plaintiff and the other members of the National Class own and have the right to

possess the money in their checking accounts.

79. Through its actions, HSBC has wrongfully collected overdraft fees from Plaintiff

and the other members of the National Class, and has taken specific and readily identifiable funds

from their accounts in payment of these fees.

80. Through its actions, HSBC has, without authority and/or legal justification,

assumed and exercised a right of ownership over such funds belonging to Plaintiff and the other

members of the National Class to the exclusion of Plaintiff and the other members of the National

Class.

81. Plaintiff and the other members of the National Class have been, and will

continue to be, damaged by HSBC’s wrongful assessment of overdraft fees in an amount to be

determined at trial.

THIRD CAUSE OF ACTION


(Unjust Enrichment)

82. Plaintiff repeats and realleges each and every allegation contained in all of the

foregoing paragraphs as if fully set forth herein.

23

83. By engaging in the conduct described above, HSBC has unjustly enriched itself at

the expense of Plaintiff and the other members of the National Class and is required, in equity and

good conscience, to compensate them fully for the damages that they have suffered as a result of

HSBC’s actions.

84. By reason of the foregoing, HSBC is liable to Plaintiff and the other members of

the National Class for the damages they have suffered as a result of HSBC’s actions, the amount

of such damages to be determined at trial.

FOURTH CAUSE OF ACTION

(On Behalf of Plaintiff and the New York Subclass)

(Violation of New York General Business Law § 349)

85. Plaintiff repeats and realleges each and every allegation contained in all of the

foregoing paragraphs as if fully set forth herein.

86. Through its misconduct described above, HSBC has engaged in acts and/or

practices that are deceptive or misleading in a material way and that resulted in injury to Plaintiff

and the other members of the New York Subclass.

87. By reason of the foregoing, HSBC has violated New York General Business Law

§ 349 and decisional law prohibiting deceptive trade practices and consumer fraud, is liable to

Plaintiff and the other members of the New York Subclass for the damages that they have suffered

as a result of HSBC’s actions, the amount of such damages to be determined at trial, plus

attorneys’ fees.

24

PRAYER FOR RELIEF

WHEREFORE, Plaintiff, on behalf of himself and the members of the Classes, demand

a jury trial and judgment as follows:

1. Preliminary and permanent injunctive relief enjoining HSBC from charging

overdraft fees under its current policies and from engaging in the unfair and deceptive business

practices alleged herein;

2. Restitution of all overdraft fees paid to HSBC by Plaintiff and the members of the

Classes, as a result of the wrongs alleged herein, within the applicable statutes of limitations, in

an amount to be determined at trial;

3. Disgorgement of the ill-gotten gains derived by HSBC from its misconduct;

4. Actual damages in an amount according to proof;

5. Damages pursuant to N.Y. Gen. Bus. Law § 349;

6. Pre-judgment interest at the highest rate permitted by law;

7. The costs and disbursements incurred by Plaintiff and the members of the Classes

in connection with this action, including attorneys’ fees; and

25

Such other and further relief as the Court deems just and proper.

December 18, 2012

RIGRODSKY & LONG, P.A. By: /s/ Timothy J. MacFall Seth D. Rigrodsky ([email protected]) Timothy J. MacFall ([email protected]) Olga A. Pettigrew ([email protected]) 825 East Gate Boulevard, Suite 300 Garden City, NY 11530 Telephone: (516) 683-3516 Facsimile: (302) 654-7530

COHEN LAW GROUP, P.C. By: /s/ Brian S. Cohen Brian S. Cohen ([email protected]) 10 East 40th Street, 46th Fl. New York, NY 10016 Telephone: (212) 967-2879 Facsimile: (646) 349-2567

Counsel for Plaintiff and the Classes

EXHIBIT A

FT com pnnt article

FT .com I' L '<ANC1A1. lUttS

Banks make $38bn from overdraft fees By Saskta Scholtes and Francesco Guerrera in New York Published. August 9 2009 22:52 1 Last updated: August 9 2009 22:52

US banks stand to collect a record S38.5bn in fees for customer overdrafts this year. with the bulk of the revenue coming from the most financially stretched consumers am1d the deepest recession since the 1930s, according to research. The fees are nearly double those reported in 2000.

The finding is likely to increase public hostility towards the financial sector. whtch has been under political pressure to ease the burden on consumers by increasing credit availability and lending more fairly after betng bailed out by taxpayers.

The Federal Reserve is working on rules on overdraft fees. and rules on customer charges could be a priority of the Obama administration's proposed Consumer Protection Agency if approved by Congress.

Data from Moebs Services, a research company, show that the crisis has prompted many banks to lift charges on overdrafts and credit cards in order to boost profits.

The median bank overdraft fee has this year rose from $25 to $26, according to Moebs, the first time it has gone up in a recession for more than 40 years.

"Banks are returnmg to a fee-dnven model and overdraft fees are the mother lode." said Mike Moebs. the company's founder.

Overdraft fees accounted for more than three-quarters of servtce fees charged on customer deposits, he said.

The most cash-strapped customers are the hardest hit by such fees, with 90 per cent of overdraft revenues coming from 10 per cent of the 130m checking accounts in the US. Regular use of overdrafts is most common among consumers with low credit scores, Moebs discovered.

Banks say that the fees compensate for the risk they incur when they pay on behalf of customers who do not have enough money in their accounts. "Overdraft fees are there for a reason, we take on a lot of risk." a senior banker said "It's a service to our customers, they want us to pay their overdrafts."

The highest overdraft fees were charged by the largest banks, said Mr Moebs. At banks with assets greater than $50bn- a group including Citigroup , Bank of America , JPMorgan Chase and Wells Fargo - the median overdraft fee is set at $33.

At BofA, a customer overdrawn by as little as $6 could trigger a $35 penalty. If the customer does not realise they have a negative balance and continue spending, they could incur that fee as many as 10 times in a single day, for a total of $350. Failing to repay the overdraft within a few days results in an additional $35 penalty

BofA said that the bank was "committed to ensunng that our fees are transparent and predictable. We have a range of tools and servtces to give customers more control over thetr accounts and to prevent these fees·.

Chase has tiered overdraft fees - the first overdraft within a 12-month period is charged at $25, the second to fourth at $32 and the fifth at $35

Chase declined to comment.

Sun Trust Bank charges the highest overdraft fee for a single overdraft at $36, according to the Consumer Federation of America while Citizens Bank levies a $39 fee after three overdraft items and follows with two separate "sustained overdraft fees· for repeat offenders.

http://www.ft.com/ cms/ s/ 43dl8c68- 85 ld- llde-9a64 - 00 144feabdcO.dwp_uuld- fSd2 7f8a- aS 17- lldd- b4f5- 000077b07658,prlnt• yes.html

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FT.com print article

Sun Trust said it offered waivers and discounts as well as overdraft protection servtces that made tt easy for customers to avoid those fees.

Citizens declined to comment.

The survey by the Consumer Federation of America found that five of the ten largest banks have raised their overdraft fees tn some way in the last year.

Nessa Feddis, general counsel at the American Bankers' Association said the higher fees are appropriate because big banks do not know their customers as well as small community banks, and need to be compensated for the higher risk.

Consumer advocacy groups point to very low loss rates on overdrafts for all banks and argue that overdrafts are the least risky form of credit, while being the most expensive for consumers.

Eric Halperin. director of the Center for Responsible Lending satd: "The banks own your pay check before you do. so the only way you can default on your overdraft is if you choose to open another account and deposit your income elsewhere."

Copynght The Financ1al nmes Um1ted 2011 Print a s1ngle copy of th1s article for personal use. Contact us 1f you w1sh to print more to distribute to others.

"FT" and "Financ1al T1mes" are trademarks of the Financial Times. Pnvacy poliCy 1 Terms C Copynght The Fmanc1al Tmes Ltd 2011 .

hnp·ttwww.ft .com/ cms/ s / 43d 18c68-85 ld- llde-9a64- 00 144feabdcO,dwp_uuld• fSd27f8a- aS 17- lldd-b4f5- 000077b07658,prlnt• yes.html

2 / 8 / 11 7:48PM

Page 2 of 2

EXHIBIT B

RULES FOR

DEPOSITACCOUNTS

HSBC Bank USA, N.A. G 2333 SF (Rev. 6/10)APS # 074767

Currency Transaction ReportsIf you make cash withdrawals, cash deposits,currency exchanges or other payments or transferswith cash, exceeding $10,000, the Bank is requiredto complete a Currency Transaction Report.

Monetary Instrument ReportsThe Bank reserves the right to obtain identificationand additional information from customers whopurchase U.S. Dollar Drafts (Cashier’s Checks),Foreign Drafts, Money Orders or Traveler’sCheques (including gift checks) for any amount.

Structuring TransactionsAny person who conducts or assists in transactionsdesigned to evade U.S. Government reportingrequirements, which may include splittingtransactions into smaller amounts, can be subject tocriminal penalties, including fines, imprisonment or both.

The Bank complies with recording andrecordkeeping requirements under the BankSecrecy Act including monitoring accounts on aperiodic basis for compliance.

The Bank reserves the right to close any accountthat attempts to avoid these requirements.

PROHIBITED TRANSACTIONSThe Unlawful Internet Gambling Enforcement Actof 2006 (UIGEA) prohibits any person engaged inthe business of betting or wagering from knowinglyaccepting any payment in connection with theparticipation of another person in unlawful Internetgambling (a"restricted transaction"). Youacknowledge and agree that you are prohibited fromprocessing a restricted transaction through youraccount or banking relationship with HSBC. Yourparticipation, or attempted participation, in anyrestricted transaction through your account orbanking relationship with HSBC may result in thetermination of your banking relationship withHSBC and/or the closure of your account.

WAIVER OF TRIAL BY JURYYOU AND THE BANK AGREE TO WAIVE THERIGHT TO TRIAL BEFORE A JURY IN ANYACTION FOR ANY CLAIMS THAT MAY ARISEFROM OR RELATE TO YOUR DEPOSITACCOUNT INCLUDING, BUT NOT LIMITED TO,CONTRACT, NEGLIGENCE, USE, ATTORNEYS-IN-FACT, RESTRAINT AND EXECUTION.

33

TABLE OF CONTENTS

Our Agreement 1

Checking Accounts 2

Savings Accounts 7

Certificates Of Deposit 8

Special Deposit Accounts 8

Deposits 8

Availability Of Funds 10

Withdrawals 19

Funds Transfers 20

Interest 24

Joint Accounts 25

Relationship Between Joint Depositors 25

Your Agreement With The Bank 25

More About Your Account 26

OUR AGREEMENTThese Rules are part of the Agreement between youand HSBC Bank USA, National Association (the“Bank” or “HSBC”), and contain some of the termsand conditions for deposit accounts. The Bank offers avariety of products and services, including checking,savings, money market, certificates of deposit (CDs),escrow accounts, retirement plans and electronicbanking services. Any Terms and Charges Disclosureapplicable to your account is also a part of theAgreement. By signing a contract to open any depositaccount or by using a Bank product or service, youagree that these Rules, as amended from time to time,shall apply to all your deposit accounts.

If there is a conflict between these Rules andsomething one of our employees says, the Bank willfollow these Rules. These Bank Rules supersede andreplace all prior Bank Rules.

GOVERNING LAWS AND REGULATIONSThese Rules shall be governed by and interpretedaccording to federal law, and by applicable statelaw, clearing house rules, ACH rules and generalcommercial bank practices applicable to theservices provided, to the extent not superceded byfederal law. The applicable state law (to the extentnot superceded by federal law) shall be the law ofthe state where the deposit account is opened, ifopened in person. For deposit accounts opened bytelephone, Internet, or through our Payments &Cash Management Division, applicable New Yorklaw will govern to the extent not superceded byfederal law. If these Rules conflict at any time withthe applicable federal or state law or regulation, theRules will be considered changed to the extentnecessary to comply. The Bank's failure to enforcethese Rules or waiver of any of the provisions ofthese Rules in any instance will not prevent theBank enforcing these Rules at any other time.

IMPORTANT INFORMATION ABOUTPROCEDURES FOR OPENING A NEW ACCOUNT

To help the government fight the funding ofterrorism and money laundering activities, Federallaw requires all financial institutions to obtain,verify, and record information that identifies eachperson or entity that opens an account.

What this means to you: If you open a personalaccount, we will ask for your name, address,taxpayer identification number, date of birth, andother information that will allow us to identify you.Additionally, we will take certain steps to verifyyour identity, such as asking for your driver’slicense or other identifying documents or checkingother sources. Similar identification requirementsapply to non-personal accounts such as corporations

1

CHANGES TO THE RULESThe Bank can change these Rules or impose otherrestrictions on your account, as the Bank deemsnecessary or appropriate, in the course of its businessat any time.

Before the change goes into effect you will benotified:

• either by mail,• by a posting in your branch, or• by a published statement in the newspaper.

If notice is sent to you, use of ordinary mail or in-branch notification shall be sufficient. Changes tothese Rules which are required by law may beimplemented immediately or as required by law.

SEVERABILITYIf any provision(s) of these Rules shall be held to beillegal or unenforceable, the validity of the remainingportions of these Rules shall not be affected.

WAIVERNo waiver of any term, provision, or condition ofthis Agreement, whether by conduct or otherwise, inany one or more instances, will be deemed, or shallconstitute, a waiver of any other provision hereof,whether or not similar, nor will such waiverconstitute a continuing waiver, and no waiver shallbe binding unless executed in writing by the partymaking the waiver.

OTHER TERMS AND CONDITIONSOther terms and conditions, not stated herein, mayapply to your account. All such other terms andconditions remain in full force and effect andcontinue to govern your account except as stated inthese Rules.

BANK SECRECY ACT - REGULATORYREPORTING REQUIREMENTS

As part of the Bank Secrecy Act recordkeepingrequirements, the Bank is responsible to obtain,verify and record customer information for certaintransactions and report this information to U.S.Government agencies. The information obtainedincludes, but is not limited to:

• Name and home address (photo identificationrequired) for an individual or Business name andbusiness address

• Social Security or taxpayer identification number

• Date of birth for an individual

• Occupation

• Information for anyone on whose behalf you areconducting transactions

The above information may be required whenconducting certain cash transactions, including, butnot limited to:

32

and partnerships. Be assured that we recognize theimportance of protecting your privacy andsafeguarding the confidentiality of the informationyou provide to us.

CHECKING ACCOUNTSTYPES

The Bank offers interest bearing and non-interestbearing accounts to eligible consumers. The Bank alsooffers a variety of non-consumer checking accounts.See Terms and Charges Disclosure for details.

INTERNAL ACCOUNTING OF BALANCESYour checking account may consist of two “sub-accounts” on the books of the Bank. In that event, onesub-account will be a checking account and the othera savings account. The two will be treated as a singleaccount for customer use, and will not affect yourBank statement, your account balance or the interest,fees, and features of your account. For interestbearing checking accounts, we will pay the same rateof interest on balances in both sub-accounts.

All deposits and other credits will be posted to, andchecks and debits will be deducted from, thechecking sub-account. Whenever the checking sub-account balance exceeds a “threshold amount”(which we may establish and change at ourdiscretion), we may transfer funds above thatamount to the savings sub-account. As these fundsare needed to pay items presented against yourchecking account, the appropriate amount will betransferred back to the checking sub-account, up tosix times per statement period. If the sixth transfer isneeded, the entire balance of the savings sub-accountwill be transferred into the checking sub-account.This process may be repeated each month.

Although the Bank has no present intention toexercise this right, federal regulations require theBank to reserve the right to require at least sevendays written notice prior to withdrawal or transfer ofany funds in a savings account.

WRITING CHECKSThe Bank requires you to use the Bank’s checks.Depending on style and number of checks you orderand what kind of checking account you have, the Bankmay charge a fee to your account for your checks.

SIGNATURES ON CHECKS OR DRAFTSThe Bank may, in its discretion, return unpaid a checkor draft that does not bear a signature reflected on thesignature card unless you have notified the Bank inadvance you want the check or draft to be paid.

CONVENIENCE CHECK CASHING FEEYou agree that the Bank may impose a fee on thepayee or other holder of a check or other item drawn

2

ADVISED OF THE POSSIBILITY OF SUCHDAMAGE. You agree the Bank shall be liable onlyfor damages which are the direct result of theBank’s misconduct. If the Bank’s conduct results inan inappropriate delay of transfer or withdrawal, theBank’s liability, as liquidated damages and not as apenalty, shall be an amount equal to the interest, atthe Federal Funds rate, payable on the amount of thefunds which were directed by you to be transferredin the Payment Order for the period of delay.

COOPERATION WITH INVESTIGATIONYou agree, in the event of any claim arising fromyour account to cooperate and assist both the Bankand any law enforcement authorities in connectionwith any investigation and prosecution of anysuspected wrongdoer. You understand and agree thatfailure to cooperate may result, in the Bank’s solediscretion, in the Bank dishonoring any claim whichyou have made.

INDEMNITY AGAINST ACTIONSOF AUTHORIZED PERSONS

In order to induce the Bank to honor requests forservices, including but not limited to thoseenumerated above, you hereby agree to indemnifyand hold the Bank, its successors, assigns,correspondents, directors, officers, employees andagents harmless for all losses, costs, damages,expenses (including attorney’s fees) and liability forany claim or demand occasioned by or actionbrought by virtue of any misconduct, negligence,action or omission on the part of any individual whohas been listed as a person authorized to act on yourbehalf in any document provided by you to the Bank.

FORCE MAJEUREThe Bank shall not be liable for any loss or damageto you caused by the Bank’s failure to provide anyservice requested by you resulting from an act ofGod, fire, catastrophe, electrical, mechanical orcomputer failure, telecommunications failure orfailure of any agent or correspondent or any othercause beyond the Bank’s control, provided itexercises such diligence as the circumstances may require.

NOTICESAny notice we send you will take effect when it ispersonally delivered to you or mailed to the lastaddress we have for you in our records. A noticefrom you will be considered received when receivedat the Bank’s Customer Service Department andwill take effect following the expiration of anynotice period that may be specified in the DepositAccount Agreement.

31

against your account that is presented for paymentover the counter at the Bank.

REMOTELY CREATED CHECKSIf you authorize a third party (such as atelemarketer) over the phone or via the Internet todebit from your account the amount(s) of one ormore “remotely created checks,” the third party maycreate a check drawn on your account that the Bankmay pay, although it does not bear your signature.While the Bank is authorized to honor suchremotely created checks, the Bank is not required todo so and may refuse to honor any such remotelycreated checks at its discretion. The Bank mayreturn such remotely created checks even if it hashonored similar remotely created checks in the past.You agree that the Bank is not liable to you for anylosses that may result from either honoring ordishonoring any such remotely created checksdrawn on your account. You are responsible forreviewing your statement in a timely fashion andreporting promptly to HSBC any claims ofunauthorized remotely created checks.

For HSBC business account-holders who originateand deposit remotely created checks into an HSBCaccount you affirm that such items are properlyauthorized in accordance with applicable law andthat you will provide evidence of such authorizationto the Bank upon request. In the event such itemsare not properly authorized or you are unable toprovide proof of proper authorization, you agree tohold the Bank harmless from any losses arisingfrom this deficiency.

OVERDRAFTS AND OVERDRAFT FEESAn overdraft occurs when you do not have enoughmoney in your account to cover a transaction, butwe pay it anyway. We can cover your overdraftsthrough our standard overdraft practices or throughan overdraft protection plan. Through our standardoverdraft practices, we authorize and pay overdraftsfor checks and we can also cover overdrafts forpreauthorized automatic bill payments. Under ourstandard overdraft practices, we will charge you thefee listed in our Terms & Charges disclosure. Wepay overdrafts at our discretion, which means we donot guarantee that we will always authorize and payany type of transaction. If we do not authorize andpay an overdraft, your transaction will be declined.For consumer accounts, we do not authorize andpay overdrafts for the following types oftransactions: ATM transactions and everyday debitcard transactions.

If you have a consumer or qualifying businessdeposit account, you can use the available balanceon your qualifying credit account with the Bank tofund any overdraft amount automatically. Theoverdraft protection plan is subject to applicationand credit approval.

3

balance. If your account is closed, the Bank shallsend you any finally collected and available balancein the account at the time the account is closed. TheBank may return unpaid any items presented onyour account after it is closed.

The Bank may charge you a fee shown on the Termsand Charges Disclosure.

SERVICEThe Bank may terminate any service at any timewithout notice. If you wish to terminate a service,you shall give the Bank prior written notice of yourintention to terminate. Termination by you shallbecome effective no sooner than five (5) businessdays after the Bank’s receipt of the terminationnotice. The Bank may complete all requests andinstructions accepted on the day termination is tobecome effective.

LEGAL PROCEEDINGSUnless the Bank receives an order from a court ofcompetent jurisdiction that directs the Bank not toact, the Bank will comply with legal proceedings inany jurisdiction in which the Bank has offices evenif the legal proceeding occurs in a jurisdiction whereyou are not located.

You agree that if you and/or your account becomeinvolved in legal proceedings and the Bank receives alegal document or other notice that the Bank believesrequires it to supply information on your account, torestrict your account or to pay money from youraccount, the Bank is authorized to do so regardless ofwhether you appeared in those proceedings andregardless of whether those proceedings occurredwithin the jurisdiction where you and/or your accountare located. If this occurs, use of your account orservices that access your account may becomerestricted and the Bank may charge you the fee shownon your Terms and Charges Disclosure.

LIMITATION OF CLAIMSYou agree to make any claim or bring any legalaction relating to the Bank’s handling of youraccount, in writing, within one (1) year of the datethe problem occurred, unless these Rules orapplicable law or regulation require earlier action byyou. You agree that if the problem involves a seriesof events, such as a number of forgeries over aperiod of time, then the date the first event occurredshall be the date by which the period to make anyclaim or bring any legal action shall begin to run.

LIMITATION OF LIABILITYTHE BANK ASSUMES NO LIABILITY FORSPECIAL, INCIDENTAL, CONSEQUENTIAL,PUNITIVE OR INDIRECT LOSS OR DAMAGETO YOU INCLUDING LOST PROFITSWHETHER OR NOT THE BANK HAS BEEN

30

4

Your account may be debited on the day an item ispresented, or at such earlier time as notification isreceived by the Bank by electronic or other means,that an item drawn on your account has beendeposited for collection in another financialinstitution. You understand that the Bank reservesthe right to pay items into overdraft, to imposeoverdraft fees as permitted by law, and to apply anylater deposits (including direct deposits of socialsecurity or other government benefits) to thoseoverdrafts or overdraft fees, by way of setoff. An"item" includes checks, substitute checks, remotelycreated checks, withdrawal slips or other in-persontransfers or withdrawals, service charges, electronicitems or transactions, including withdrawals madefrom an automated teller machine, one-time orrecurring debit card transactions, pre-authorizedpayments or transfers, ACH transactions, telephoneinitiated transfers, online banking transfers or billpayment instructions, and any other instruments orinstructions for the payment, transfer or withdrawalof funds including an image or photocopy of any ofthese. A determination of your account balance forpurposes of making a decision to dishonor an itemfor insufficiency of available funds may be made atany time between the receipt of such presentment ornotice and the time of return of the item, and nomore than one such determination need be made.

PAYMENT OF YOUR ITEMS FOR YOUR ACCOUNT

The Bank generally pays the largest debit itemsdrawn on a depositor’s account first.

STOPPING PAYMENTYou can ask the Bank to stop payment on a checkdrawn on your account in person, by mail, by phone,or by using Hexagon®, the Bank’s internet bankingproduct and secure Bank e-mail. The Bank needs areasonable amount of time to apply the stop paymentrequest to your account and to verify that the checkhas not already been paid. You (or an authorizedsigner on your account) must give the Bank theaccount number, payee, date, exact amount of thecheck, and the correct check number. Withoutcompletely accurate information on the amount of thecheck and the check number, the Bank cannot ensurea stop payment will occur. Your stop payment requesttakes effect when the Bank records it on your account.If you phone in your stop payment, you must confirmit in writing within 14 days. Your written stoppayment request is good only for six months unlessyou renew it in writing. Special procedures apply to astop payment for a funds transfer. Please refer to the“Amendment and Cancellation” paragraph in the“Funds Transfers” section of these Rules. The Bankmay charge you the fee shown on your Terms andCharges Disclosure for each stop payment request.

administrator. Note: Consecutive inactivity periodsfor determining actual escheatment requirementsvary by the abandoned property laws of theindividual states, and by type of account. The Bankis required to base the period for escheatment on thestate of the depositor’s last known address on theBank’s records, and that state’s correspondingconsecutive inactivity period.

At any time after the funds in the abandonedaccount have been turned over to the appropriatestate abandoned property administrator, thedepositor (or other person entitled to the funds) mayreclaim this money from the state abandonedproperty administrator.

TAXPAYER IDENTIFICATION NUMBERFederal regulations require the Bank to record yourtaxpayer identification number (Social SecurityNumber). If you do not give the Bank your numberon or shortly after the day you opened your account,federal law requires the Bank to withhold a portionof the amount of interest paid on your account eachtime interest is credited.

CURRENCY TRANSACTION REPORTINGFederal regulations require the Bank to disclosecertain transactions involving your account. TheBank may request information from you anddisclose information about your account wheneverthe Bank believes it is necessary or appropriate tocomply with those federal regulations. Until youprovide sufficient information, the Bank may holdyour account or refuse any transaction.

POWER OF ATTORNEYIf the Bank receives a power of attorneyauthorization in a form the Bank determinescomplies with applicable state law, your attorney-in-fact can do whatever you could do with youraccount. The Bank may honor an acceptable powerof attorney where you are one of the persons namedon a joint account. In that case, your attorney-in-factcan do whatever you could do with your jointaccount. The Bank is not required to seek theconsent of the other persons named on the jointaccount before honoring the power of attorney. TheBank may request the attorney-in-fact to indemnifyand hold the Bank harmless before the Bank honorsthe power of attorney.

The Bank does not have to accept an out-of-statepower of attorney or a power of attorney which doesnot comply with applicable state law.

ACCOUNT CLOSINGYou can close your account at any time by notifyingyour branch during normal business hours. TheBank also has the right to close your account at anytime by sending you a notice and/or check for the

29

POST-DATED CHECKSThe Bank may certify or pay a check before the datewritten on it and charge your account without beingliable to you. The Bank can also refuse to certify orpay a post-dated check before its date. The Bankmay dishonor and return unpaid other items drawn,accepted or made by you as a consequence of theBank having certified or paid a post-dated item.

CHECKS MORE THAN SIX MONTHS OLDThe Bank is not required to pay an uncertified checksix months after its date. The Bank may pay it,however, and not be liable to you.

INTEREST BEARING CHECKINGThe Bank’s interest bearing checking accounts arereally savings accounts against which you can writechecks. The Bank has the right to ask you for sevendays advance notice of withdrawal. If the Bank does,the Bank will not be liable to you for dishonoringyour checks during the seven-day notice period.

EARNINGS CREDIT ANALYZED ACCOUNTSPositive earnings credit is the amount of creditearned depending on the positive investable balancemaintained throughout the cycle, which will beapplied toward the payment of service expense.

Negative investable balance is the total of all dayswith a negative available balance, averaged over thetotal number of days in the current analysis period;reserves are not deducted from this balance.

RECORDCHECK® SERVICEBy choosing this service that does not provide imagecopies of the front of cancelled items with yourstatement, you have instructed the Bank to hold copiesof the cancelled items for you in accordance with theapplicable terms of service. If you need a copy of acancelled check, the Bank will mail it to you. Areconstruction fee may apply if you request a totalreconstruction (copies of all checks and/or statements)for one or more statements. The Bank will hold copiesof your checks for six years (seven years for accountsat our Washington branch). Copies of your checks areavailable during the foregoing period in accordancewith the Terms and Charges Disclosure.

IMAGE STATEMENT SERVICEBy choosing this service that provides image copies ofthe front of cancelled items with your statement, youhave instructed the Bank to hold copies of thecancelled items for you in accordance with theapplicable terms of service. If you need a copy of acancelled check, the Bank will mail it to you. Areconstruction fee may apply if you request a totalreconstruction (copies of all checks and/or statements)

5

you promptly review your statement, and notify theBank of any errors, forgeries, or alterations withinfourteen (14) days from the date the Bank firstmailed, or made available to you, your statement oradvice. However, if the error involves an electronicservice, refer to the Bank’s electronic bankingservices disclosures for the services you are using.If you cannot balance your statement and do notbring it to the Bank’s attention before you receiveyour next statement, the Bank may charge you anhourly reconcilement fee to locate the error.

The Bank may stop sending account statements ifyou stop using your account or have not given theBank your current address. If the post office returnsas "undeliverable" any statement that the Bank sentyou, and if you do not provide the Bank with acorrect mailing address, the Bank will retain onlyimages of the statements and enclosures, not theoriginal items, for six years. Copies of yourstatement are available by request during this sixyear period in accordance with the Terms andCharges Disclosure.

CHANGE OF ADDRESSYou (or an authorized person) must notify the Bankpromptly of any change of your address. The Bankmay require written notice or written confirmationof this change. All statements and advises will besent to you by ordinary mail at the address lastrecorded by the Bank.

DORMANCY AND ABANDONED PROPERTYWhen an account is inactive the Bank followsspecial procedures.

An account is considered inactive when:

No customer initiated deposits or only directdeposits by a third party are made to your account;no withdrawals or only preauthorized automaticwithdrawals are made from your account; AND theBank does not receive anything in writing from youthat indicates that you knew your account exists, orif your account is a passbook account and you havenot presented the passbook to the Bank for entry ofany dividend or interest credit.

When a checking or savings account remains inactivefor three (3) consecutive years it is considereddormant. If your account is considered dormant, theBank may prohibit access to your account until youcontact the Bank in person or in writing. Before youraccount is classified as dormant, the Bank may try tocontact you to reactivate the account.

If your account remains inactive for the time periodspecified by law, it may be deemed abandoned. Ifyour account is considered abandoned, the Bankmay cease to pay interest on the account, may closethe account, and, if required, turn the funds over tothe appropriate state abandoned property

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6

for one or more statements. The Bank will hold copiesof your checks for six years (seven years for accountsat our Washington branch). Copies of your checks areavailable during the foregoing period in accordancewith the Terms and Charges Disclosure.

IMPORTANT INFORMATION ABOUTCONSUMER CHECKING ACCOUNTSRECEIVING PAID CHECKS WITHSTATEMENTS – SUBSTITUTE CHECKS AND YOUR RIGHTS.What is a substitute check? To make checkprocessing faster, federal law permits banks toreplace original checks with “substitute checks.”These checks are similar in size to original checkswith a slightly reduced image of the front and backof the original check. The front of a substitute checkstates: “This is a legal copy of your check. You canuse it the same way you would use the originalcheck.” You may use a substitute check as proof ofpayment just like the original check.

Some or all of the checks that you receive back fromus may be substitute checks. This notice describesrights you may have when you receive substitutechecks from us. The rights in this notice do notapply to original checks or to electronic debits toyour account. However, you have rights under otherlaw with respect to those transactions.

What are my rights regarding substitute checks? Incertain cases, federal law provides a special procedurethat allows you to request a refund for losses you sufferif a substitute check is posted to your consumerchecking account (for example, if you think that wewithdrew the wrong amount from your account or thatwe withdrew money from your account more thanonce for the same check). The losses you may attemptto recover under this procedure may include theamount that was withdrawn from your consumerchecking account and fees that were charged as a resultof the withdrawal (for example, bounced check fees).

The amount of your refund under this procedure islimited to the amount of your loss or the amount of thesubstitute check, whichever is less. You also areentitled to interest on the amount of your refund ifyour account is an interest bearing consumer account.If your loss exceeds the amount of the substitutecheck, you may be able to recover additional amountsunder other law.

If you use this procedure, you may receive up to$2,500 of your refund (plus interest if your accountearns interest) within 10 business days after wereceived your claim and the remainder of your refund(plus interest if your account earns interest) not laterthan 45 calendar days after we received your claim.

We may reverse the refund (including any interest onthe refund) if we later are able to demonstrate that thesubstitute check was correctly posted to your account.

FEESYou agree to pay and to have your account chargedfor all maintenance fees and service fees incurred byyou including, but not limited to, all usual andcustomary fees that the Bank may, from time totime, charge for any products and services provided.The Bank may impose a reasonable charge, whichshall not be refundable, on inactive accounts, as setforth in the Bank’s Terms and Charges Disclosure.

REIMBURSEMENT OF BANKIN THE EVENT OF A DISPUTE

You agree to be liable to the Bank for any losses,costs, or expenses the Bank incurs as a result of anydispute involving your account. You authorize theBank to deduct any such losses, costs, or expensesfrom your account without prior notice to you. Thisobligation includes disputes between you and theBank involving the account and situations where theBank becomes involved in disputes between youand an authorized person, another joint owner, or athird party claiming an interest in the account.

LIEN AND SETOFFYou give the Bank a continuing lien on any accountor other personal property of yours which is in thepossession or control of either the Bank or any ofthe Bank’s affiliates, including, but not limited to,Bank deposits and securities. This lien shall be inthe amount of any and all liabilities and obligationsthat you may owe to the Bank or any of the Bank’saffiliates whether such liabilities and obligationsexist now or are incurred in the future. You agreethat the Bank and its affiliates may setoff againstyour accounts and may sell your personal propertywhich is not an account, by public or private sale atits discretion, and use the funds in such account orthe proceeds of such sale to satisfy such liabilities orobligations whether or not such liabilities orobligations are then in default or subject to acontingency to the fullest extent permitted byapplicable law.

PERIODIC STATEMENTS AND ADVISESUpon receipt of your monthly or periodic statement(which may include a record of transactions andimages of cancelled items) or advises, you shallexercise reasonable care and promptness inexamining the statement or advice. By using aproduct or service that does not return copies ofcancelled items, you agree that the Bank will holdcopies of the cancelled items for you in accordancewith the applicable terms of service. Youacknowledge that copies of cancelled items held foryou are available at the same time as your statementis first mailed, or made available to you, by theBank. You agree that you cannot make any claimagainst the Bank arising from your account unless

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How do I make a claim for a refund? If you believethat you have suffered a loss relating to a substitutecheck that you received and that was posted to yourconsumer checking account, please contact us at 1-800-975-HSBC (4722). You must contact us within40 calendar days of the date that we mailed, or madeavailable to you, the substitute check in question orthe account statement showing that the substitutecheck was posted to your consumer checkingaccount, whichever is later. We will extend this timeperiod if you were not able to make a timely claimbecause of extraordinary circumstances.

Your claim must include-• A description of why you have suffered a loss

(for example, you think the amount withdrawnwas incorrect);

• An estimate of the amount of your loss;• An explanation of why the substitute check you

received is insufficient to confirm that yousuffered a loss; and

• A copy of the substitute check and/or the followinginformation to help us identify the substitute check:identifying information, for example the checknumber, the name of the person to whom youwrote the check, the amount of the check.

SUBSTITUTE CHECK DEPOSIT ORENCASHMENT LIMITATIONS

The Bank is not obligated to accept unwarrantedsubstitute checks for deposit or to cash a substitutecheck over the counter.

SAVINGS ACCOUNTSTYPES

The Bank offers a variety of savings accounts thatearn a preferred rate of interest as well as regularsavings accounts. See your Terms and ChargesDisclosure for details.

NOTICE OF WITHDRAWALThe Bank has the right to ask you for seven daysadvance notice of withdrawal.

PASSBOOK ACCOUNTSIf you have a passbook account, the Bank can refuse toallow a withdrawal unless you present the passbook.

If your passbook is lost, stolen or destroyed, notifythe Bank immediately. The Bank will have you signan agreement protecting you and the Bank. TheBank may require you to wait (no more than 30days) before the Bank pays you.

The amount in your passbook is considered correctonly if it agrees with the Bank’s records.

NOT TRANSFERABLESavings accounts are not transferable except on theBank’s books.

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Payment Orders and withdrawal requests made byany one of them, unless the Bank receives a written,signed notice from another joint depositor telling usnot to. If the Bank receives such a notice, the Bankmay require the signatures of all the joint depositorsbefore the Bank allows any further withdrawals (ofprincipal or interest) to be made from the account.

THE BANK’S OBLIGATIONSATISFIED BY PAYMENT

If the Bank honors a check, other Payment Order orwithdrawal request made by a joint depositor beforethe Bank receives written notice from another jointdepositor telling the Bank not to, the Bank hassatisfied its obligation with respect to all money theBank paid or delivered and is not liable to otherjoint depositors. (Although the joint depositors maybe liable to each other for withdrawing more thantheir shares of the account, the Bank is notresponsible for making sure a depositor does notwithdraw more than his or her share.)

DEBTS OWED THE BANK AND LEGAL PROCESSIf one joint depositor owes the Bank money and thedebt becomes due, the Bank can use any money inthe joint account to pay the debt. Further, if adepositor has an account, in that depositor’s namesolely, and that depositor owes the Bank money,you agree that any money held in a joint accountwith that depositor and you may also be used to paythe debt.

If one joint depositor has a judgment or other debtagainst him or her, the Bank may be required bylegal process to pay out money from the jointaccount to satisfy that judgment or debt. The Bankis not responsible for determining or otherwiseclaiming funds in your account are exempt from thereach of a third party, unless otherwise expresslyrequired by applicable law.

If one joint depositor overdraws the joint account, youagree that the Bank may use any funds in any otheraccounts of either joint depositor to pay the debt.

MORE ABOUT YOUR ACCOUNTSTANDARD OF CARE

You agree the standard of ordinary care and goodfaith which the Bank will use in handling youraccount is to be measured against the practice ofother commercial banks similar to HSBC in size.

BALANCE INFORMATIONBalances may change frequently throughout abusiness day. You hereby waive any claim againstthe Bank based on representations made by theBank, either orally or in writing, to you, or yourauthorized person, or to any other party, regardingbalance information.

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CERTIFICATES OF DEPOSITTYPES

The Bank offers Certificates of Deposit in variousmaturities, including but not limited to 7 days to10 years. See your Terms and Charges Disclosurefor details.

AUTOMATIC RENEWALUnless you specify otherwise, the Bank willautomatically renew CDs at the then current rate andsubject to the terms described in the then currentTerms and Charges Disclosure. If you do not wantthe Bank to renew your CD, notify the Bank beforethe maturity date. The Bank can refuse to renew yourCD. If this happens, the Bank will send a noticebefore the maturity date.

EARLY WITHDRAWAL PENALTYIf you withdraw principal from your CD before thematurity date, you may be charged a penalty shownon your Terms and Charges Disclosure. Thepenalty may reduce principal if there is insufficientinterest available.

In the past, the Bank has usually permitted CDs tobe cashed in before the maturity date, but the Bankreserves the right not to do so in the future. Forconsumer accounts, the Bank may not assess apenalty if an owner of the account dies or isdeclared legally incompetent, but the Bank willrequire proof of death or incompetency before awithdrawal is allowed.

SPECIAL DEPOSIT ACCOUNTSThe Bank offers a number of special purpose accounts,as well as trust, custodial, retirement, and fiduciaryaccounts. A Bank representative can provide details.

DEPOSITSHOW TO DEPOSIT

You can make deposits in person or by mail. If youare a consumer or qualifying business, you can alsouse your HSBC MasterCard®, Visa®, DebitMasterCard® or ATM card to make deposits at HSBCAutomated Teller Machines (ATMs) and certainother electronic facilities. The Bank is not obligatedto accept unwarranted substitute checks for deposit.For more information about electronic banking, referto the Bank’s electronic banking services disclosuresfor the services you are using.

DIRECT DEPOSITYou can arrange to have funds, such as your SocialSecurity or other Federal payment(s) and yourpaychecks, directly deposited into your checking orsavings account.

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ANNUAL INTEREST EARNEDIf required by IRS regulations based on the interestearned on your deposit accounts on an annual basis,a combined year-end statement will be sent to youby the Bank.

JOINT ACCOUNTSThis is a summary of some of the important legalrules governing your joint account. The lawregarding joint deposits is very complicated, and thissummary does not try to answer all the questions thatcould arise.

The rules stated in this summary apply to accountsand CDs in the names of two or more persons or thesurvivor of them. They do not apply to trust accounts,custodial accounts, “Totten Trust” accounts or anyother account that is not a joint account with the rightof survivorship.

RELATIONSHIP BETWEENJOINT DEPOSITORSJOINT OWNERSHIP OF ACCOUNT

All funds deposited in a joint account, including anyinterest earned, become the property of all jointtenants. Even if only one depositor puts in all themoney or puts in more than the other(s), all moneyon deposit will be owned jointly.

RIGHT OF SURVIVORSHIPThe Bank will assume that when you open a jointaccount you intend to create a right of survivorship,unless you establish the account under the Bank’sprocedures for Tenants in Common. A right tosurvivorship means that if one joint depositor dies,the money in the account belongs entirely to thesurviving depositor(s).

TENANTS IN COMMONA joint account may be held as Tenants in Commonif when the account is opened the joint owners enterinto the Bank’s agreement for accounts held asTenants in Common and designate the percentage ofthe funds to be paid to the survivor(s) on the deathof a joint owner. Until the Bank receives notice ofthe death of a tenant, all funds in the account may betreated as the property of each of the tenants incommon without any limitation.

YOUR AGREEMENTWITH THE BANKWITHDRAWALS FROM ACCOUNT

While all the joint depositors named on the accountare living, the Bank will honor checks, other

25

ENDORSING CHECKSBe sure to endorse all checks and other itemsexactly as they are made out. The Bank has the rightto endorse items you deposit to your account. TheBank will chargeback to your account any item thatis returned for any reason, including endorsementirregularity or forgery.

RESPONSIBILITY FOR THE BACK OF A CHECK

The diagram below shows where you should placeyour endorsement on the back of your check. Theendorsement area is limited to the area 11/2” fromthe trailing edge of the check, which is at the top inthe diagram.

You are responsible for any loss resulting from yourimproper endorsement of a check if it causes a bankendorsement to be illegible.

FINAL PAYMENT OF ITEMSThe Bank chooses the method of obtaining finalpayment of a deposited check, draft, note, acceptanceor other instrument (“item”) and may use other banksin the process. The Bank is not responsible for actionstaken by other banks, nor for the loss or destruction ofany item in the possession of other banks or in transit.Any bank may refuse to honor a deposited item ormay honor one refused by another bank.

VERIFYING DEPOSITSThe Bank will verify that the figure on your depositticket agrees with the amount of your deposit. Ifthere is a discrepancy, the Bank may adjust youraccount for the amount of the difference withoutnotifying you.

RETURN OF DEPOSITED ITEM (CHARGEBACK)If you deposit an item to your account and it isreturned unpaid, or is lost or destroyed, the Bankwill charge the amount of the item back to youraccount. The Bank may charge your account the feeshown on your Terms and Charges Disclosure.

CERTIFICATES OF DEPOSITYour Terms and Charges Disclosure explains whenand how deposits may be made to your certificateof deposit.

924

agree that the Bank is entitled to a refund of theamount credited to you in connection with such entry,and the party making payment to you shall not bedeemed to have paid you the amount of such entry.

INTEREST

RATESInterest rates, compounding periods, balancecomputation methods, and minimum balancerequirements are explained in the Terms andCharges Disclosures.

CHANGESThe Bank may change the interest rate on depositaccounts, solely at the Bank’s discretion, at any time.The Bank will not change the rate on a fixed-rate CDduring its term. We will not notify you of rate changesfor variable rate accounts. Current rates are availableat your branch. The Bank may change the way theBank calculates interest on 30 days advance notice.

WHEN YOUR DEPOSITBEGINS TO EARN INTEREST

Cash deposited before the “cut-off time” at yourbranch (or at an HSBC ATM or electronic bankingfacility) begins earning interest the same day. Cashdeposited after the “cut-off time” or on a Saturday,Sunday or Federal holiday, begins earning interestthe next business day.

NOTE:1. Ask your branch for its “cut-off time.”2. For interest bearing checking and savings

products, interest begins to accrue no later thanthe business day the Bank receives credit fordeposit of noncash items.

3. For CDs, interest begins to accrue on thebusiness day you deposit noncash items.

HOW INTEREST IS PAIDThe Bank credits interest to your account or CDmonthly, quarterly, annually or at maturity,depending on what kind of account or CD you have.If you have a statement account, credited interestwill show on your statement. If you have a passbookaccount, credited interest can be added to yourpassbook at any branch. Interest on CDs can becredited to another HSBC account you specify.

INTEREST ON CERTIFICATES OF DEPOSITA CD does not earn interest after the maturity date.However, you will earn interest from the originalmaturity date on the renewed principal amount if yourenew your CD within the grace period as defined inthe Terms and Charges Disclosure and the renewaldate is back dated to the original maturity date.

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AVAILABILITY OF FUNDSThe Bank’s policy is to make funds from your depositsquickly available to you according to a schedule whichis based on where the check is drawn, where thedeposit is made, and the type of account as set forthherein. The types of accounts that this section appliesto are: Interest Bearing Checking Accounts; Non-Interest Bearing and Business Checking Accounts.

Until funds are available according to the schedule,you may not withdraw the funds in cash, and theBank may choose not to use the funds to pay checksyou have written or other withdrawals or transfersyou have authorized.

DETERMINING THE AVAILABILITY OF A DEPOSIT

The day of availability is counted in business daysfrom the day of your deposit. Every day is a businessday except Saturdays, Sundays, and Federal holidays.If you make a deposit before 2 p.m. on a business daythe Bank is open, the Bank will consider that day tobe the day of your deposit. Certain branches use alater cut-off time and each Customer ServiceRepresentative will put up a sign when he or shechanges over to the next day’s business. If you makea deposit after the cut-off time or on a day the Bankis not open, the Bank will consider the deposit madeon the next business day the Bank is open. The day ofavailability varies depending on the type of depositand is explained below.

SAME DAY AVAILABILITYFunds from electronic direct deposit and fundstransfers (wires) will be available on the day theBank received final credit for the deposit.

NEXT DAY AVAILABILITYFunds from the following deposits are available toyou no later than the first business day after the dayof your deposit:

• U.S. Treasury checks payable to you;• Federal Reserve Bank checks, Federal Home

Loan Bank checks, and postal money orders, ifthese items are payable to you;

• Checks drawn on HSBC Bank USA N.A.;• Cash.

Funds from the following deposits are available toyou on the first business day after the day of yourdeposit, if you make the deposit in person to one ofour employees using a special deposit slip availableon request at any branch:

• State and local government checks payable to you;• Cashier’s, certified, and teller’s checks payable

to you.Note: Funds from deposits of state and localgovernment checks, cashier’s, certified, teller’s

10 23

VALUE DATED PAYMENT ORDERSPayment Orders may be executed by the Bank onthe date of receipt, if received prior to the Bank’s“cut-off time”, unless a future value date is stated inthe Customer instruction.

AMENDMENT AND CANCELLATIONInstructions requesting cancellation or amendmentof a Payment Order must be transmitted to the Bankusing the same level of Security Procedure as usedfor the original Payment Order. The Bank will honorall requests received by the Bank’s “cut-off time” onthe business day prior to the value date. The Bankshall use reasonable efforts to act on a requestreceived after the Bank’s “cut-off time” on thebusiness day prior to the value date, unless agreedotherwise in writing.

RELIANCE ON IDENTIFYING NUMBERIf a Payment Order identifies an intermediary bank,the beneficiary’s bank or the beneficiary by nameand an account or other identifying number, theBank may act solely on the basis of such number.

ROUTING OF A PAYMENT ORDERYou are responsible for full routing instructions. Youagree that in executing any Payment Order the Bankmay make use of correspondents, agents, sub-agents,funds transfer and communications systems. If aPayment Order does not designate an intermediarybank, you agree that, where appropriate, the Bankwill select an intermediary bank on your behalf andthe Bank shall have no liability with respect to suchselection. To the fullest extent permitted by law,correspondents, agents, sub-agents, systems orintermediary banks shall be deemed to be your agentsand the Bank shall not be under any liability for anyerrors, negligence, suspension or default of any ofthem, all such risks being borne by you.

NOTICE OF RECEIPT OF ACH PAYMENTSUnder the operating rules of the NationalAutomated Clearing House Association that areapplicable to ACH transactions involving youraccount, the Bank is not required to give next daynotice to you of receipt of an ACH item, and theBank will not do so. However, the Bank willcontinue to notify you of the receipt of payments inthe periodic statements the Bank provides to you.

PROVISIONAL CREDITCredit given by the Bank to you with respect to anACH credit entry is provisional until the Bankreceives final settlement for such entry through aFederal Reserve Bank. If the Bank does not receivesuch final settlement, you are hereby notified and

11

checks, and cash made by mail or by using anautomated teller machine (ATM) may not beavailable until the second business day after theday of your deposit.

The first $100 from a deposit of one or more checksother than those listed above will be made availableon the first business day after the day of your deposit.

EXCEPTIONSIn some cases, funds you deposit by check may notbe available for a longer period under the followingcircumstances:

• The Bank believes a check you deposit will notbe paid.

• You deposit checks totaling more than $5,000on any one day.

• You re-deposit a check that has been returnedunpaid.

• You have overdrawn your account repeatedly inthe last six months.

• There is an emergency, such as a failure ofcommunications or computer equipment.

The Bank will notify you if the Bank delays yourability to withdraw funds for any of these reasons,and the Bank will tell you when the funds will beavailable. They will be available generally by thesixth business day after the day of your deposit.

SPECIAL RULES FOR NEW ACCOUNTSIf you are a new customer, the following specialrules may apply during the first 30 days youraccount is open:

• Funds from electronic direct deposits to youraccount will be available on the day the Bankreceived credit for the deposit.

• The first $5,000 from a deposit of U.S. Treasurychecks will be available on the first business dayafter the day of your deposit. The excess over$5,000 will be available to you no later than theninth business day after the day of your deposit.

• Funds from a funds transfer into your accountwill be available on the first business day afterthe day the Bank receives the transfer.

• Funds from deposits of cash and the first$5,000 of a day’s total deposits of cashier’s,certified, teller’s, traveler’s, and state and localgovernment checks will be available on the firstbusiness day after the day of your deposit, if thedeposit meets certain conditions. For example,the checks must be payable to you and you mayhave to use a special deposit slip. The excessover $5,000 may be available to you no laterthan the ninth business day after the day of yourdeposit. If you do not make the deposit inperson to an employee of the Bank, the first$5,000 will not be available until the secondbusiness day after the day of your deposit.

The availability schedule will not apply to fundsfrom all other check deposits.

22

a Payment Order or a communication amending orcancelling a Payment Order issued by you. Youacknowledge that the Level Two SecurityProcedure may be deemed commerciallyreasonable pursuant to Section 4A-202(c) of theUniform Commercial Code.

Whenever a Level Two Security Procedure is used,you agree to be bound by any Payment Order, whetheror not authorized, issued in your name and accepted bythe Bank in compliance with such procedure.

CONFIDENTIALITY OFSECURITY PROCEDURES

You and the Bank agree to keep the SecurityProcedures confidential and shall not reveal them toany person other than authorized persons having “aneed to know.”

AUTHORIZED PERSONSUnless otherwise specified by you in writing, theindividuals authorized by you to sign checks onyour account are also authorized to issue PaymentOrders, cancel and amend Payment Orders, anddesignate the persons and telephone numbers foruse with the security procedure you have chosen.

FUNDS TRANSFERS FEESExcept as otherwise agreed in writing, the Bankmay charge your account for the fees and chargesfor processing Payment Orders and issuing advisesrelating to Payment Orders, advised to you at thetime of the Payment Order, or listed in the Termsand Charges Disclosure as the fee for FundsTransfer, or as set forth in any other applicable rulesor terms.

ACCEPTANCE OF A PAYMENT ORDERA Payment Order must be received by the Bank’s“cut-off time” on a business day for action on the dateof receipt. Instructions received for value on a non-business day will be processed on the next businessday. A Payment Order is not accepted until the Bankexecutes it. The Bank reserves the right to reject ordelay the execution of a Payment Order under certaincircumstances including, but not limited to, thefollowing: (a) if the instructions are incomplete orambiguous; (b) if there is an insufficient balance ofavailable funds in the account; (c) if any party in thepayment order is under restraint or under a regulatorysanction; or (d) if a routing system is down and nosuitable alternative system is available.

METHOD OF EXECUTIONIf a Payment Order does not indicate it requiresexpeditious processing via wire or phone, the Bankmay transmit the Payment Order by mail or by anyother reasonable means.

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HOLDS ON OTHER FUNDS (CHECK CASHING)If the bank cashes a check for you drawn on anotherbank, the bank may withhold the availability of acorresponding amount of funds already in youraccount. Those funds will be available at the timefunds from the check cashed would have beenavailable if you had deposited it.

HOLDS ON OTHER FUNDS (OTHER ACCOUNT)If the Bank accepts for deposit a check that is drawnon another bank, the Bank may make funds from thedeposit available for withdrawal immediately butdelay your ability to withdraw a correspondingamount of funds that you have on deposit in anotheraccount with the Bank. The funds in the otheraccount would then not be available for withdrawaluntil the scheduled day of availability for the type ofcheck you deposited.

FOREIGN CHECKSThe Bank may delay availability on checks drawn onbanks outside the United States (including checksdrawn upon foreign HSBC affiliates) and on checksdrawn in foreign currencies or handle such checks ona collection basis. You understand and agree thatyou bear all exchange risk in the event of a returneditem. If you want to avoid the exchange risk of areturned item, you can request that the item beprocessed on a collection basis for the applicable fee.

If a check drawn on a bank outside of the UnitedStates uses a dollar sign (“$”) but does not indicatethe check is drawn in U.S. Dollars, it will beprocessed as a check drawn in the currency of thecountry where the bank is located, e.g., a checkdrawn on a Canadian bank. You will bear the costsassociated with any adjustments that must be madeif the check should have indicated it was drawn inU.S. Dollars including exchange rate adjustmentsand fees assessed against the Bank by third partiesrelated to the adjustment. You can avoid this risk bymaking sure that the issuer of the item clearlyidentifies checks payable in U.S. Dollars.

CASH WITHDRAWAL LIMITATIONSWe place certain limitations on withdrawals in cash.In general, $100 of a deposit is available forwithdrawal in cash on the first business day after theday of deposit. In addition, a total of $400 of otherfunds becoming available on a given day isavailable for withdrawal in cash on that day. Anyremaining funds will be available for withdrawal incash on the following business day.

LOCATING THE ROUTING NUMBERTO DETERMINE AVAILABILITY

The routing number is printed along the bottom ofthe check. See the consumer and business checkillustrations below for the highlighted location ofthe routing number. The first four digits represent

21

detect an error in the transmission or content of thePayment Order.

LEVEL ONE SECURITY PROCEDURESHSBCnet provides encryption of banking andtransaction data sent from the customer's computerto the Bank. Multilevel authentication of users isprovided and HSBCnet's administrative optionsallow the customer to control user access accordingto corporate, compliance and audit needs. Thesecurity procedures are more specifically describedat www.hsbcnet.com.

Internet Banking (Business Accounts): TheInternet Banking security procedures includeencryption and a password that allows the Customerto transfer funds and conduct banking transactionsas more specifically described in the Terms andConditions for Internet Banking (BusinessAccounts) and the Security Statement availableonline at www.us.hsbc.com/business/online/business-internet-banking/terms.

Authenticated SWIFT: The security procedure forauthenticating Payment Orders sent through SWIFTis explained in the SWIFT Handbook. Authenticatorkeys are provided to the Customer by the Bank.

Tested Telex: The security procedure using TestedTelex is explained in the Global Test Key bookletavailable from the Bank. A test key number isprovided to the Customer by the Bank.

LEVEL TWO SECURITY PROCEDURESCall-Back Procedures: The Level Two SecurityProcedures may involve either or both the use of acall-back procedure by the Bank or the use of anidentification code by the Customer (or theirauthorized users).

ACCEPTANCE OF SECURITY PROCEDURESBy using any of the Level One Security Procedures,you have accepted that security procedure asdescribed above or as modified from time to timeby the Bank. The Level One Security Procedurewill be used for the purpose of verifying that aPayment Order or a communication amending orcancelling a Payment Order was issued by you. Ifthe bank accepts a Payment Order by means otherthan through HSBCnet, Internet Banking,authenticated SWIFT or tested telex, and youcommunicate a Payment Order to the Bank inwriting, or use the telephone to transmit a PaymentOrder orally or by fax or telex (without a test code),you have rejected the Level One SecurityProcedures offered by the Bank and have chosenLevel Two Security Procedures generally describedpreviously, as such procedure may be modifiedfrom time to time by the Bank. This SecurityProcedure will be used for the purpose of verifying

13

the geographic location of the bank and determinewhen funds become available. See schedules listedbelow to determine your availability.

Consumer Check:

Business Check:

S ome checks are marked “payable through” andhave a four or nine digit number nearby. For thesechecks, use the four digit number (or the first fourdigits of the nine digit number), not the routingnumber on the bottom of the check, to determinewhen these checks are available. See scheduleslisted below to determine your availability.

If you have questions, please contact your localbranch or account officer.

SPECIAL FUNDS AVAILABILITY SCHEDULES BASEDON ACCOUNT TYPE AND ACCOUNT LOCATION

INTEREST BEARING CHECKING ACCOUNTSIncluding IOLA and NOW Checking

If you have an interest bearing checking account,funds from your deposits will be made available toyou according to the following schedule thatcorresponds to where you make your deposit.

For deposits made in CaliforniaAt least 93% of funds from deposits of checks inwhich the first four digits of the routing number are1210 1211 1212 1213 1214 12201221 1222 1223 1224 3210 32113212 3213 3214 3220 3221 32223223 3224are available to you no later than the next businessday after the day of your deposit.

All funds from deposits of checks drawn on all otherrouting numbers with the exception of those listedabove and those checks in the NEXT DAYAVAILABILITY section, are available to you no laterthan the second business day after the day of deposit.

20

• The account or CD is pledged as collateral.

• You do not present your passbook.

• The account or CD has not matured.

• Endorsement irregularity or possible forgery.

• There is a dispute regarding the authority of an authorized person to transact business on the account.

TRANSFER LIMITS (SAVINGS, INCLUDINGMONEY MARKET ACCOUNTS)

Only six preauthorized, automatic, computer ortelephone transfers can be made from your savingsaccount to another account in any month. (A monthmay be either a calendar month or a statement cyclemonth.) No more than three (3) of your six (6) suchtransfers may be made by check, draft, debit card, orsimilar order made payable to a third party ifpermitted by your account. If you exceed these limits,the Bank may be required to close your account orconvert your account to a checking account.

FUNDS TRANSFERSYou may transfer funds from your account or receivefunds into your account by funds transfer. Servicefees apply to funds transfers and there are limitationson transfers from certain types of accounts.

AUTOMATED CLEARING HOUSEYou agree that any rules or regulations of anyautomated clearing house (“ACH”) used shall befully applicable to and binding upon you and thattransfers may not be initiated that violate the laws ofthe United States.

AUTHORIZATION TO PAYYour instruction to transfer funds from your accountto a third party is a Payment Order. The Bank isauthorized, at its option, to charge your account inthe amount of any Payment Order and to execute aPayment Order, even if the Payment Order conflictswith any other instructions received by the Bankfrom you or results in an overdraft or payment to orfor the benefit of a person authorized by you to signchecks or transfer funds for you. If there are notsufficient available funds in your account, the Bankmay, without prior notice or demand, charge anyaccount maintained by you with the Bank or setoffagainst any amount the Bank owes you in order toobtain payment of your obligations.

SECURITY PROCEDURESThe following Security Procedures are offered bythe Bank to each customer for the purpose ofverifying the authenticity of a Payment Order or acommunication amending or cancelling a PaymentOrder. The Security Procedures are not used to

Name of Company 001Address, City State

DATE ____________________

PAY TO THEORDER OF _________________________________________________________________________________________ $ ____________________

______________________________________________________________________________________________________________ DOLLARS

BANK NAME AND LOCATION

FOR ____________________________________________ ___________________________________________________

000000000 123456789 0000000000 000

Routing number

Name 001Address, City State

DATE ____________________

PAY TO THEORDER OF ___________________________________________________________ $ ____________________

________________________________________________________________________________ DOLLARS


FOR __________________________________ _________________________________________

123456789 0000000000 000

Routing number

14 19

are available to you no later than the next businessday after the day of your deposit.


WITHDRAWALS

HOW TO WITHDRAWYou can withdraw from your checking account bypresenting a signed check payable to yourself or to“cash.” You can also withdraw from your checkingor savings account in person or by mail with asigned withdrawal order. In addition you canwithdraw interest credited, during the current termor at maturity, on CDs in person or by mail. Whenwithdrawing from a passbook savings account, youshould present your passbook. You can withdraw ortransfer funds at our HSBC ATMs and otherelectronic facilities if you receive statements onyour account. A withdrawal is deemed to be madewhen recorded on the books of the Bank which isnot necessarily the date that the account holderinitiated the transaction.

AUTHORIZED INDIVIDUALSThe Bank is authorized to rely upon any documentprovided by you to the Bank which indicates theperson(s) authorized to act on your behalf.

REASONS THE BANK MAY REFUSE YOURWITHDRAWAL REQUEST

The Bank may refuse to allow a withdrawal fromany account in certain cases including, but notlimited to, the following cases:

• The Bank decides to require seven (7) daysadvance written notice and the Bank has notreceived that notice.

• The withdrawal would consist of moneydeposited in the form of a check or money orderthat is not available for withdrawal.

• Another owner of a joint account or CD tells theBank in writing not to allow a withdrawal.

• A court orders the Bank not to allow a withdrawal.

• The withdrawal would consist of money the Bankhas taken to pay an overdue debt to the Bank.

• The withdrawal would consist of money theBank has been ordered to pay or hold forsomeone else.

• An account or CD owner dies, and the Bank hasnot received all documents required by law.

• The Bank has not received any documents oridentification required for access to the account.

For deposits made in Downstate New York, Connecticut, Delaware, New Jersey, and Pennsylvania (Downstate New York includes deposits made inthe five boroughs of New York, Long Island andDutchess, Orange, Putnam, Rockland, Sullivan,Ulster and Westchester Counties.)At least 93% of funds from deposits of checks inwhich the first four digits of the routing number are0110 0111 0112 0113 0114 01150116 0117 0118 0119 0210 02110212 0213 0214 0219 0220 02230260 0280 0310 0311 0312 03130319 0360 0410 0412 0420 04300432 0433 0434 0440 0510 05140519 0520 0521 0522 0530 05310539 0540 0550 0560 0570 06100620 0630 0640 0650 0660 07100720 0730 0740 0750 0810 08200830 0840 0910 0920 0921 09601010 1020 1030 1039 1040 11101130 1140 1210 1220 1230 12401250 2110 2111 2112 2113 21142115 2116 2117 2118 2119 2210 2211 2212 2213 2214 2219 22202223 2260 2280 2310 2311 23122313 2319 2360 2410 2412 24202430 2432 2433 2434 2440 25102514 2519 2520 2521 2522 25302531 2539 2540 2550 2560 25702610 2620 2630 2640 2650 26602710 2720 2730 2740 2750 28102820 2830 2840 2910 2920 29212960 3010 3020 3030 3039 30403110 3130 3140 3210 3220 32303240 3250are available to you no later than the next businessday after the day of your deposit, based upon whenthe Bank would generally receive credit from theFederal Reserve Bank for deposited checks.


For deposits made in Upstate New YorkAt least 93% of funds from deposits of checks inwhich the first four digits of the routing number are 0110 0111 0112 0113 0114 01150116 0117 0118 0119 0210 02110212 0213 0214 0219 0220 02230260 0280 0310 0311 0312 03130319 0360 0410 0412 0420 04300432 0433 0434 0440 0510 05140519 0520 0521 0522 0530 05310539 0540 0550 0560 0570 06100620 0630 0640 0650 0660 0710

18

(Downstate New York includes deposits made inthe five boroughs of New York, Long Islandand Dutchess, Orange, Putnam, Rockland,Sullivan, Ulster and Westchester Counties.)Funds from deposits of checks in which the firstfour digits of the routing number are 0210 0212 0214 0219 0260 02802210 2212 2214 2219 2260 2280are available to you no later than the next businessday after the day of your deposit.


For deposits made in Upstate New YorkFunds from deposits of checks in which the firstfour digits of the routing number are 0213 0220 0223 0410 2213 22202223 2410are available to you no later than the next businessday after the day of your deposit.


For deposits made in District of Columbia,Maryland and VirginiaFunds from deposits of checks drawn on all routingnumbers with the exception of those checks in theNEXT DAY AVAILABILITY section, are available toyou no later than the second business day after theday of deposit.

For deposits made in FloridaFunds from deposits of checks drawn on all routingnumbers with the exception of those checks in theNEXT DAY AVAILABILITY section, are available toyou no later than the second business day after theday of deposit.

For deposits made in IllinoisFunds from deposits of checks drawn on all routingnumbers with the exception of those checks in theNEXT DAY AVAILABILITY section, are available toyou no later than the second business day after theday of deposit.

For deposits made in Oregon/Washington StateFunds from deposits of checks in which the firstfour digits of the routing number are1230 1231 1232 1233 1250 12511252 3230 3231 3232 3233 32503251 3252

15

0720 0730 0740 0750 0810 08200830 0840 0910 0960 1010 10201030 1039 1040 1110 1130 11401210 1220 1230 1240 1250 21102111 2112 2113 2114 2115 21162117 2118 2119 2210 2211 22122213 2214 2219 2220 2223 22602280 2310 2311 2312 2313 23192360 2410 2412 2420 2430 24322433 2434 2440 2510 2514 25192520 2521 2522 2530 2531 25392540 2550 2560 2570 2610 26202630 2640 2650 2660 2710 27202730 2740 2750 2810 2820 28302840 2910 2960 3010 3020 30303039 3040 3110 3130 3140 32103220 3230 3240 3250are available to you no later than the next businessday after the day of your deposit, based upon whenthe Bank would generally receive credit from theFederal Reserve Bank for deposited checks.


For deposits made in District of Columbia,Maryland and VirginiaAt least 93% of funds from deposits of checks inwhich the first four digits of the routing number are 0110 0111 0112 0113 0114 01150116 0117 0118 0119 0210 02110212 0213 0214 0219 0220 02230260 0280 0310 0311 0312 03130319 0360 0410 0412 0420 04300432 0433 0434 0440 0510 05140519 0520 0521 0522 0530 05310539 0540 0550 0560 0570 06100611 0612 0613 0620 0630 06400650 0660 0710 0711 0712 07190720 0730 0740 0750 0810 08200830 0840 0910 0920 0921 09601010 1020 1030 1039 1040 11101120 1130 1140 1210 1220 12301240 1250 2110 2111 2112 21132114 2115 2116 2117 2118 21192210 2211 2212 2213 2214 22192220 2223 2260 2280 2310 23112312 2313 2319 2360 2410 24122420 2430 2432 2433 2434 24402510 2514 2519 2520 2521 25222530 2531 2539 2540 2550 25602570 2610 2611 2612 2613 26202630 2640 2650 2660 2710 27112712 2719 2720 2730 2740 27502810 2820 2830 2840 2910 29202921 2960 3010 3020 3030 3039

3040 3110 3120 3130 3140 32103220 3230 3240 3250are available to you no later than the next businessday after the day of your deposit.


For deposits made in FloridaAt least 93% of funds from deposits of checks inwhich the first four digits of the routing number are0110 0210 0212 0220 0260 02800310 0360 0410 0420 0430 04400510 0519 0520 0530 0539 06100620 0630 0631 0632 0640 06500660 0670 0710 0720 0730 07400750 0810 0820 0830 0840 09100920 0921 0960 1010 1020 10301039 1040 1110 1130 1140 12101220 1230 1240 1250 2110 22102212 2220 2260 2280 2310 23602410 2420 2430 2440 2510 25192520 2530 2539 2610 2620 26302631 2632 2640 2650 2660 26702710 2720 2730 2740 2750 28102820 2830 2840 2910 2920 29212960 3010 3020 3030 3039 30403110 3130 3140 3210 3220 32303240 3250are available to you no later than the next businessday after the day of your deposit.


For deposits made in IllinoisAt least 93% of funds from deposits of checks inwhich the first four digits of the routing number are0110 0210 0220 0260 0280 03100360 0410 0412 0420 0430 04400510 0519 0520 0530 0539 06100620 0630 0640 0650 0660 07100711 0712 0719 0720 0730 07390740 0750 0759 0810 0812 08150819 0820 0830 0840 0865 09100918 0919 0960 1010 1011 10121019 1020 1030 1040 1049 11101130 1140 1210 1220 1230 12401250 2710 2711 2712 2719 28122815 2865 2759 2110 2210 22202260 2280 2310 2360 2410 24122420 2430 2440 2510 2519 25202530 2539 2610 2620 2630 26402650 2660 2710 2711 2712 2719

16 17

2720 2730 2739 2740 2750 27592810 2812 2819 2820 2830 28402865 2910 2918 2919 2960 30103011 3012 3019 3020 3030 30403049 3110 3130 3140 3210 32203230 3240 3250are available to you no later than the next businessday after the day of your deposit.


For deposits made in Oregon/Washington State

At least 93% of funds from deposits of checks inwhich the first four digits of the routing number are 1230 1231 1232 1233 1250 12511252 3230 3231 3232 3233 32503251 3252are available to you no later than the next businessday after the day of your deposit.


NON-INTEREST BEARING CHECKING ACCOUNTSIf you have a non-interest bearing checking account(including Checking for Professionals, EscrowAccounts, ExtraVantage for Business, FreeBusiness Checking and Regular BusinessChecking) funds from your deposits will be madeavailable to you according to the followingschedule, which is based on where the check isdrawn, where the deposit is made, and the type ofaccount as set forth below.

For deposits made in CaliforniaFunds from deposits of checks in which the firstfour digits of the routing number are1210 1211 1212 1213 1214 12201221 1222 1223 1224 3210 32113212 3213 3214 3220 3221 32223223 3224are available to you no later than the next businessday after the day of your deposit.


For deposits made in Downstate New York, NewJersey, Connecticut, Delaware and Pennsylvania

3040 3110 3120 3130 3140 32103220 3230 3240 3250are available to you no later than the next businessday after the day of your deposit.


For deposits made in FloridaAt least 93% of funds from deposits of checks inwhich the first four digits of the routing number are0110 0210 0212 0220 0260 02800310 0360 0410 0420 0430 04400510 0519 0520 0530 0539 06100620 0630 0631 0632 0640 06500660 0670 0710 0720 0730 07400750 0810 0820 0830 0840 09100920 0921 0960 1010 1020 10301039 1040 1110 1130 1140 12101220 1230 1240 1250 2110 22102212 2220 2260 2280 2310 23602410 2420 2430 2440 2510 25192520 2530 2539 2610 2620 26302631 2632 2640 2650 2660 26702710 2720 2730 2740 2750 28102820 2830 2840 2910 2920 29212960 3010 3020 3030 3039 30403110 3130 3140 3210 3220 32303240 3250are available to you no later than the next businessday after the day of your deposit.


For deposits made in IllinoisAt least 93% of funds from deposits of checks inwhich the first four digits of the routing number are0110 0210 0220 0260 0280 03100360 0410 0412 0420 0430 04400510 0519 0520 0530 0539 06100620 0630 0640 0650 0660 07100711 0712 0719 0720 0730 07390740 0750 0759 0810 0812 08150819 0820 0830 0840 0865 09100918 0919 0960 1010 1011 10121019 1020 1030 1040 1049 11101130 1140 1210 1220 1230 12401250 2710 2711 2712 2719 28122815 2865 2759 2110 2210 22202260 2280 2310 2360 2410 24122420 2430 2440 2510 2519 25202530 2539 2610 2620 2630 26402650 2660 2710 2711 2712 2719

16 17

2720 2730 2739 2740 2750 27592810 2812 2819 2820 2830 28402865 2910 2918 2919 2960 30103011 3012 3019 3020 3030 30403049 3110 3130 3140 3210 32203230 3240 3250are available to you no later than the next businessday after the day of your deposit.


For deposits made in Oregon/Washington State

At least 93% of funds from deposits of checks inwhich the first four digits of the routing number are 1230 1231 1232 1233 1250 12511252 3230 3231 3232 3233 32503251 3252are available to you no later than the next businessday after the day of your deposit.


NON-INTEREST BEARING CHECKING ACCOUNTSIf you have a non-interest bearing checking account(including Checking for Professionals, EscrowAccounts, ExtraVantage for Business, FreeBusiness Checking and Regular BusinessChecking) funds from your deposits will be madeavailable to you according to the followingschedule, which is based on where the check isdrawn, where the deposit is made, and the type ofaccount as set forth below.

For deposits made in CaliforniaFunds from deposits of checks in which the firstfour digits of the routing number are1210 1211 1212 1213 1214 12201221 1222 1223 1224 3210 32113212 3213 3214 3220 3221 32223223 3224are available to you no later than the next businessday after the day of your deposit.


For deposits made in Downstate New York, NewJersey, Connecticut, Delaware and Pennsylvania

18

(Downstate New York includes deposits made inthe five boroughs of New York, Long Islandand Dutchess, Orange, Putnam, Rockland,Sullivan, Ulster and Westchester Counties.)Funds from deposits of checks in which the firstfour digits of the routing number are 0210 0212 0214 0219 0260 02802210 2212 2214 2219 2260 2280are available to you no later than the next businessday after the day of your deposit.


For deposits made in Upstate New YorkFunds from deposits of checks in which the firstfour digits of the routing number are 0213 0220 0223 0410 2213 22202223 2410are available to you no later than the next businessday after the day of your deposit.


For deposits made in District of Columbia,Maryland and VirginiaFunds from deposits of checks drawn on all routingnumbers with the exception of those checks in theNEXT DAY AVAILABILITY section, are available toyou no later than the second business day after theday of deposit.

For deposits made in FloridaFunds from deposits of checks drawn on all routingnumbers with the exception of those checks in theNEXT DAY AVAILABILITY section, are available toyou no later than the second business day after theday of deposit.

For deposits made in IllinoisFunds from deposits of checks drawn on all routingnumbers with the exception of those checks in theNEXT DAY AVAILABILITY section, are available toyou no later than the second business day after theday of deposit.

For deposits made in Oregon/Washington StateFunds from deposits of checks in which the firstfour digits of the routing number are1230 1231 1232 1233 1250 12511252 3230 3231 3232 3233 32503251 3252

15

0720 0730 0740 0750 0810 08200830 0840 0910 0960 1010 10201030 1039 1040 1110 1130 11401210 1220 1230 1240 1250 21102111 2112 2113 2114 2115 21162117 2118 2119 2210 2211 22122213 2214 2219 2220 2223 22602280 2310 2311 2312 2313 23192360 2410 2412 2420 2430 24322433 2434 2440 2510 2514 25192520 2521 2522 2530 2531 25392540 2550 2560 2570 2610 26202630 2640 2650 2660 2710 27202730 2740 2750 2810 2820 28302840 2910 2960 3010 3020 30303039 3040 3110 3130 3140 32103220 3230 3240 3250are available to you no later than the next businessday after the day of your deposit, based upon whenthe Bank would generally receive credit from theFederal Reserve Bank for deposited checks.


For deposits made in District of Columbia,Maryland and VirginiaAt least 93% of funds from deposits of checks inwhich the first four digits of the routing number are 0110 0111 0112 0113 0114 01150116 0117 0118 0119 0210 02110212 0213 0214 0219 0220 02230260 0280 0310 0311 0312 03130319 0360 0410 0412 0420 04300432 0433 0434 0440 0510 05140519 0520 0521 0522 0530 05310539 0540 0550 0560 0570 06100611 0612 0613 0620 0630 06400650 0660 0710 0711 0712 07190720 0730 0740 0750 0810 08200830 0840 0910 0920 0921 09601010 1020 1030 1039 1040 11101120 1130 1140 1210 1220 12301240 1250 2110 2111 2112 21132114 2115 2116 2117 2118 21192210 2211 2212 2213 2214 22192220 2223 2260 2280 2310 23112312 2313 2319 2360 2410 24122420 2430 2432 2433 2434 24402510 2514 2519 2520 2521 25222530 2531 2539 2540 2550 25602570 2610 2611 2612 2613 26202630 2640 2650 2660 2710 27112712 2719 2720 2730 2740 27502810 2820 2830 2840 2910 29202921 2960 3010 3020 3030 3039

14 19

are available to you no later than the next businessday after the day of your deposit.


WITHDRAWALS

HOW TO WITHDRAWYou can withdraw from your checking account bypresenting a signed check payable to yourself or to“cash.” You can also withdraw from your checkingor savings account in person or by mail with asigned withdrawal order. In addition you canwithdraw interest credited, during the current termor at maturity, on CDs in person or by mail. Whenwithdrawing from a passbook savings account, youshould present your passbook. You can withdraw ortransfer funds at our HSBC ATMs and otherelectronic facilities if you receive statements onyour account. A withdrawal is deemed to be madewhen recorded on the books of the Bank which isnot necessarily the date that the account holderinitiated the transaction.

AUTHORIZED INDIVIDUALSThe Bank is authorized to rely upon any documentprovided by you to the Bank which indicates theperson(s) authorized to act on your behalf.

REASONS THE BANK MAY REFUSE YOURWITHDRAWAL REQUEST

The Bank may refuse to allow a withdrawal fromany account in certain cases including, but notlimited to, the following cases:

• The Bank decides to require seven (7) daysadvance written notice and the Bank has notreceived that notice.

• The withdrawal would consist of moneydeposited in the form of a check or money orderthat is not available for withdrawal.

• Another owner of a joint account or CD tells theBank in writing not to allow a withdrawal.

• A court orders the Bank not to allow a withdrawal.

• The withdrawal would consist of money the Bankhas taken to pay an overdue debt to the Bank.

• The withdrawal would consist of money theBank has been ordered to pay or hold forsomeone else.

• An account or CD owner dies, and the Bank hasnot received all documents required by law.

• The Bank has not received any documents oridentification required for access to the account.

For deposits made in Downstate New York, Connecticut, Delaware, New Jersey, and Pennsylvania (Downstate New York includes deposits made inthe five boroughs of New York, Long Island andDutchess, Orange, Putnam, Rockland, Sullivan,Ulster and Westchester Counties.)At least 93% of funds from deposits of checks inwhich the first four digits of the routing number are0110 0111 0112 0113 0114 01150116 0117 0118 0119 0210 02110212 0213 0214 0219 0220 02230260 0280 0310 0311 0312 03130319 0360 0410 0412 0420 04300432 0433 0434 0440 0510 05140519 0520 0521 0522 0530 05310539 0540 0550 0560 0570 06100620 0630 0640 0650 0660 07100720 0730 0740 0750 0810 08200830 0840 0910 0920 0921 09601010 1020 1030 1039 1040 11101130 1140 1210 1220 1230 12401250 2110 2111 2112 2113 21142115 2116 2117 2118 2119 2210 2211 2212 2213 2214 2219 22202223 2260 2280 2310 2311 23122313 2319 2360 2410 2412 24202430 2432 2433 2434 2440 25102514 2519 2520 2521 2522 25302531 2539 2540 2550 2560 25702610 2620 2630 2640 2650 26602710 2720 2730 2740 2750 28102820 2830 2840 2910 2920 29212960 3010 3020 3030 3039 30403110 3130 3140 3210 3220 32303240 3250are available to you no later than the next businessday after the day of your deposit, based upon whenthe Bank would generally receive credit from theFederal Reserve Bank for deposited checks.


For deposits made in Upstate New YorkAt least 93% of funds from deposits of checks inwhich the first four digits of the routing number are 0110 0111 0112 0113 0114 01150116 0117 0118 0119 0210 02110212 0213 0214 0219 0220 02230260 0280 0310 0311 0312 03130319 0360 0410 0412 0420 04300432 0433 0434 0440 0510 05140519 0520 0521 0522 0530 05310539 0540 0550 0560 0570 06100620 0630 0640 0650 0660 0710

13

the geographic location of the bank and determinewhen funds become available. See schedules listedbelow to determine your availability.

Consumer Check:

Business Check:

S ome checks are marked “payable through” andhave a four or nine digit number nearby. For thesechecks, use the four digit number (or the first fourdigits of the nine digit number), not the routingnumber on the bottom of the check, to determinewhen these checks are available. See scheduleslisted below to determine your availability.

If you have questions, please contact your localbranch or account officer.

SPECIAL FUNDS AVAILABILITY SCHEDULES BASEDON ACCOUNT TYPE AND ACCOUNT LOCATION

INTEREST BEARING CHECKING ACCOUNTSIncluding IOLA and NOW Checking

If you have an interest bearing checking account,funds from your deposits will be made available toyou according to the following schedule thatcorresponds to where you make your deposit.

For deposits made in CaliforniaAt least 93% of funds from deposits of checks inwhich the first four digits of the routing number are1210 1211 1212 1213 1214 12201221 1222 1223 1224 3210 32113212 3213 3214 3220 3221 32223223 3224are available to you no later than the next businessday after the day of your deposit.


20

• The account or CD is pledged as collateral.

• You do not present your passbook.

• The account or CD has not matured.

• Endorsement irregularity or possible forgery.

• There is a dispute regarding the authority of an authorized person to transact business on the account.

TRANSFER LIMITS (SAVINGS, INCLUDINGMONEY MARKET ACCOUNTS)

Only six preauthorized, automatic, computer ortelephone transfers can be made from your savingsaccount to another account in any month. (A monthmay be either a calendar month or a statement cyclemonth.) No more than three (3) of your six (6) suchtransfers may be made by check, draft, debit card, orsimilar order made payable to a third party ifpermitted by your account. If you exceed these limits,the Bank may be required to close your account orconvert your account to a checking account.

FUNDS TRANSFERSYou may transfer funds from your account or receivefunds into your account by funds transfer. Servicefees apply to funds transfers and there are limitationson transfers from certain types of accounts.

AUTOMATED CLEARING HOUSEYou agree that any rules or regulations of anyautomated clearing house (“ACH”) used shall befully applicable to and binding upon you and thattransfers may not be initiated that violate the laws ofthe United States.

AUTHORIZATION TO PAYYour instruction to transfer funds from your accountto a third party is a Payment Order. The Bank isauthorized, at its option, to charge your account inthe amount of any Payment Order and to execute aPayment Order, even if the Payment Order conflictswith any other instructions received by the Bankfrom you or results in an overdraft or payment to orfor the benefit of a person authorized by you to signchecks or transfer funds for you. If there are notsufficient available funds in your account, the Bankmay, without prior notice or demand, charge anyaccount maintained by you with the Bank or setoffagainst any amount the Bank owes you in order toobtain payment of your obligations.

SECURITY PROCEDURESThe following Security Procedures are offered bythe Bank to each customer for the purpose ofverifying the authenticity of a Payment Order or acommunication amending or cancelling a PaymentOrder. The Security Procedures are not used to

Name of Company 001Address, City State

DATE ____________________

PAY TO THEORDER OF _________________________________________________________________________________________ $ ____________________

______________________________________________________________________________________________________________ DOLLARS


FOR ____________________________________________ ___________________________________________________

000000000 123456789 0000000000 000

Routing number

Name 001Address, City State

DATE ____________________

PAY TO THEORDER OF ___________________________________________________________ $ ____________________

________________________________________________________________________________ DOLLARS


FOR __________________________________ _________________________________________

123456789 0000000000 000

Routing number

12

HOLDS ON OTHER FUNDS (CHECK CASHING)If the bank cashes a check for you drawn on anotherbank, the bank may withhold the availability of acorresponding amount of funds already in youraccount. Those funds will be available at the timefunds from the check cashed would have beenavailable if you had deposited it.

HOLDS ON OTHER FUNDS (OTHER ACCOUNT)If the Bank accepts for deposit a check that is drawnon another bank, the Bank may make funds from thedeposit available for withdrawal immediately butdelay your ability to withdraw a correspondingamount of funds that you have on deposit in anotheraccount with the Bank. The funds in the otheraccount would then not be available for withdrawaluntil the scheduled day of availability for the type ofcheck you deposited.

FOREIGN CHECKSThe Bank may delay availability on checks drawn onbanks outside the United States (including checksdrawn upon foreign HSBC affiliates) and on checksdrawn in foreign currencies or handle such checks ona collection basis. You understand and agree thatyou bear all exchange risk in the event of a returneditem. If you want to avoid the exchange risk of areturned item, you can request that the item beprocessed on a collection basis for the applicable fee.

If a check drawn on a bank outside of the UnitedStates uses a dollar sign (“$”) but does not indicatethe check is drawn in U.S. Dollars, it will beprocessed as a check drawn in the currency of thecountry where the bank is located, e.g., a checkdrawn on a Canadian bank. You will bear the costsassociated with any adjustments that must be madeif the check should have indicated it was drawn inU.S. Dollars including exchange rate adjustmentsand fees assessed against the Bank by third partiesrelated to the adjustment. You can avoid this risk bymaking sure that the issuer of the item clearlyidentifies checks payable in U.S. Dollars.

CASH WITHDRAWAL LIMITATIONSWe place certain limitations on withdrawals in cash.In general, $100 of a deposit is available forwithdrawal in cash on the first business day after theday of deposit. In addition, a total of $400 of otherfunds becoming available on a given day isavailable for withdrawal in cash on that day. Anyremaining funds will be available for withdrawal incash on the following business day.

LOCATING THE ROUTING NUMBERTO DETERMINE AVAILABILITY

The routing number is printed along the bottom ofthe check. See the consumer and business checkillustrations below for the highlighted location ofthe routing number. The first four digits represent

21

detect an error in the transmission or content of thePayment Order.

LEVEL ONE SECURITY PROCEDURESHSBCnet provides encryption of banking andtransaction data sent from the customer's computerto the Bank. Multilevel authentication of users isprovided and HSBCnet's administrative optionsallow the customer to control user access accordingto corporate, compliance and audit needs. Thesecurity procedures are more specifically describedat www.hsbcnet.com.

Internet Banking (Business Accounts): TheInternet Banking security procedures includeencryption and a password that allows the Customerto transfer funds and conduct banking transactionsas more specifically described in the Terms andConditions for Internet Banking (BusinessAccounts) and the Security Statement availableonline at www.us.hsbc.com/business/online/business-internet-banking/terms.

Authenticated SWIFT: The security procedure forauthenticating Payment Orders sent through SWIFTis explained in the SWIFT Handbook. Authenticatorkeys are provided to the Customer by the Bank.

Tested Telex: The security procedure using TestedTelex is explained in the Global Test Key bookletavailable from the Bank. A test key number isprovided to the Customer by the Bank.

LEVEL TWO SECURITY PROCEDURESCall-Back Procedures: The Level Two SecurityProcedures may involve either or both the use of acall-back procedure by the Bank or the use of anidentification code by the Customer (or theirauthorized users).

ACCEPTANCE OF SECURITY PROCEDURESBy using any of the Level One Security Procedures,you have accepted that security procedure asdescribed above or as modified from time to timeby the Bank. The Level One Security Procedurewill be used for the purpose of verifying that aPayment Order or a communication amending orcancelling a Payment Order was issued by you. Ifthe bank accepts a Payment Order by means otherthan through HSBCnet, Internet Banking,authenticated SWIFT or tested telex, and youcommunicate a Payment Order to the Bank inwriting, or use the telephone to transmit a PaymentOrder orally or by fax or telex (without a test code),you have rejected the Level One SecurityProcedures offered by the Bank and have chosenLevel Two Security Procedures generally describedpreviously, as such procedure may be modifiedfrom time to time by the Bank. This SecurityProcedure will be used for the purpose of verifying

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checks, and cash made by mail or by using anautomated teller machine (ATM) may not beavailable until the second business day after theday of your deposit.

The first $100 from a deposit of one or more checksother than those listed above will be made availableon the first business day after the day of your deposit.

EXCEPTIONSIn some cases, funds you deposit by check may notbe available for a longer period under the followingcircumstances:

• The Bank believes a check you deposit will notbe paid.

• You deposit checks totaling more than $5,000on any one day.

• You re-deposit a check that has been returnedunpaid.

• You have overdrawn your account repeatedly inthe last six months.

• There is an emergency, such as a failure ofcommunications or computer equipment.

The Bank will notify you if the Bank delays yourability to withdraw funds for any of these reasons,and the Bank will tell you when the funds will beavailable. They will be available generally by thesixth business day after the day of your deposit.

SPECIAL RULES FOR NEW ACCOUNTSIf you are a new customer, the following specialrules may apply during the first 30 days youraccount is open:

• Funds from electronic direct deposits to youraccount will be available on the day the Bankreceived credit for the deposit.

• The first $5,000 from a deposit of U.S. Treasurychecks will be available on the first business dayafter the day of your deposit. The excess over$5,000 will be available to you no later than theninth business day after the day of your deposit.

• Funds from a funds transfer into your accountwill be available on the first business day afterthe day the Bank receives the transfer.

• Funds from deposits of cash and the first$5,000 of a day’s total deposits of cashier’s,certified, teller’s, traveler’s, and state and localgovernment checks will be available on the firstbusiness day after the day of your deposit, if thedeposit meets certain conditions. For example,the checks must be payable to you and you mayhave to use a special deposit slip. The excessover $5,000 may be available to you no laterthan the ninth business day after the day of yourdeposit. If you do not make the deposit inperson to an employee of the Bank, the first$5,000 will not be available until the secondbusiness day after the day of your deposit.

The availability schedule will not apply to fundsfrom all other check deposits.

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a Payment Order or a communication amending orcancelling a Payment Order issued by you. Youacknowledge that the Level Two SecurityProcedure may be deemed commerciallyreasonable pursuant to Section 4A-202(c) of theUniform Commercial Code.

Whenever a Level Two Security Procedure is used,you agree to be bound by any Payment Order, whetheror not authorized, issued in your name and accepted bythe Bank in compliance with such procedure.

CONFIDENTIALITY OFSECURITY PROCEDURES

You and the Bank agree to keep the SecurityProcedures confidential and shall not reveal them toany person other than authorized persons having “aneed to know.”

AUTHORIZED PERSONSUnless otherwise specified by you in writing, theindividuals authorized by you to sign checks onyour account are also authorized to issue PaymentOrders, cancel and amend Payment Orders, anddesignate the persons and telephone numbers foruse with the security procedure you have chosen.

FUNDS TRANSFERS FEESExcept as otherwise agreed in writing, the Bankmay charge your account for the fees and chargesfor processing Payment Orders and issuing advisesrelating to Payment Orders, advised to you at thetime of the Payment Order, or listed in the Termsand Charges Disclosure as the fee for FundsTransfer, or as set forth in any other applicable rulesor terms.

ACCEPTANCE OF A PAYMENT ORDERA Payment Order must be received by the Bank’s“cut-off time” on a business day for action on the dateof receipt. Instructions received for value on a non-business day will be processed on the next businessday. A Payment Order is not accepted until the Bankexecutes it. The Bank reserves the right to reject ordelay the execution of a Payment Order under certaincircumstances including, but not limited to, thefollowing: (a) if the instructions are incomplete orambiguous; (b) if there is an insufficient balance ofavailable funds in the account; (c) if any party in thepayment order is under restraint or under a regulatorysanction; or (d) if a routing system is down and nosuitable alternative system is available.

METHOD OF EXECUTIONIf a Payment Order does not indicate it requiresexpeditious processing via wire or phone, the Bankmay transmit the Payment Order by mail or by anyother reasonable means.

AVAILABILITY OF FUNDSThe Bank’s policy is to make funds from your depositsquickly available to you according to a schedule whichis based on where the check is drawn, where thedeposit is made, and the type of account as set forthherein. The types of accounts that this section appliesto are: Interest Bearing Checking Accounts; Non-Interest Bearing and Business Checking Accounts.

Until funds are available according to the schedule,you may not withdraw the funds in cash, and theBank may choose not to use the funds to pay checksyou have written or other withdrawals or transfersyou have authorized.

DETERMINING THE AVAILABILITY OF A DEPOSIT

The day of availability is counted in business daysfrom the day of your deposit. Every day is a businessday except Saturdays, Sundays, and Federal holidays.If you make a deposit before 2 p.m. on a business daythe Bank is open, the Bank will consider that day tobe the day of your deposit. Certain branches use alater cut-off time and each Customer ServiceRepresentative will put up a sign when he or shechanges over to the next day’s business. If you makea deposit after the cut-off time or on a day the Bankis not open, the Bank will consider the deposit madeon the next business day the Bank is open. The day ofavailability varies depending on the type of depositand is explained below.

SAME DAY AVAILABILITYFunds from electronic direct deposit and fundstransfers (wires) will be available on the day theBank received final credit for the deposit.

NEXT DAY AVAILABILITYFunds from the following deposits are available toyou no later than the first business day after the dayof your deposit:

• U.S. Treasury checks payable to you;• Federal Reserve Bank checks, Federal Home

Loan Bank checks, and postal money orders, ifthese items are payable to you;

• Checks drawn on HSBC Bank USA N.A.;• Cash.

Funds from the following deposits are available toyou on the first business day after the day of yourdeposit, if you make the deposit in person to one ofour employees using a special deposit slip availableon request at any branch:

• State and local government checks payable to you;• Cashier’s, certified, and teller’s checks payable

to you.Note: Funds from deposits of state and localgovernment checks, cashier’s, certified, teller’s

10 23

VALUE DATED PAYMENT ORDERSPayment Orders may be executed by the Bank onthe date of receipt, if received prior to the Bank’s“cut-off time”, unless a future value date is stated inthe Customer instruction.

AMENDMENT AND CANCELLATIONInstructions requesting cancellation or amendmentof a Payment Order must be transmitted to the Bankusing the same level of Security Procedure as usedfor the original Payment Order. The Bank will honorall requests received by the Bank’s “cut-off time” onthe business day prior to the value date. The Bankshall use reasonable efforts to act on a requestreceived after the Bank’s “cut-off time” on thebusiness day prior to the value date, unless agreedotherwise in writing.

RELIANCE ON IDENTIFYING NUMBERIf a Payment Order identifies an intermediary bank,the beneficiary’s bank or the beneficiary by nameand an account or other identifying number, theBank may act solely on the basis of such number.

ROUTING OF A PAYMENT ORDERYou are responsible for full routing instructions. Youagree that in executing any Payment Order the Bankmay make use of correspondents, agents, sub-agents,funds transfer and communications systems. If aPayment Order does not designate an intermediarybank, you agree that, where appropriate, the Bankwill select an intermediary bank on your behalf andthe Bank shall have no liability with respect to suchselection. To the fullest extent permitted by law,correspondents, agents, sub-agents, systems orintermediary banks shall be deemed to be your agentsand the Bank shall not be under any liability for anyerrors, negligence, suspension or default of any ofthem, all such risks being borne by you.

NOTICE OF RECEIPT OF ACH PAYMENTSUnder the operating rules of the NationalAutomated Clearing House Association that areapplicable to ACH transactions involving youraccount, the Bank is not required to give next daynotice to you of receipt of an ACH item, and theBank will not do so. However, the Bank willcontinue to notify you of the receipt of payments inthe periodic statements the Bank provides to you.

PROVISIONAL CREDITCredit given by the Bank to you with respect to anACH credit entry is provisional until the Bankreceives final settlement for such entry through aFederal Reserve Bank. If the Bank does not receivesuch final settlement, you are hereby notified and

ENDORSING CHECKSBe sure to endorse all checks and other itemsexactly as they are made out. The Bank has the rightto endorse items you deposit to your account. TheBank will chargeback to your account any item thatis returned for any reason, including endorsementirregularity or forgery.

RESPONSIBILITY FOR THE BACK OF A CHECK

The diagram below shows where you should placeyour endorsement on the back of your check. Theendorsement area is limited to the area 11/2” fromthe trailing edge of the check, which is at the top inthe diagram.

You are responsible for any loss resulting from yourimproper endorsement of a check if it causes a bankendorsement to be illegible.

FINAL PAYMENT OF ITEMSThe Bank chooses the method of obtaining finalpayment of a deposited check, draft, note, acceptanceor other instrument (“item”) and may use other banksin the process. The Bank is not responsible for actionstaken by other banks, nor for the loss or destruction ofany item in the possession of other banks or in transit.Any bank may refuse to honor a deposited item ormay honor one refused by another bank.

VERIFYING DEPOSITSThe Bank will verify that the figure on your depositticket agrees with the amount of your deposit. Ifthere is a discrepancy, the Bank may adjust youraccount for the amount of the difference withoutnotifying you.

RETURN OF DEPOSITED ITEM (CHARGEBACK)If you deposit an item to your account and it isreturned unpaid, or is lost or destroyed, the Bankwill charge the amount of the item back to youraccount. The Bank may charge your account the feeshown on your Terms and Charges Disclosure.

CERTIFICATES OF DEPOSITYour Terms and Charges Disclosure explains whenand how deposits may be made to your certificateof deposit.

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agree that the Bank is entitled to a refund of theamount credited to you in connection with such entry,and the party making payment to you shall not bedeemed to have paid you the amount of such entry.

INTEREST

RATESInterest rates, compounding periods, balancecomputation methods, and minimum balancerequirements are explained in the Terms andCharges Disclosures.

CHANGESThe Bank may change the interest rate on depositaccounts, solely at the Bank’s discretion, at any time.The Bank will not change the rate on a fixed-rate CDduring its term. We will not notify you of rate changesfor variable rate accounts. Current rates are availableat your branch. The Bank may change the way theBank calculates interest on 30 days advance notice.

WHEN YOUR DEPOSITBEGINS TO EARN INTEREST

Cash deposited before the “cut-off time” at yourbranch (or at an HSBC ATM or electronic bankingfacility) begins earning interest the same day. Cashdeposited after the “cut-off time” or on a Saturday,Sunday or Federal holiday, begins earning interestthe next business day.

NOTE:1. Ask your branch for its “cut-off time.”2. For interest bearing checking and savings

products, interest begins to accrue no later thanthe business day the Bank receives credit fordeposit of noncash items.

3. For CDs, interest begins to accrue on thebusiness day you deposit noncash items.

HOW INTEREST IS PAIDThe Bank credits interest to your account or CDmonthly, quarterly, annually or at maturity,depending on what kind of account or CD you have.If you have a statement account, credited interestwill show on your statement. If you have a passbookaccount, credited interest can be added to yourpassbook at any branch. Interest on CDs can becredited to another HSBC account you specify.

INTEREST ON CERTIFICATES OF DEPOSITA CD does not earn interest after the maturity date.However, you will earn interest from the originalmaturity date on the renewed principal amount if yourenew your CD within the grace period as defined inthe Terms and Charges Disclosure and the renewaldate is back dated to the original maturity date.

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CERTIFICATES OF DEPOSITTYPES

The Bank offers Certificates of Deposit in variousmaturities, including but not limited to 7 days to10 years. See your Terms and Charges Disclosurefor details.

AUTOMATIC RENEWALUnless you specify otherwise, the Bank willautomatically renew CDs at the then current rate andsubject to the terms described in the then currentTerms and Charges Disclosure. If you do not wantthe Bank to renew your CD, notify the Bank beforethe maturity date. The Bank can refuse to renew yourCD. If this happens, the Bank will send a noticebefore the maturity date.

EARLY WITHDRAWAL PENALTYIf you withdraw principal from your CD before thematurity date, you may be charged a penalty shownon your Terms and Charges Disclosure. Thepenalty may reduce principal if there is insufficientinterest available.

In the past, the Bank has usually permitted CDs tobe cashed in before the maturity date, but the Bankreserves the right not to do so in the future. Forconsumer accounts, the Bank may not assess apenalty if an owner of the account dies or isdeclared legally incompetent, but the Bank willrequire proof of death or incompetency before awithdrawal is allowed.

SPECIAL DEPOSIT ACCOUNTSThe Bank offers a number of special purpose accounts,as well as trust, custodial, retirement, and fiduciaryaccounts. A Bank representative can provide details.

DEPOSITSHOW TO DEPOSIT

You can make deposits in person or by mail. If youare a consumer or qualifying business, you can alsouse your HSBC MasterCard®, Visa®, DebitMasterCard® or ATM card to make deposits at HSBCAutomated Teller Machines (ATMs) and certainother electronic facilities. The Bank is not obligatedto accept unwarranted substitute checks for deposit.For more information about electronic banking, referto the Bank’s electronic banking services disclosuresfor the services you are using.

DIRECT DEPOSITYou can arrange to have funds, such as your SocialSecurity or other Federal payment(s) and yourpaychecks, directly deposited into your checking orsavings account.

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ANNUAL INTEREST EARNEDIf required by IRS regulations based on the interestearned on your deposit accounts on an annual basis,a combined year-end statement will be sent to youby the Bank.

JOINT ACCOUNTSThis is a summary of some of the important legalrules governing your joint account. The lawregarding joint deposits is very complicated, and thissummary does not try to answer all the questions thatcould arise.

The rules stated in this summary apply to accountsand CDs in the names of two or more persons or thesurvivor of them. They do not apply to trust accounts,custodial accounts, “Totten Trust” accounts or anyother account that is not a joint account with the rightof survivorship.

RELATIONSHIP BETWEENJOINT DEPOSITORSJOINT OWNERSHIP OF ACCOUNT

All funds deposited in a joint account, including anyinterest earned, become the property of all jointtenants. Even if only one depositor puts in all themoney or puts in more than the other(s), all moneyon deposit will be owned jointly.

RIGHT OF SURVIVORSHIPThe Bank will assume that when you open a jointaccount you intend to create a right of survivorship,unless you establish the account under the Bank’sprocedures for Tenants in Common. A right tosurvivorship means that if one joint depositor dies,the money in the account belongs entirely to thesurviving depositor(s).

TENANTS IN COMMONA joint account may be held as Tenants in Commonif when the account is opened the joint owners enterinto the Bank’s agreement for accounts held asTenants in Common and designate the percentage ofthe funds to be paid to the survivor(s) on the deathof a joint owner. Until the Bank receives notice ofthe death of a tenant, all funds in the account may betreated as the property of each of the tenants incommon without any limitation.

YOUR AGREEMENTWITH THE BANKWITHDRAWALS FROM ACCOUNT

While all the joint depositors named on the accountare living, the Bank will honor checks, other

25

How do I make a claim for a refund? If you believethat you have suffered a loss relating to a substitutecheck that you received and that was posted to yourconsumer checking account, please contact us at 1-800-975-HSBC (4722). You must contact us within40 calendar days of the date that we mailed, or madeavailable to you, the substitute check in question orthe account statement showing that the substitutecheck was posted to your consumer checkingaccount, whichever is later. We will extend this timeperiod if you were not able to make a timely claimbecause of extraordinary circumstances.

Your claim must include-• A description of why you have suffered a loss

(for example, you think the amount withdrawnwas incorrect);

• An estimate of the amount of your loss;• An explanation of why the substitute check you

received is insufficient to confirm that yousuffered a loss; and

• A copy of the substitute check and/or the followinginformation to help us identify the substitute check:identifying information, for example the checknumber, the name of the person to whom youwrote the check, the amount of the check.

SUBSTITUTE CHECK DEPOSIT ORENCASHMENT LIMITATIONS

The Bank is not obligated to accept unwarrantedsubstitute checks for deposit or to cash a substitutecheck over the counter.

SAVINGS ACCOUNTSTYPES

The Bank offers a variety of savings accounts thatearn a preferred rate of interest as well as regularsavings accounts. See your Terms and ChargesDisclosure for details.

NOTICE OF WITHDRAWALThe Bank has the right to ask you for seven daysadvance notice of withdrawal.

PASSBOOK ACCOUNTSIf you have a passbook account, the Bank can refuse toallow a withdrawal unless you present the passbook.

If your passbook is lost, stolen or destroyed, notifythe Bank immediately. The Bank will have you signan agreement protecting you and the Bank. TheBank may require you to wait (no more than 30days) before the Bank pays you.

The amount in your passbook is considered correctonly if it agrees with the Bank’s records.

NOT TRANSFERABLESavings accounts are not transferable except on theBank’s books.

7

Payment Orders and withdrawal requests made byany one of them, unless the Bank receives a written,signed notice from another joint depositor telling usnot to. If the Bank receives such a notice, the Bankmay require the signatures of all the joint depositorsbefore the Bank allows any further withdrawals (ofprincipal or interest) to be made from the account.

THE BANK’S OBLIGATIONSATISFIED BY PAYMENT

If the Bank honors a check, other Payment Order orwithdrawal request made by a joint depositor beforethe Bank receives written notice from another jointdepositor telling the Bank not to, the Bank hassatisfied its obligation with respect to all money theBank paid or delivered and is not liable to otherjoint depositors. (Although the joint depositors maybe liable to each other for withdrawing more thantheir shares of the account, the Bank is notresponsible for making sure a depositor does notwithdraw more than his or her share.)

DEBTS OWED THE BANK AND LEGAL PROCESSIf one joint depositor owes the Bank money and thedebt becomes due, the Bank can use any money inthe joint account to pay the debt. Further, if adepositor has an account, in that depositor’s namesolely, and that depositor owes the Bank money,you agree that any money held in a joint accountwith that depositor and you may also be used to paythe debt.

If one joint depositor has a judgment or other debtagainst him or her, the Bank may be required bylegal process to pay out money from the jointaccount to satisfy that judgment or debt. The Bankis not responsible for determining or otherwiseclaiming funds in your account are exempt from thereach of a third party, unless otherwise expresslyrequired by applicable law.

If one joint depositor overdraws the joint account, youagree that the Bank may use any funds in any otheraccounts of either joint depositor to pay the debt.

MORE ABOUT YOUR ACCOUNTSTANDARD OF CARE

You agree the standard of ordinary care and goodfaith which the Bank will use in handling youraccount is to be measured against the practice ofother commercial banks similar to HSBC in size.

BALANCE INFORMATIONBalances may change frequently throughout abusiness day. You hereby waive any claim againstthe Bank based on representations made by theBank, either orally or in writing, to you, or yourauthorized person, or to any other party, regardingbalance information.

26

6

for one or more statements. The Bank will hold copiesof your checks for six years (seven years for accountsat our Washington branch). Copies of your checks areavailable during the foregoing period in accordancewith the Terms and Charges Disclosure.

IMPORTANT INFORMATION ABOUTCONSUMER CHECKING ACCOUNTSRECEIVING PAID CHECKS WITHSTATEMENTS – SUBSTITUTE CHECKS AND YOUR RIGHTS.What is a substitute check? To make checkprocessing faster, federal law permits banks toreplace original checks with “substitute checks.”These checks are similar in size to original checkswith a slightly reduced image of the front and backof the original check. The front of a substitute checkstates: “This is a legal copy of your check. You canuse it the same way you would use the originalcheck.” You may use a substitute check as proof ofpayment just like the original check.

Some or all of the checks that you receive back fromus may be substitute checks. This notice describesrights you may have when you receive substitutechecks from us. The rights in this notice do notapply to original checks or to electronic debits toyour account. However, you have rights under otherlaw with respect to those transactions.

What are my rights regarding substitute checks? Incertain cases, federal law provides a special procedurethat allows you to request a refund for losses you sufferif a substitute check is posted to your consumerchecking account (for example, if you think that wewithdrew the wrong amount from your account or thatwe withdrew money from your account more thanonce for the same check). The losses you may attemptto recover under this procedure may include theamount that was withdrawn from your consumerchecking account and fees that were charged as a resultof the withdrawal (for example, bounced check fees).

The amount of your refund under this procedure islimited to the amount of your loss or the amount of thesubstitute check, whichever is less. You also areentitled to interest on the amount of your refund ifyour account is an interest bearing consumer account.If your loss exceeds the amount of the substitutecheck, you may be able to recover additional amountsunder other law.

If you use this procedure, you may receive up to$2,500 of your refund (plus interest if your accountearns interest) within 10 business days after wereceived your claim and the remainder of your refund(plus interest if your account earns interest) not laterthan 45 calendar days after we received your claim.

We may reverse the refund (including any interest onthe refund) if we later are able to demonstrate that thesubstitute check was correctly posted to your account.

FEESYou agree to pay and to have your account chargedfor all maintenance fees and service fees incurred byyou including, but not limited to, all usual andcustomary fees that the Bank may, from time totime, charge for any products and services provided.The Bank may impose a reasonable charge, whichshall not be refundable, on inactive accounts, as setforth in the Bank’s Terms and Charges Disclosure.

REIMBURSEMENT OF BANKIN THE EVENT OF A DISPUTE

You agree to be liable to the Bank for any losses,costs, or expenses the Bank incurs as a result of anydispute involving your account. You authorize theBank to deduct any such losses, costs, or expensesfrom your account without prior notice to you. Thisobligation includes disputes between you and theBank involving the account and situations where theBank becomes involved in disputes between youand an authorized person, another joint owner, or athird party claiming an interest in the account.

LIEN AND SETOFFYou give the Bank a continuing lien on any accountor other personal property of yours which is in thepossession or control of either the Bank or any ofthe Bank’s affiliates, including, but not limited to,Bank deposits and securities. This lien shall be inthe amount of any and all liabilities and obligationsthat you may owe to the Bank or any of the Bank’saffiliates whether such liabilities and obligationsexist now or are incurred in the future. You agreethat the Bank and its affiliates may setoff againstyour accounts and may sell your personal propertywhich is not an account, by public or private sale atits discretion, and use the funds in such account orthe proceeds of such sale to satisfy such liabilities orobligations whether or not such liabilities orobligations are then in default or subject to acontingency to the fullest extent permitted byapplicable law.

PERIODIC STATEMENTS AND ADVISESUpon receipt of your monthly or periodic statement(which may include a record of transactions andimages of cancelled items) or advises, you shallexercise reasonable care and promptness inexamining the statement or advice. By using aproduct or service that does not return copies ofcancelled items, you agree that the Bank will holdcopies of the cancelled items for you in accordancewith the applicable terms of service. Youacknowledge that copies of cancelled items held foryou are available at the same time as your statementis first mailed, or made available to you, by theBank. You agree that you cannot make any claimagainst the Bank arising from your account unless

27

POST-DATED CHECKSThe Bank may certify or pay a check before the datewritten on it and charge your account without beingliable to you. The Bank can also refuse to certify orpay a post-dated check before its date. The Bankmay dishonor and return unpaid other items drawn,accepted or made by you as a consequence of theBank having certified or paid a post-dated item.

CHECKS MORE THAN SIX MONTHS OLDThe Bank is not required to pay an uncertified checksix months after its date. The Bank may pay it,however, and not be liable to you.

INTEREST BEARING CHECKINGThe Bank’s interest bearing checking accounts arereally savings accounts against which you can writechecks. The Bank has the right to ask you for sevendays advance notice of withdrawal. If the Bank does,the Bank will not be liable to you for dishonoringyour checks during the seven-day notice period.

EARNINGS CREDIT ANALYZED ACCOUNTSPositive earnings credit is the amount of creditearned depending on the positive investable balancemaintained throughout the cycle, which will beapplied toward the payment of service expense.

Negative investable balance is the total of all dayswith a negative available balance, averaged over thetotal number of days in the current analysis period;reserves are not deducted from this balance.

RECORDCHECK® SERVICEBy choosing this service that does not provide imagecopies of the front of cancelled items with yourstatement, you have instructed the Bank to hold copiesof the cancelled items for you in accordance with theapplicable terms of service. If you need a copy of acancelled check, the Bank will mail it to you. Areconstruction fee may apply if you request a totalreconstruction (copies of all checks and/or statements)for one or more statements. The Bank will hold copiesof your checks for six years (seven years for accountsat our Washington branch). Copies of your checks areavailable during the foregoing period in accordancewith the Terms and Charges Disclosure.

IMAGE STATEMENT SERVICEBy choosing this service that provides image copies ofthe front of cancelled items with your statement, youhave instructed the Bank to hold copies of thecancelled items for you in accordance with theapplicable terms of service. If you need a copy of acancelled check, the Bank will mail it to you. Areconstruction fee may apply if you request a totalreconstruction (copies of all checks and/or statements)

5

you promptly review your statement, and notify theBank of any errors, forgeries, or alterations withinfourteen (14) days from the date the Bank firstmailed, or made available to you, your statement oradvice. However, if the error involves an electronicservice, refer to the Bank’s electronic bankingservices disclosures for the services you are using.If you cannot balance your statement and do notbring it to the Bank’s attention before you receiveyour next statement, the Bank may charge you anhourly reconcilement fee to locate the error.

The Bank may stop sending account statements ifyou stop using your account or have not given theBank your current address. If the post office returnsas "undeliverable" any statement that the Bank sentyou, and if you do not provide the Bank with acorrect mailing address, the Bank will retain onlyimages of the statements and enclosures, not theoriginal items, for six years. Copies of yourstatement are available by request during this sixyear period in accordance with the Terms andCharges Disclosure.

CHANGE OF ADDRESSYou (or an authorized person) must notify the Bankpromptly of any change of your address. The Bankmay require written notice or written confirmationof this change. All statements and advises will besent to you by ordinary mail at the address lastrecorded by the Bank.

DORMANCY AND ABANDONED PROPERTYWhen an account is inactive the Bank followsspecial procedures.

An account is considered inactive when:

No customer initiated deposits or only directdeposits by a third party are made to your account;no withdrawals or only preauthorized automaticwithdrawals are made from your account; AND theBank does not receive anything in writing from youthat indicates that you knew your account exists, orif your account is a passbook account and you havenot presented the passbook to the Bank for entry ofany dividend or interest credit.

When a checking or savings account remains inactivefor three (3) consecutive years it is considereddormant. If your account is considered dormant, theBank may prohibit access to your account until youcontact the Bank in person or in writing. Before youraccount is classified as dormant, the Bank may try tocontact you to reactivate the account.

If your account remains inactive for the time periodspecified by law, it may be deemed abandoned. Ifyour account is considered abandoned, the Bankmay cease to pay interest on the account, may closethe account, and, if required, turn the funds over tothe appropriate state abandoned property

28

4

Your account may be debited on the day an item ispresented, or at such earlier time as notification isreceived by the Bank by electronic or other means,that an item drawn on your account has beendeposited for collection in another financialinstitution. You understand that the Bank reservesthe right to pay items into overdraft, to imposeoverdraft fees as permitted by law, and to apply anylater deposits (including direct deposits of socialsecurity or other government benefits) to thoseoverdrafts or overdraft fees, by way of setoff. An"item" includes checks, substitute checks, remotelycreated checks, withdrawal slips or other in-persontransfers or withdrawals, service charges, electronicitems or transactions, including withdrawals madefrom an automated teller machine, one-time orrecurring debit card transactions, pre-authorizedpayments or transfers, ACH transactions, telephoneinitiated transfers, online banking transfers or billpayment instructions, and any other instruments orinstructions for the payment, transfer or withdrawalof funds including an image or photocopy of any ofthese. A determination of your account balance forpurposes of making a decision to dishonor an itemfor insufficiency of available funds may be made atany time between the receipt of such presentment ornotice and the time of return of the item, and nomore than one such determination need be made.

PAYMENT OF YOUR ITEMS FOR YOUR ACCOUNT

The Bank generally pays the largest debit itemsdrawn on a depositor’s account first.

STOPPING PAYMENTYou can ask the Bank to stop payment on a checkdrawn on your account in person, by mail, by phone,or by using Hexagon®, the Bank’s internet bankingproduct and secure Bank e-mail. The Bank needs areasonable amount of time to apply the stop paymentrequest to your account and to verify that the checkhas not already been paid. You (or an authorizedsigner on your account) must give the Bank theaccount number, payee, date, exact amount of thecheck, and the correct check number. Withoutcompletely accurate information on the amount of thecheck and the check number, the Bank cannot ensurea stop payment will occur. Your stop payment requesttakes effect when the Bank records it on your account.If you phone in your stop payment, you must confirmit in writing within 14 days. Your written stoppayment request is good only for six months unlessyou renew it in writing. Special procedures apply to astop payment for a funds transfer. Please refer to the“Amendment and Cancellation” paragraph in the“Funds Transfers” section of these Rules. The Bankmay charge you the fee shown on your Terms andCharges Disclosure for each stop payment request.

administrator. Note: Consecutive inactivity periodsfor determining actual escheatment requirementsvary by the abandoned property laws of theindividual states, and by type of account. The Bankis required to base the period for escheatment on thestate of the depositor’s last known address on theBank’s records, and that state’s correspondingconsecutive inactivity period.

At any time after the funds in the abandonedaccount have been turned over to the appropriatestate abandoned property administrator, thedepositor (or other person entitled to the funds) mayreclaim this money from the state abandonedproperty administrator.

TAXPAYER IDENTIFICATION NUMBERFederal regulations require the Bank to record yourtaxpayer identification number (Social SecurityNumber). If you do not give the Bank your numberon or shortly after the day you opened your account,federal law requires the Bank to withhold a portionof the amount of interest paid on your account eachtime interest is credited.

CURRENCY TRANSACTION REPORTINGFederal regulations require the Bank to disclosecertain transactions involving your account. TheBank may request information from you anddisclose information about your account wheneverthe Bank believes it is necessary or appropriate tocomply with those federal regulations. Until youprovide sufficient information, the Bank may holdyour account or refuse any transaction.

POWER OF ATTORNEYIf the Bank receives a power of attorneyauthorization in a form the Bank determinescomplies with applicable state law, your attorney-in-fact can do whatever you could do with youraccount. The Bank may honor an acceptable powerof attorney where you are one of the persons namedon a joint account. In that case, your attorney-in-factcan do whatever you could do with your jointaccount. The Bank is not required to seek theconsent of the other persons named on the jointaccount before honoring the power of attorney. TheBank may request the attorney-in-fact to indemnifyand hold the Bank harmless before the Bank honorsthe power of attorney.

The Bank does not have to accept an out-of-statepower of attorney or a power of attorney which doesnot comply with applicable state law.

ACCOUNT CLOSINGYou can close your account at any time by notifyingyour branch during normal business hours. TheBank also has the right to close your account at anytime by sending you a notice and/or check for the

29

against your account that is presented for paymentover the counter at the Bank.

REMOTELY CREATED CHECKSIf you authorize a third party (such as atelemarketer) over the phone or via the Internet todebit from your account the amount(s) of one ormore “remotely created checks,” the third party maycreate a check drawn on your account that the Bankmay pay, although it does not bear your signature.While the Bank is authorized to honor suchremotely created checks, the Bank is not required todo so and may refuse to honor any such remotelycreated checks at its discretion. The Bank mayreturn such remotely created checks even if it hashonored similar remotely created checks in the past.You agree that the Bank is not liable to you for anylosses that may result from either honoring ordishonoring any such remotely created checksdrawn on your account. You are responsible forreviewing your statement in a timely fashion andreporting promptly to HSBC any claims ofunauthorized remotely created checks.

For HSBC business account-holders who originateand deposit remotely created checks into an HSBCaccount you affirm that such items are properlyauthorized in accordance with applicable law andthat you will provide evidence of such authorizationto the Bank upon request. In the event such itemsare not properly authorized or you are unable toprovide proof of proper authorization, you agree tohold the Bank harmless from any losses arisingfrom this deficiency.

OVERDRAFTS AND OVERDRAFT FEESAn overdraft occurs when you do not have enoughmoney in your account to cover a transaction, butwe pay it anyway. We can cover your overdraftsthrough our standard overdraft practices or throughan overdraft protection plan. Through our standardoverdraft practices, we authorize and pay overdraftsfor checks and we can also cover overdrafts forpreauthorized automatic bill payments. Under ourstandard overdraft practices, we will charge you thefee listed in our Terms & Charges disclosure. Wepay overdrafts at our discretion, which means we donot guarantee that we will always authorize and payany type of transaction. If we do not authorize andpay an overdraft, your transaction will be declined.For consumer accounts, we do not authorize andpay overdrafts for the following types oftransactions: ATM transactions and everyday debitcard transactions.

If you have a consumer or qualifying businessdeposit account, you can use the available balanceon your qualifying credit account with the Bank tofund any overdraft amount automatically. Theoverdraft protection plan is subject to applicationand credit approval.

3

balance. If your account is closed, the Bank shallsend you any finally collected and available balancein the account at the time the account is closed. TheBank may return unpaid any items presented onyour account after it is closed.

The Bank may charge you a fee shown on the Termsand Charges Disclosure.

SERVICEThe Bank may terminate any service at any timewithout notice. If you wish to terminate a service,you shall give the Bank prior written notice of yourintention to terminate. Termination by you shallbecome effective no sooner than five (5) businessdays after the Bank’s receipt of the terminationnotice. The Bank may complete all requests andinstructions accepted on the day termination is tobecome effective.

LEGAL PROCEEDINGSUnless the Bank receives an order from a court ofcompetent jurisdiction that directs the Bank not toact, the Bank will comply with legal proceedings inany jurisdiction in which the Bank has offices evenif the legal proceeding occurs in a jurisdiction whereyou are not located.

You agree that if you and/or your account becomeinvolved in legal proceedings and the Bank receives alegal document or other notice that the Bank believesrequires it to supply information on your account, torestrict your account or to pay money from youraccount, the Bank is authorized to do so regardless ofwhether you appeared in those proceedings andregardless of whether those proceedings occurredwithin the jurisdiction where you and/or your accountare located. If this occurs, use of your account orservices that access your account may becomerestricted and the Bank may charge you the fee shownon your Terms and Charges Disclosure.

LIMITATION OF CLAIMSYou agree to make any claim or bring any legalaction relating to the Bank’s handling of youraccount, in writing, within one (1) year of the datethe problem occurred, unless these Rules orapplicable law or regulation require earlier action byyou. You agree that if the problem involves a seriesof events, such as a number of forgeries over aperiod of time, then the date the first event occurredshall be the date by which the period to make anyclaim or bring any legal action shall begin to run.

LIMITATION OF LIABILITYTHE BANK ASSUMES NO LIABILITY FORSPECIAL, INCIDENTAL, CONSEQUENTIAL,PUNITIVE OR INDIRECT LOSS OR DAMAGETO YOU INCLUDING LOST PROFITSWHETHER OR NOT THE BANK HAS BEEN

30

and partnerships. Be assured that we recognize theimportance of protecting your privacy andsafeguarding the confidentiality of the informationyou provide to us.

CHECKING ACCOUNTSTYPES

The Bank offers interest bearing and non-interestbearing accounts to eligible consumers. The Bank alsooffers a variety of non-consumer checking accounts.See Terms and Charges Disclosure for details.

INTERNAL ACCOUNTING OF BALANCESYour checking account may consist of two “sub-accounts” on the books of the Bank. In that event, onesub-account will be a checking account and the othera savings account. The two will be treated as a singleaccount for customer use, and will not affect yourBank statement, your account balance or the interest,fees, and features of your account. For interestbearing checking accounts, we will pay the same rateof interest on balances in both sub-accounts.

All deposits and other credits will be posted to, andchecks and debits will be deducted from, thechecking sub-account. Whenever the checking sub-account balance exceeds a “threshold amount”(which we may establish and change at ourdiscretion), we may transfer funds above thatamount to the savings sub-account. As these fundsare needed to pay items presented against yourchecking account, the appropriate amount will betransferred back to the checking sub-account, up tosix times per statement period. If the sixth transfer isneeded, the entire balance of the savings sub-accountwill be transferred into the checking sub-account.This process may be repeated each month.

Although the Bank has no present intention toexercise this right, federal regulations require theBank to reserve the right to require at least sevendays written notice prior to withdrawal or transfer ofany funds in a savings account.

WRITING CHECKSThe Bank requires you to use the Bank’s checks.Depending on style and number of checks you orderand what kind of checking account you have, the Bankmay charge a fee to your account for your checks.

SIGNATURES ON CHECKS OR DRAFTSThe Bank may, in its discretion, return unpaid a checkor draft that does not bear a signature reflected on thesignature card unless you have notified the Bank inadvance you want the check or draft to be paid.

CONVENIENCE CHECK CASHING FEEYou agree that the Bank may impose a fee on thepayee or other holder of a check or other item drawn

2

ADVISED OF THE POSSIBILITY OF SUCHDAMAGE. You agree the Bank shall be liable onlyfor damages which are the direct result of theBank’s misconduct. If the Bank’s conduct results inan inappropriate delay of transfer or withdrawal, theBank’s liability, as liquidated damages and not as apenalty, shall be an amount equal to the interest, atthe Federal Funds rate, payable on the amount of thefunds which were directed by you to be transferredin the Payment Order for the period of delay.

COOPERATION WITH INVESTIGATIONYou agree, in the event of any claim arising fromyour account to cooperate and assist both the Bankand any law enforcement authorities in connectionwith any investigation and prosecution of anysuspected wrongdoer. You understand and agree thatfailure to cooperate may result, in the Bank’s solediscretion, in the Bank dishonoring any claim whichyou have made.

INDEMNITY AGAINST ACTIONSOF AUTHORIZED PERSONS

In order to induce the Bank to honor requests forservices, including but not limited to thoseenumerated above, you hereby agree to indemnifyand hold the Bank, its successors, assigns,correspondents, directors, officers, employees andagents harmless for all losses, costs, damages,expenses (including attorney’s fees) and liability forany claim or demand occasioned by or actionbrought by virtue of any misconduct, negligence,action or omission on the part of any individual whohas been listed as a person authorized to act on yourbehalf in any document provided by you to the Bank.

FORCE MAJEUREThe Bank shall not be liable for any loss or damageto you caused by the Bank’s failure to provide anyservice requested by you resulting from an act ofGod, fire, catastrophe, electrical, mechanical orcomputer failure, telecommunications failure orfailure of any agent or correspondent or any othercause beyond the Bank’s control, provided itexercises such diligence as the circumstances may require.

NOTICESAny notice we send you will take effect when it ispersonally delivered to you or mailed to the lastaddress we have for you in our records. A noticefrom you will be considered received when receivedat the Bank’s Customer Service Department andwill take effect following the expiration of anynotice period that may be specified in the DepositAccount Agreement.

31

OUR AGREEMENTThese Rules are part of the Agreement between youand HSBC Bank USA, National Association (the“Bank” or “HSBC”), and contain some of the termsand conditions for deposit accounts. The Bank offers avariety of products and services, including checking,savings, money market, certificates of deposit (CDs),escrow accounts, retirement plans and electronicbanking services. Any Terms and Charges Disclosureapplicable to your account is also a part of theAgreement. By signing a contract to open any depositaccount or by using a Bank product or service, youagree that these Rules, as amended from time to time,shall apply to all your deposit accounts.

If there is a conflict between these Rules andsomething one of our employees says, the Bank willfollow these Rules. These Bank Rules supersede andreplace all prior Bank Rules.

GOVERNING LAWS AND REGULATIONSThese Rules shall be governed by and interpretedaccording to federal law, and by applicable statelaw, clearing house rules, ACH rules and generalcommercial bank practices applicable to theservices provided, to the extent not superceded byfederal law. The applicable state law (to the extentnot superceded by federal law) shall be the law ofthe state where the deposit account is opened, ifopened in person. For deposit accounts opened bytelephone, Internet, or through our Payments &Cash Management Division, applicable New Yorklaw will govern to the extent not superceded byfederal law. If these Rules conflict at any time withthe applicable federal or state law or regulation, theRules will be considered changed to the extentnecessary to comply. The Bank's failure to enforcethese Rules or waiver of any of the provisions ofthese Rules in any instance will not prevent theBank enforcing these Rules at any other time.

IMPORTANT INFORMATION ABOUTPROCEDURES FOR OPENING A NEW ACCOUNT

To help the government fight the funding ofterrorism and money laundering activities, Federallaw requires all financial institutions to obtain,verify, and record information that identifies eachperson or entity that opens an account.

What this means to you: If you open a personalaccount, we will ask for your name, address,taxpayer identification number, date of birth, andother information that will allow us to identify you.Additionally, we will take certain steps to verifyyour identity, such as asking for your driver’slicense or other identifying documents or checkingother sources. Similar identification requirementsapply to non-personal accounts such as corporations

1

CHANGES TO THE RULESThe Bank can change these Rules or impose otherrestrictions on your account, as the Bank deemsnecessary or appropriate, in the course of its businessat any time.

Before the change goes into effect you will benotified:

• either by mail,• by a posting in your branch, or• by a published statement in the newspaper.

If notice is sent to you, use of ordinary mail or in-branch notification shall be sufficient. Changes tothese Rules which are required by law may beimplemented immediately or as required by law.

SEVERABILITYIf any provision(s) of these Rules shall be held to beillegal or unenforceable, the validity of the remainingportions of these Rules shall not be affected.

WAIVERNo waiver of any term, provision, or condition ofthis Agreement, whether by conduct or otherwise, inany one or more instances, will be deemed, or shallconstitute, a waiver of any other provision hereof,whether or not similar, nor will such waiverconstitute a continuing waiver, and no waiver shallbe binding unless executed in writing by the partymaking the waiver.

OTHER TERMS AND CONDITIONSOther terms and conditions, not stated herein, mayapply to your account. All such other terms andconditions remain in full force and effect andcontinue to govern your account except as stated inthese Rules.

BANK SECRECY ACT - REGULATORYREPORTING REQUIREMENTS

As part of the Bank Secrecy Act recordkeepingrequirements, the Bank is responsible to obtain,verify and record customer information for certaintransactions and report this information to U.S.Government agencies. The information obtainedincludes, but is not limited to:

• Name and home address (photo identificationrequired) for an individual or Business name andbusiness address

• Social Security or taxpayer identification number

• Date of birth for an individual

• Occupation

• Information for anyone on whose behalf you areconducting transactions

The above information may be required whenconducting certain cash transactions, including, butnot limited to:

32

Currency Transaction ReportsIf you make cash withdrawals, cash deposits,currency exchanges or other payments or transferswith cash, exceeding $10,000, the Bank is requiredto complete a Currency Transaction Report.

Monetary Instrument ReportsThe Bank reserves the right to obtain identificationand additional information from customers whopurchase U.S. Dollar Drafts (Cashier’s Checks),Foreign Drafts, Money Orders or Traveler’sCheques (including gift checks) for any amount.

Structuring TransactionsAny person who conducts or assists in transactionsdesigned to evade U.S. Government reportingrequirements, which may include splittingtransactions into smaller amounts, can be subject tocriminal penalties, including fines, imprisonment or both.

The Bank complies with recording andrecordkeeping requirements under the BankSecrecy Act including monitoring accounts on aperiodic basis for compliance.

The Bank reserves the right to close any accountthat attempts to avoid these requirements.

PROHIBITED TRANSACTIONSThe Unlawful Internet Gambling Enforcement Actof 2006 (UIGEA) prohibits any person engaged inthe business of betting or wagering from knowinglyaccepting any payment in connection with theparticipation of another person in unlawful Internetgambling (a"restricted transaction"). Youacknowledge and agree that you are prohibited fromprocessing a restricted transaction through youraccount or banking relationship with HSBC. Yourparticipation, or attempted participation, in anyrestricted transaction through your account orbanking relationship with HSBC may result in thetermination of your banking relationship withHSBC and/or the closure of your account.

WAIVER OF TRIAL BY JURYYOU AND THE BANK AGREE TO WAIVE THERIGHT TO TRIAL BEFORE A JURY IN ANYACTION FOR ANY CLAIMS THAT MAY ARISEFROM OR RELATE TO YOUR DEPOSITACCOUNT INCLUDING, BUT NOT LIMITED TO,CONTRACT, NEGLIGENCE, USE, ATTORNEYS-IN-FACT, RESTRAINT AND EXECUTION.

33

TABLE OF CONTENTS

Our Agreement 1

Checking Accounts 2

Savings Accounts 7

Certificates Of Deposit 8

Special Deposit Accounts 8

Deposits 8

Availability Of Funds 10

Withdrawals 19

Funds Transfers 20

Interest 24

Joint Accounts 25

Relationship Between Joint Depositors 25

Your Agreement With The Bank 25

More About Your Account 26

RULES FOR

DEPOSITACCOUNTS

HSBC Bank USA, N.A. G 2333 SF (Rev. 6/10)APS # 074767

EXHIBIT C

HSBCID

The following information was correct as of:

PRODUCT (X) INDICATES ACCOUNT SELECTED

Free Business Checking

( )

Extra Vantage., for Business

( )

ANNUAL INTEREST RATE ANNUAL YIELD

No interest earned

No interest earned

Participation in the above products is subject to bank approval.

* We define transaction as each deposit, each item appearing on a deposit ticket and each check or other withdrawal from your account including any electronic transactions. The transaction limit is based on a total of all transactions conducted in your Business Checking account for the calendar month.

** We will charge a cash handling service fee ofS2.00 per $1,000 of cash (currency and coin) deposited at an HSBC branch. The fee will be assessed on a per transaction basis and applies to teller, ATM and night deposit transactions.

HSBC

BUSINESS CHECKING ACCOUNTS

TERMS & CHARGES DISCLOSURE

TRANSACTION LIMITS/FEES

MONTHLY MAINTENANCE FEE

MONTHLY FEE WAIVED WITH

Up to 300 transactions* can be processed per month without any additional Transaction Fee.**

A Transaction Fee of $25 will be- assessed for each transaction over 300.

Up to 750 transactions* can be processed per month without any additional Transaction Fee.

A Transaction Fcc of $.25 will be assessed for each transaction over 750.

***Combined balances include your

$0

$25.00

Extra Vantage" for Business checking, business savings, commercial money market accounts, and business Certificate of Deposit accounts. Special purpose accounts, retirement accounts and checking accounts, other than your Extra Vantage for Business checking account, are excluded. Personal accounts are also excluded.

NIA

A combined*** average daily available balance of $25,000 in your Extra Vantage" for Business account, any related I:ISBC_busine~s- ~a_viJJgs_ aCc'Ount(s) and Certificate of Deposit Account(s).

We reserve the right, with notice, to transfer your account to a higher transaction limit product. Account transfers will be based upon a review of transaction activity. Businesses with more than 750 checking transactions per month should consult HSBC for information on the banking relationship most advantageous to them.

CIS 208 AMB!DEIFL/LlfMH!NYCIPAIWCfWD - to 1/102/1 04/123/l 53/154/155/180/!81/201/203/373 (Rev. l 0/09) APS # 714385

BALANCE COMPUTATION- The Average Daily Available Balance is determined by adding the available balance in the account for each day of the period and dividing that figure by the number of days in the period. Available Balance is the balance in your account each day minus ( -) any deposited noncash item (e.g., checks) for which we have not yet received credit.

STATE:MENTS ARE l\1AILED PERIODICALLY- The monthly statement date for your account depends on what day of the month we prepare your statement. There can be from 28 to 35 calendar days in a monthly statement cycle.

RECORDCHEC~-With Recordcheck, we will keep a record of your cancelled checks instead of returning them with your statement. If you need a copy of your cancelled check, contact your branch and one will be mailed to you.

SERVICE FEES which may apply when services are rendered: We will notify you 30 days in advance of any increase in the following Account Related Service Fees.

Account Closing ................ . if you close your account within six months of opening.

..... S25

Balance Verification Letter . . . . . . . . . . . . . . . ............. S 20 for original letter provided verifying your deposit account(s) with us; may be notarized. Additional Copies. . ... 5 5 each

Cash Handling ................ . .$ 2each per $1,000 of cash deposited at an HSBC branch. See first page for further details.

Chargeback. . . . . . . . . . . . . . . . . . . ............. $10 each for each check or other item that you deposit that is returned to us unpaid.

Insufficient Ftmds (NSF) Checking. . . ................. $ 35 each for each withdrawal, check or electronic fund transfer we pay or return that overdraws your account.

Insufficient Funds (NSF) Savings ......................... $35 each applies only to ACH debits presented against insufficient funds.

Interested Party Statement ............................... $ 5 each for each statement sent to a third party at the customer's request.

Legal Papers. . . . . . . . . . . . . . . . . . . . . .. $ I 00 each for each court order, restraining notice, levy or other legal paper that requires us to put a hold on your account or to pay out money from your account to someone else.

Reconcilement . . . . . . . . . . .......... $50 hour if you cam10t balance your statement and do not bring it to our attention before you receive your next statement, we may charge you an hourly fee to locate the eJTor.

Research Requested on your account: Photocopy of item/statement .......................... $ 5 each Reconstroction of statement (plus copy fees)......... . . $40 hour

Roll of Coin Furnished (charged monthly) ............ $.15 each

Special Statement. ............ . . ................. $ 6each

Stop Payment . . . . . . ........ . for each Stop Payment Order placed.

Unavailable Funds (UNA). for each withdrawal, check or electronic fund transfer we pay or return that is drawn against unavailable funds.

. . $30 each

. .... $35each

The following Miscellaneous Bank Service Fees are subject to change without notice:

Canadian Check Processed. . . . . . . . . . . . . . . . . . . $ 2 each Funds Transfer-In, per incoming transfer.

Canadian Dollar Draft Purchased ..

Domestic Collection . . ....... . for each check drawn on a United States bank that must be sent for collection.

.. $10each Funds Transfer-Out, per outgoing transfer ........... . ....... $25 item

. ... $15 each

. $30 each

. ... $ Seach

. $20 each

Foreign Currency Draft ......................... . . . $25 each

Money Order ..

Protest Letter ..

U.S. Dollar Draft . . ...... $10each

See EFT FACILITY CHARGES folder for service fees applicable to functions performed at an HSBC ATM or other Electronic Facility.

BANK RULES - This document is part of tbe "Rules for Deposit Accounts". In case of inconsistency between this document and the rules, this document governs.

C!S 208 AMBffiEIFULIMH!NYCIPA/WCfWD- !0!/!021!041l231153/l54il551180/l81/20!/203/373 (Rev. 10/09) APS # 714385

EXHIBIT D

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket No. 05-03]

FEDERAL RESERVE SYSTEM

[Docket No. OP-1198]

FEDERAL DEPOSIT INSURANCE CORPORATION

NATIONAL CREDIT UNION ADMINISTRATION

Joint Guidance on Overdraft Protection Programs

AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); and National Credit Union Administration (NCUA).

ACTION: Final Guidance.

SUMMARY: The OCC, Board, FDIC, and NCUA (the Agencies), are issuing final Joint Guidance on Overdraft Protection Programs (guidance). This guidance is intended to assist insured depository institutions in the responsible disclosure and administration of overdraft protection services.

FOR FURTHER INFORMATION CONTACT:

OCC: Michael Bylsma, Director, Margaret Hesse, Special Counsel, or Deana Lee, Attorney, Community and Consumer Law Division, (202) 874-5750; or Kim Scherer, National Bank Examiner/Credit Risk Specialist, Credit Risk Policy, (202) 874-5170.

Board: Minh-Duc T. Le, Senior Attorney, Daniel Lonergan, Counsel, or Elizabeth Eurgubian, Attorney, Division of Consumer and Community Affairs, (202) 452-3667; or William H. Tiernay, Supervisory Financial Analyst, Division of Bank Supervision and Regulation, (202) 452-2412. For users of Telecommunications Device for the Deaf (“TDD”) only, contact (202) 263-4869.

FDIC: Mark Mellon, Counsel, (202) 898-3884, Legal Division; James Leitner, Examination Specialist, (202) 898-6790; Patricia Cashman, Senior Policy Analyst, (202) 898-6534; or April Breslaw, Chief, Compliance Section, (202) 898-6609, Division of Supervision and Consumer Protection.

NCUA: Elizabeth A. Habring, Program Officer, Office of Examination and Insurance, (703) 518-6392; or Ross P. Kendall, Staff Attorney, Office of the General Counsel, (703) 518-6562.

SUPPLEMENTARY INFORMATION:

I. Background

The Agencies have developed this final joint guidance to address a service offered by insured depository institutions commonly referred to as “bounced-check protection” or “overdraft protection.” This service is sometimes offered to transaction account customers as an alternative to traditional ways of covering overdrafts (e.g., overdraft lines of credit or linked accounts).

While both the availability and customer acceptance of these overdraft protection services have increased, aspects of the marketing, disclosure, and implementation of

some of these programs have raised concerns with the Agencies. In a 2001 letter, the OCC identified some of these particular concerns.1 In November 2002, the Board sought comment about the operation of overdraft protection programs.2

In response to concerns raised about overdraft protection products, the Agencies published for comment proposed Interagency Guidance on Overdraft Protection Programs, 69 FR 31858 (June 7, 2004).3 The proposed guidance identified the historical and traditional approaches to providing consumers with protection against account overdrafts, and contrasted these approaches with the more recent overdraft protection programs that are marketed to consumers. The Agencies also identified some of the existing and potential concerns surrounding the offering and administration of such overdraft protection programs that have been identified by federal and state bank regulatory agencies, consumer groups, financial institutions, and their trade representatives.

In response to these concerns, the Agencies provided guidance in three primary sections: Safety and Soundness Considerations, Legal Risks, and Best Practices. In the section on Safety and Soundness Considerations, the Agencies sought to ensure that financial institutions offering overdraft protection services adopt adequate policies and procedures to address the credit, operational, and other risks associated with these services. The Legal Risks section of the proposed guidance outlined several federal consumer compliance laws, generally alerted institutions offering overdraft protection services of the need to comply with all applicable federal and state laws, and advised institutions to have their overdraft protection programs reviewed by legal counsel to ensure overall compliance prior to implementation. Finally, the proposed guidance set forth best practices that serve as positive examples of practices that are currently observed in, or recommended by, the industry. Broadly, these best practices address the marketing and communications that accompany the offering of overdraft protection services, as well as the disclosure, and operation, of program features.

The Agencies together received over 320 comment letters in response to the proposed guidance. Comment letters were received from depository institutions, trade associations, vendors offering overdraft protection products, and other industry representatives, as well as government officials, consumer and community groups, and individual consumers.

II. Overview of Public Comments

The Agencies received comments that addressed broad aspects of the guidance, as well as its specific provisions. Many industry commenters, for instance, were concerned about the overall scope of the guidance and whether it would apply to financial institutions that do not market overdraft protection programs to consumers but do cover

1 OCC Interpretive Letter 914, September 2001. 2 67 FR 72618, December 6, 2002. The Board received approximately 350 comments; most were fromindustry representatives describing how the programs work. 3 The Office of Thrift Supervision joined the Agencies proposing the interagency guidance.

2

the occasional overdraft on a case-by-case basis. Commenters also addressed the three specific sections of the proposed guidance.

In regard to the Safety and Soundness section, for example, many industry commenters suggested extending the proposed charge-off period from 30 days to a longer period such as 45 or 60 days, in part because they believed a longer charge-off period would provide consumers with more time to repay overdrafts and avoid being reported to credit bureaus as delinquent on their accounts. Comments were also received addressing technical reporting and accounting issues.

The Agencies received numerous comments regarding the Legal Risks section – particularly the Equal Credit Opportunity Act and Truth in Lending Act (TILA) discussions. For instance, many consumer and consumer group comments stated that overdraft protection should be considered credit covered by TILA’s disclosures and other required protections. Some of these comments likened the product to payday lending, which is covered by TILA. Many industry commenters argued against the coverage of overdraft programs by TILA and Regulation Z, and argued that the payment of overdrafts does not involve credit and finance charges requiring TILA disclosures and protections.

Lastly, many commenters also offered specific criticism or recommended edits with respect to particular best practices identified in the proposal. Several industry commenters sought general clarification on whether examiners would treat the best practices as law or rules when examining institutions offering overdraft protection services.

III. Final Joint Guidance

The final joint guidance incorporates changes made by the Agencies to provide clarity and address many commenter concerns. In particular, language has been added to clarify the scope of the guidance. The Safety and Soundness section expressly states that it applies to all methods of covering overdrafts. The introduction to the Best Practices section clarifies that while the Agencies are concerned about promoted overdraft protection programs, the best practices may also be useful for other methods of covering overdrafts.

In response to the comments regarding the Safety and Soundness section, the Agencies have extended the charge-off requirement to 60 days.4 Other technical edits have been made to further clarify reporting and accounting aspects of this section of the guidance.

The discussion regarding the applicability of TILA has been shortened to more closely focus on the relevant, existing regulatory provisions. In the proposed guidance, the discussion of TILA and Regulation Z, like the individual discussions of other laws

4 Federal credit unions are required by regulation to establish a time limit, not to exceed 45 calendar days, for a member to either deposit funds or obtain an approved loan from the credit union to cover each overdraft. 12 CFR § 701.21(c)(3).

3

and regulations (e.g., the Federal Trade Commission Act), was not intended to represent a full explication of the scope, terms, and exceptions to those provisions. Rather, it was intended to highlight that, commonly, fees charged in connection with overdraft protection programs and traditional methods of paying overdrafts fall within an existing regulatory exception to the “finance charge” definition. Disparate commenters urged the Board to take positions on various aspects of TILA and Regulation Z that are unnecessary in light of the exception addressed and the appropriate scope of the guidance. The revisions to this section, and the addition of language to the Safety and Soundness section to address the credit nature of overdrafts, is not intended as a commentary on the statute, nor the adoption of any particular commenter point of view. As indicated in the proposal, the existing regulatory exceptions were created for the occasional payment of overdrafts, and as such could be reevaluated by the Board in the future, if necessary. Were the Board to address these issues more specifically, it would do so separately under its clear authority.

Lastly, in the final joint guidance, the Agencies reaffirm that the best practices are practices that have been recommended or implemented by financial institutions and others, as well as practices that may otherwise be required by applicable law. The best practices, or principles within them, are enforceable to the extent they are required by law. In addition, as mentioned above, the final guidance explicitly states that while the Agencies are particularly concerned about promoted overdraft protection programs, these practices may be useful in connection with other methods of covering overdrafts. The Agencies have also revised numerous best practices for clarity, in response to particular commenter suggestions.

The text of the final Joint Guidance on Overdraft Protection Programs follows:

Joint Guidance on Overdraft Protection Programs

The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), Federal Deposit Insurance Corporation (FDIC), and National Credit Union Administration (NCUA), collectively “the Agencies,” are issuing this joint guidance concerning a service offered by insured depository institutions that is commonly referred to as “bounced-check protection” or “overdraft protection.” This credit service is sometimes offered on both consumer and small business transaction accounts as an alternative to traditional ways of covering overdrafts. This joint guidance is intended to assist insured depository institutions in the responsible disclosure and administration of overdraft protection services, particularly those that are marketed to consumers.5

5 Federal credit unions are already subject to certain regulatory requirements governing the establishment and maintenance of overdraft programs. 12 CFR § 701.21(c)(3). This regulation requires a federal credit union offering an overdraft program to adopt a written policy specifying the dollar amount of overdrafts that the credit union will honor (per member and overall); the time limits for a member to either deposit funds or obtain a loan to cover an overdraft; and the amount of the fee and interest rate, if any, that the credit union will charge for honoring overdrafts. This joint guidance supplements but does not change these regulatory requirements for federal credit unions.

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Introduction

To protect against account overdrafts, some consumers obtain an overdraft line of credit, which is subject to the disclosure requirements of the Truth in Lending Act (TILA). If a consumer does not have an overdraft line of credit, the institution may accommodate the consumer and pay overdrafts on a discretionary, ad-hoc basis. Regardless of whether the overdraft is paid, institutions typically have imposed a fee when an overdraft occurs, often referred to as a nonsufficient funds or “NSF” fee. Over the years, this accommodation has become automated by many institutions. Historically, institutions have not promoted this accommodation. This approach has not raised significant concerns.

More recently, some depository institutions have offered “overdraft protection” programs that, unlike the discretionary accommodation traditionally provided to those lacking a line of credit or other type of overdraft service (e.g., linked accounts), are marketed to consumers essentially as short-term credit facilities. These marketed programs typically provide consumers with an express overdraft “limit” that applies to their accounts.

While the specific details of overdraft protection programs vary from institution to institution, and also vary over time, those currently offered by institutions incorporate some or all of the following characteristics:

• Institutions inform consumers that overdraft protection is a feature of their accounts and promote the use of the service. Institutions also may inform consumers of their aggregate dollar limit under the overdraft protection program.

• Coverage is automatic for consumers who meet the institution’s criteria (e.g., account has been open a certain number of days; deposits are made regularly). Typically, the institution performs no credit underwriting.

• Overdrafts generally are paid up to the aggregate limit set by the institution for the specific class of accounts, typically $100 to $500.

• Many program disclosures state that payment of an overdraft is discretionary on the part of the institution, and may disclaim any legal obligation of the institution to pay any overdraft.

• The service may extend to check transactions as well as other transactions, such as withdrawals at automated teller machines (ATMs), transactions using debit cards, pre-authorized automatic debits from a consumer’s account, telephone-initiated funds transfers, and on-line banking transactions.6

6 Transaction accounts at credit unions are called share draft accounts. For purposes of this joint guidance, the use of the term “check” includes share drafts.

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• A flat fee is charged each time the service is triggered and an overdraft item is paid. Commonly, a fee in the same amount would be charged even if the overdraft item was not paid. A daily fee also may apply for each day the account remains overdrawn.

• Some institutions offer closed-end loans to consumers who do not bring their accounts to a positive balance within a specified time period. These repayment plans allow consumers to repay their overdrafts and fees in installments.

Concerns

Aspects of the marketing, disclosure, and implementation of some overdraft protection programs, intended essentially as short-term credit facilities, are of concern to the Agencies. For example, some institutions have promoted this credit service in a manner that leads consumers to believe that it is a line of credit by informing consumers that their account includes an overdraft protection limit of a specified dollar amount without clearly disclosing the terms and conditions of the service, including how fees reduce overdraft protection dollar limits, and how the service differs from a line of credit.

In addition, some institutions have adopted marketing practices that appear to encourage consumers to overdraw their accounts, such as by informing consumers that the service may be used to take an advance on their next paycheck, thereby potentially increasing the institutions’ credit exposure with little or no analysis of the consumer’s creditworthiness. These overdraft protection programs may be promoted in a manner that leads consumers to believe that overdrafts will always be paid when, in reality, the institution reserves the right not to pay some overdrafts. Some institutions may advertise accounts with overdraft protection coverage as “free” accounts, and thereby lead consumers to believe that there are no fees associated with the account or the overdraft protection program.

Furthermore, institutions may not clearly disclose that the program may cover instances when consumers overdraw their accounts by means other than check, such as at ATMs and point-of-sale (POS) terminals. Some institutions may include overdraft protection amounts in the sum that they disclose as the consumer’s account “balance” (for example, at an ATM) without clearly distinguishing the funds that are available for withdrawal without overdrawing the account. Where the institution knows that the transaction will trigger an overdraft fee, such as at a proprietary ATM, institutions also may not alert the consumer prior to the completion of the transaction to allow the consumer to cancel the transaction before the fee is triggered.

Institutions should weigh carefully the risks presented by the programs including the credit, legal, reputation, safety and soundness, and other risks. Further, institutions should carefully review their programs to ensure that marketing and other communications concerning the programs do not mislead consumers to believe that the program is a traditional line of credit or that payment of overdrafts is guaranteed, do not mislead consumers about their account balance or the costs and scope of the overdraft

6

protection offered, and do not encourage irresponsible consumer financial behavior that potentially may increase risk to the institution.

Safety & Soundness Considerations

When overdrafts are paid, credit is extended. Overdraft protection programs may expose an institution to more credit risk (e.g., higher delinquencies and losses) than overdraft lines of credit and other traditional overdraft protection options to the extent these programs lack individual account underwriting. All overdrafts, whether or not subject to an overdraft protection program, are subject to the safety and soundness considerations contained in this section.

Institutions providing overdraft protection programs should adopt written policies and procedures adequate to address the credit, operational, and other risks associated with these types of programs. Prudent risk management practices include the establishment of express account eligibility standards and well-defined and properly documented dollar limit decision criteria. Institutions also should monitor these accounts on an ongoing basis and be able to identify consumers who may represent an undue credit risk to the institution. Overdraft protection programs should be administered and adjusted, as needed, to ensure that credit risk remains in line with expectations. This may include, where appropriate, disqualification of a consumer from future overdraft protection. Reports sufficient to enable management to identify, measure, and manage overdraft volume, profitability, and credit performance should be provided to management on a regular basis.

Institutions also are expected to incorporate prudent risk management practices related to account repayment and suspension of overdraft protection services. These include the establishment of specific timeframes for when consumers must pay off their overdraft balances. For example, there should be established procedures for the suspension of overdraft services when the account holder no longer meets the eligibility criteria (such as when the account holder has declared bankruptcy or defaulted on another loan at the bank) as well as for when there is a lack of repayment of an overdraft. In addition, overdraft balances should generally be charged off when considered uncollectible, but no later than 60 days from the date first overdrawn.7 In some cases, an institution may allow a consumer to cover an overdraft through an extended repayment plan when the consumer is unable to bring the account to a positive balance within the required time frames. The existence of the repayment plan, however, would not extend the charge-off determination period beyond 60 days (or shorter period if applicable) as measured from the date of the overdraft. Any payments received after the account is charged off (up to the amount charged off against allowance) should be reported as a recovery. Some overdrafts are rewritten as loan obligations in accordance with an institution’s loan policy and supported by a documented assessment of that consumer’s ability to repay. In those instances, the charge-off timeframes described in the Federal Financial Institutions

7 Federal credit unions are required by regulation to establish a time limit, not to exceed 45 calendar days, for a member to either deposit funds or obtain an approved loan from the credit union to cover each overdraft. 12 CFR § 701.21(c)(3).

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Examination Council (FFIEC) Uniform Retail Credit Classification and Account Management Policy would apply.8

With respect to the reporting of income and loss recognition on overdraft protection programs, institutions should follow generally accepted accounting principles (GAAP) and the instructions for the Reports of Condition and Income (Call Report), and NCUA 5300 Call Report. Overdraft balances should be reported on regulatory reports as loans. Accordingly, overdraft losses should be charged off against the allowance for loan and lease losses. The Agencies expect all institutions to adopt rigorous loss estimation processes to ensure that overdraft fee income is accurately measured. Such methods may include providing loss allowances for uncollectible fees or, alternatively, only recognizing that portion of earned fees estimated to be collectible.9 The procedures for estimating an adequate allowance should be documented in accordance with the Policy Statement on the Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and Savings Institutions.10

If an institution advises account holders of the available amount of overdraft protection, for example, when accounts are opened or on depositors’ account statements or ATM receipts, the institution should report the available amount of overdraft protection with legally binding commitments for Call Report, and NCUA 5300 Call Report purposes. These available amounts, therefore, should be reported as “unused commitments” in regulatory reports.

The Agencies also expect proper risk-based capital treatment of outstanding overdrawn balances and unused commitments.11 Overdraft balances should be risk-weighted according to the obligor. Under the federal banking agencies’ risk-based capital guidelines, the capital charge on the unused portion of commitments generally is based on an off-balance sheet credit conversion factor and the risk weight appropriate to the obligor. In general, these guidelines provide that the unused portion of a commitment is subject to a zero percent credit conversion factor if the commitment has an original maturity of one year or less, or a 50 percent credit conversion factor if the commitment has an original maturity over one year. Under these guidelines, a zero percent conversion factor also applies to the unused portion of a "retail credit card line" or "related plan" if it is unconditionally cancelable by the institution in accordance with applicable law.12 The phrase “related plans” in these guidelines includes overdraft checking plans. The

8 For federally insured credit unions, charge-off policy for booked loans is described in NCUA Letter to Credit Unions No. 03-CU-01, “Loan Charge-off Guidance,” dated January 2003. 9 Institutions may charge off uncollected overdraft fees against the allowance for loan and lease losses if such fees are recorded with overdraft balances as loans and estimated credit losses on the fees are provided for in the allowance for loan and lease losses. 10 Issued by the Board, FDIC, OCC, and Office of Thrift Supervision. The NCUA provided similar guidance to credit unions in Interpretive Ruling and Policy Statement 02-3, “Allowance for Loan and Lease Losses Methodologies and Documentation for Federally Insured Credit Unions,” 67 FR 37445, May 29, 2002. 11 Federally insured credit unions should calculate risk-based net worth in accordance with the rules contained in 12 CFR Part 702. 12 See 12 CFR Part 3, Appendix A, Section 3 (b)(5) (OCC); 12 CFR Part 208, Appendix A, Section III.D.5

(Board); and 12 CFR Part 325, Appendix A, Section II.D.5 (FDIC).

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Agencies believe that the overdraft protection programs discussed in this joint guidance fall within the meaning of “related plans” as a type of “overdraft checking plan” for the purposes of the federal banking agencies’ risk-based capital guidelines. Consequently, overdraft protection programs that are unconditionally cancelable by the institution in accordance with applicable law would qualify for a zero percent credit conversion factor.

Institutions entering into overdraft protection contracts with third-party vendors must conduct thorough due diligence reviews prior to signing a contract. The interagency guidance contained in the November 2000 Risk Management of Outsourced Technology Services outlines the Agencies' expectations for prudent practices in this area.

Legal Risks

Overdraft protection programs must comply with all applicable federal laws and regulations, some of which are outlined below. State laws also may be applicable, including usury and criminal laws, and laws on unfair or deceptive acts or practices. It is important that institutions have their overdraft protection programs reviewed by counsel for compliance with all applicable laws prior to implementation. Further, although the guidance below outlines federal laws and regulations as of the date this joint guidance is published, applicable laws and regulations are subject to amendment. Accordingly, institutions should monitor applicable laws and regulations for revisions and to ensure that their overdraft protection programs are fully compliant.

Federal Trade Commission Act / Advertising RulesSection 5 of the Federal Trade Commission Act (FTC Act) prohibits unfair or deceptive acts or practices.13 The banking agencies enforce this section pursuant to their authorityin section 8 of the Federal Deposit Insurance Act, 12 U.S.C. § 1818.14 An act or practice is unfair if it causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. An act or practice is deceptive if, in general, it is a representation, omission, or practice that is likely to mislead a consumer acting reasonably under the circumstances, and the representation, omission, or practice is material.

In addition, the NCUA has promulgated similar rules that prohibit federally insured credit unions from using advertisements or other representations that are inaccurate or misrepresent the services or contracts offered.15 These regulations are broad enough to prohibit federally insured credit unions from making any false representations to the public regarding their deposit accounts.

Overdraft protection programs may raise issues under either the FTC Act or, in connection with federally insured credit unions, the NCUA’s advertising rules, depending

13 15 U.S.C. § 45. 14 See OCC Advisory Letter 2002-3 (March 2002); and joint Board and FDIC Guidance on Unfair orDeceptive Acts or Practices by State-Chartered Banks (March 11, 2004).15 12 CFR § 740.2.

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upon how the programs are marketed and implemented. To avoid engaging in deceptive, inaccurate, misrepresentative, or unfair practices, institutions should closely review all aspects of their overdraft protection programs, especially any materials that informconsumers about the programs.

Truth in Lending ActTILA and Regulation Z require creditors to give cost disclosures for extensions of consumer credit.16 TILA and the regulation apply to creditors that regularly extend consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments.17

Under Regulation Z, fees for paying overdraft items currently are not considered finance charges if the institution has not agreed in writing to pay overdrafts.18 Even where the institution agrees in writing to pay overdrafts as part of the deposit account agreement, fees assessed against a transaction account for overdraft protection services are finance charges only to the extent the fees exceed the charges imposed for paying or returningoverdrafts on a similar transaction account that does not have overdraft protection.

Some financial institutions also offer overdraft repayment loans to consumers who are unable to repay their overdrafts and bring their accounts to a positive balance within a specified time period.19 These closed-end loans will trigger Regulation Z disclosures, for example, if the loan is payable by written agreement in more than four installments. Regulation Z will also be triggered where such closed-end loans are subject to a finance charge.20

Equal Credit Opportunity ActUnder the Equal Credit Opportunity Act (ECOA) and Regulation B, creditors are prohibited from discriminating against an applicant on a prohibited basis in any aspect of a credit transaction.21 This prohibition applies to overdraft protection programs. Thus, steering or targeting certain consumers on a prohibited basis for overdraft protection programs while offering other consumers overdraft lines of credit or other more favorable credit products or overdraft services, will raise concerns under the ECOA.

In addition to the general prohibition against discrimination, the ECOA and Regulation B contain specific rules concerning procedures and notices for credit denials and other

16 15 U.S.C. §§ 1601 et seq. TILA is implemented by Regulation Z, 12 CFR Part 226.17 See 15 U.S.C. § 1602(f) and 12 CFR 226.2(a)(17). Institutions should be aware that whether a writtenagreement exists is a matter of state law. See, e.g., 12 CFR § 226.5. 18 See 12 CFR 226.4(c)(3). Traditional lines of credit, which generally are subject to a written agreement, do not fall under this exception.19 For federal credit unions, this time period may not exceed 45 calendar days. 12 CFR § 701.21(c)(3). 20 See 12 CFR 226.4. 21 15 U.S.C. §§ 1691 et seq. The ECOA is implemented by Regulation B, 12 CFR Part 202. The ECOAprohibits discrimination on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to contract), the fact that all or part of the applicant’s incomederives from a public assistance program, and the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.

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adverse action. Regulation B defines the term “adverse action,” and generally requires a creditor who takes adverse action to send a notice to the consumer providing, among other things, the reasons for the adverse action.22 Some actions taken by creditors under overdraft protection programs might constitute adverse action but would not require notice to the consumer if the credit is deemed to be “incidental credit” as defined in Regulation B. “Incidental credit” includes consumer credit that is not subject to a finance charge, is not payable by agreement in more than four installments, and is not made pursuant to the terms of a credit card account.23 Overdraft protection programs that are not covered by TILA would generally qualify as incidental credit under Regulation B.

Truth in Savings ActUnder the Truth in Savings Act (TISA), deposit account disclosures must include the amount of any fee that may be imposed in connection with the account and the conditions under which the fee may be imposed.24 In addition, institutions must give advance notice to affected consumers of any change in a term that was required to be disclosed if the change may reduce the annual percentage yield or adversely affect the consumer.

When overdraft protection services are added to an existing deposit account, advance notice to the account holder may be required, for example, if the fee for the service exceeds the fee for accounts that do not have the service.25 In addition, TISA prohibits institutions from making any advertisement, announcement, or solicitation relating to a deposit account that is inaccurate or misleading or that misrepresents their deposit contracts.

Since these automated and marketed overdraft protection programs did not exist when most of the implementing regulations were issued, the regulations may be reevaluated.

Electronic Fund Transfer Act The Electronic Fund Transfer Act (EFTA) and Regulation E require an institution to provide consumers with account-opening disclosures and to send a periodic statement for each monthly cycle in which an electronic fund transfer (EFT) has occurred and at least quarterly if no transfer has occurred.26 If, under an overdraft protection program, a consumer could overdraw an account by means of an ATM withdrawal or POS debit card transaction, both are EFTs subject to EFTA and Regulation E. As such, periodic statements must be readily understandable and accurate regarding debits made, current balances, and fees charged. Terminal receipts also must be readily understandable and accurate regarding the amount of the transfer. Moreover, readily understandable and accurate statements and receipts will help reduce the number of alleged errors that the

22 See 12 CFR §§ 202.2(c) and 9. 23 See 12 CFR § 202.3(c).24 12 U.S.C. §§ 4301 et seq. TISA is implemented by Regulation DD at 12 CFR Part 230 for banks and savings associations, and by NCUA’s TISA regulation at 12 CFR Part 707 for federally insured creditunions. 25 An advance change in terms notice would not be required if the consumer’s account disclosures statedthat their overdraft check may or may not be paid and the same fee would apply.26 15 U.S.C. §§ 1693 et seq. The EFTA is implemented by Regulation E, 12 CFR Part 205.

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institution must investigate under Regulation E, which can be time-consuming and costly to institutions.

Best Practices

Clear disclosures and explanations to consumers of the operation, costs, and limitations of an overdraft protection program and appropriate management oversight of the program are fundamental to enabling responsible use of overdraft protection. Such disclosures and oversight can also minimize potential consumer confusion and complaints, foster good customer relations, and reduce credit, legal, and other potential risks to the institution. Institutions that establish overdraft protection programs should, as applicable, take into consideration the following best practices, many of which have been recommended or implemented by financial institutions and others, as well as practices that may otherwise be required by applicable law. While the Agencies are concerned about promoted overdraft protection programs, the best practices may also be useful for other methods of covering overdrafts. These best practices currently observed in or recommended by the industry include:

Marketing and Communications with Consumers

• Avoid promoting poor account management. Institutions should not market the program in a manner that encourages routine or intentional overdrafts. Institutions should instead present the program as a customer service that may cover inadvertent consumer overdrafts.

• Fairly represent overdraft protection programs and alternatives. When informing consumers about an overdraft protection program, inform consumers generally of other overdraft services and credit products, if any, that are available at the institution and how the terms, including fees, for these services and products differ. Identify for consumers the consequences of extensively using the overdraft protection program.

• Train staff to explain program features and other choices. Train customer service or consumer complaint processing staff to explain their overdraft protection program’s features, costs, and terms, including how to opt out of the service. Staff also should be able to explain other available overdraft products offered by the institution and how consumers may qualify for them.

• Clearly explain discretionary nature of program. If payment of an overdraft is discretionary, make this clear. Institutions should not represent that the payment of overdrafts is guaranteed or assured if the institution retains discretion not to pay an overdraft.

• Distinguish overdraft protection services from “free” account features. Institutions should not promote “free” accounts and overdraft protection programs in

12

the same advertisement in a manner that suggests the overdraft protection program is free of charges.

• Clearly disclose program fees. In communications about overdraft protection programs, clearly disclose the dollar amount of the fee for each overdraft and any interest rate or other fees that may apply. For example, rather than merely stating that the institution’s standard NSF fee will apply, institutions should restate the dollar amount of any applicable fee or interest charge.

• Clarify that fees count against the disclosed overdraft protection dollar limit. Consumers should be alerted that the fees charged for covering overdrafts, as well as the amount of the overdraft item, will be subtracted from any overdraft protection limit disclosed.

• Demonstrate when multiple fees will be charged. If promoting an overdraft protection program, clearly disclose, where applicable, that more than one overdraft fee may be charged against the account per day, depending on the number of checks presented on, and other withdrawals made from, the consumer’s account.

• Explain impact of transaction clearing policies. Clearly explain to consumers that transactions may not be processed in the order in which they occurred, and that the order in which transactions are received by the institution and processed can affect the total amount of overdraft fees incurred by the consumer.

• Illustrate the type of transactions covered. Clearly disclose that overdraft fees may be imposed on transactions such as ATM withdrawals, debit card transactions, preauthorized automatic debits, telephone-initiated transfers or other electronic transfers, if applicable, to avoid implying that check transactions are the only transactions covered.

Program Features and Operation

• Provide election or opt-out of service. Obtain affirmative consent of consumers to receive overdraft protection. Alternatively, where overdraft protection is automatically provided, permit consumers to “opt out” of the overdraft program and provide a clear consumer disclosure of this option.

• Alert consumers before a transaction triggers any fees. When consumers attempt to withdraw or transfer funds made available through an overdraft protection program, provide a specific consumer notice, where feasible, that completing the withdrawal may trigger the overdraft fees (for example, it presently may be feasible at a branch teller window). This notice should be presented in a manner that permits consumers to cancel the attempted withdrawal or transfer after receiving the notice. If this is not feasible, then post notices (e.g., on proprietary ATMs) explaining that transactions may be approved that overdraw the account and fees may be incurred.

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Institutions should consider making access to the overdraft protection program unavailable through means other than check transactions, if feasible.

• Prominently distinguish balances from overdraft protection funds availability. When disclosing a single balance for an account by any means, institutions should not include overdraft protection funds in that account balance. The disclosure should instead represent the consumer’s own funds available without the overdraft protection funds included. If more than one balance is provided, separately (and prominently) identify the balance without the inclusion of overdraft protection.

• Promptly notify consumers of overdraft protection program usage each time used. Promptly notify consumers when overdraft protection has been accessed, for example, by sending a notice to consumers the day the overdraft protection program has been accessed. The notification should identify the date of the transaction, the type of transaction, the overdraft amount, the fee associated with the overdraft, the amount necessary to return the account to a positive balance, the amount of time consumers have to return their accounts to a positive balance, and the consequences of not returning the account to a positive balance within the given timeframe. Notify consumers if the institution terminates or suspends the consumer’s access to the service, for example, if the consumer is no longer in good standing.

• Consider daily limits on the consumer’s costs. Consider imposing a cap on consumers’ potential daily costs from the overdraft program. For example, consider limiting daily costs from the program by providing a numerical limit on the total overdraft transactions that will be subject to a fee per day or by providing a dollar limit on the total fees that will be imposed per day.

• Monitor overdraft protection program usage. Monitor excessive consumer usage, which may indicate a need for alternative credit arrangements or other services, and inform consumers of these available options.

• Fairly report program usage. Institutions should not report negative information to consumer reporting agencies when the overdrafts are paid under the terms of overdraft protection programs that have been promoted by the institutions.

This concludes the text of the final Joint Guidance on Overdraft Protection Programs.

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[THIS SIGNATURE PAGE PERTAINS TO THE FINAL “JOINT GUIDANCE ON

OVERDRAFT PROTECTION PROGRAMS”]

Dated: February 15, 2005

Julie L. Williams (signed)Julie L. Williams, Acting Comptroller of the Currency.

15



By order of the Board of Governors of the Federal Reserve System, February 17, 2005.

Robert deV. Frierson (signed)Robert deV. Frierson, Deputy Secretary of the Board.

16



Dated at Washington, D.C., the 16th day of February, 2005.

By order of the Federal Deposit Insurance Corporation.

Robert E. Feldman (signed)Robert E. Feldman, Executive Secretary.

17



By the National Credit Union Administration Board on February 17, 2005.

Mary F. Rupp (signed)Mary F. Rupp, Secretary of the Board.

18

EXHIBIT E

verdr ft rotection

A Guide for Bankers

Table of Contents

A Guide foJ: Ba.nlJ:.eJ:S 7

Bow J.l'o~·m.al;lzed Overdraft Protect~OX!- J?rog,l.'ams Work 10

Wb:y AJ::e More Bankers Consid0ring Fo:~.·xn:;.Uiilecl Overdraft Protect1ou'l J.~

Common ConoeJ:us 13

Addressmg the Reguia.tory Concerns 16

Recommended llest Pl:aotb~e "Po's a.nd Pon'ts" 18

Co».cht.dlng E.emarks 21

Append.ts'; 23

rage .,

,...,., .... ~ .... 41" 'P ... h,,,.,t.tnn A c;,,1rif1: for B;,_nk".,;~

OVERDRAFT PROTEC.l'lUJ.\1 A GUIDE FOR BANKERS

Opinions abound about overdtaft services- those f~)rroalized syst~m~ handling

NoH Snftlcient Funds (NSFs) presented on a customers account. Nessa Feddis, Senior Federal Cou11sel of the ABA. offers her insights in a recent article stating

"the basics of bouXJce prolection are sound.") At the same time, lhe ConsutneJ·

Federation of Amo:::rica as~erts that finunciaJ orga1llzations are deliberately entic-

"customer-odel'lted" virtues, while tne news media presont overdraft users as pictures of despair. CEOs of some financial organizations tout the benefits to

their customers, while others disparage the p1·actice. Some bunking organizations sign deals with vendors to endorse the. programs, while a few publisb neg

utiYe opinions about them.

With tbis wide range of opinions, it i$ no wonder that mtmy, inside the industry

and out, question the practice and/or the methods of overdraft servi<;es. As a

fioancial executive, how arc you to approach overdraft services in order to best

serve ym1.r customers, shareholder!>, and the pu!)Jic welfare?

Offering an overdraft protection program Js a decision unique to each executive

and organizatiQn. However, sometimes lost in tbe beat of the debate is the clnt

ity crented from a common set offsets. Concerns and fears grow in the

absence of facts. Lcgitinu1t.e questions exist about ovcrdr<~ft services, and they

deserve an analytical answer. Why ha> tbe overd~;aft issue ;;.rise:o J>O fe.rvently

nmv and not 20 years ago? What arc tbe beMfits or rcaso!l.sfor a tormalized

overdraft progrnm at your financial institution? What arc the regulatory compliance components? What Me recommended best practices, a!ld what practices should be more cautiously considered or even avoided'? furthermore,

concems of the media and consumer gr:oups alike have made it clear: thal there are defioitely potential riskl; 5$!'iOciatt:d with overdraft pl'o~rams, in the event

the bank makes a mistake or "over-rc::nche:~" io the implementation.

Before. mald1lg a decision, each bank should review any program being consid

ered wlth a cl'itical eye towards what is "right" for (he customer and the bank.

We hope that this guide will equip you with the background and knowledge

you need to roa.k.e tbe <ight decision fol' yotlr bank.

'l'i"""', r:ilt'<:n Fcddi~. "Will w~ )'(J)I ~''"'rut ser~·ttoe?· • .,.m I>InkiiiJJ.k>ttmal, Aprill(~)3, 4~. '(;''"'"""' Fcltl<\1(0~ (>J" A!ncrl("ll end Nmion:>l c,;n•umcr Ull'" C•nltr. ''SJVI!IX' f'ro\C\)U{)n: How l<ml:.< "1\\ttll~bb<:f \11\0 On!~ b}" t;ihtidng C<lii>UIIIOC. to Wr1tt l:'lld C~0.:~1," !7 bn. ~(~)3, 4ll<p>l•''"":e<msumcrleu.urglb<;un«<>ppcndh<ll2603,pdr..('l7 SO~lcl!1ber;:!!Xl3), !l<ctinn 6.

Tlte Origins of the "Late Payment" Choice

Overall, conS\Imet• perceptions nbout debt and late pnyinents are changing. A few years ngo. some consumers I.!Ollr\ted on "float" to carry them throt1gh times WI\ e.) they might have beet1 low on funds betweel'l paychecks. Over the past few years, 11oat has been considerably decreased due to improved, automation of processing sys~eros, the increased \ISnge of Internet banking, and the reqttiremeot$ of the Expedited l-"r.mds Availability Acl. The ill creased time to dear a check that so many C~1tU1ted Ol) before is no longer there.

Currently; on most of the bills lbat consumers pay on a mot'l.thly basis, the recipient is given the oppottunity to pay the bill ~)11 time for one amount anti late for a different (higher) amount. Consumers who choose: to utilize the late paymc1Jt ortion arc awnrc of the late fee they will pay fol' this service. While one could certainly argue ~bl;l.t this ls financially impntdet)t, it is n choice tbat

many malcc on a montiJly basis.

Utility companies sucb as phone, gns, wa1e1·, cable, and electric providers made

this adju~bocnl towards late paymc:mts in their policies in the 1990s. Prior to ~heir change in approac;h. the$e industrie~ often faced custmner and public pol

icy embarrassments when they discontinued set'vicc due. to Jack of pay,nern. In order to meet c~•stomc,;s' payment needs. they changed their apptoo.ch, finding ways lo sQrve customers who ha.ppe1\ed to be strapped for cnsh between paychecks. Below is a s~1mple disclosure statement from a utility company that uHows cu~tomcrs to pay their bill~ ut a later date for an additional char~e.

aample Wa.ter UttUty l>ol.loy Statement

P<lyments: Utility pay~nents are due by the 15th ~,f the ll1Ql\th. Utility payments CruJ be deposited in the drop slot located in tile door of the City Ofticc.

J..ate Pavwents: Payment$ receive(! ~fter tbc 15t}l of the month are considered late. A late ch\lrg~: of $.25.()0 will he added to any bill not p~1id oy tbc 15th.

I I I i

Dis~QJmcct: ! """''~ wH\ bo "'oo'"~'"' if •''m'"' '' ••' "~\ood by '"' ~~~ .U.y of ''' mon<b. I Reconnect fee l5 $25.00.

Overdraft Proteetlon A Guide for Bax:>l<~rQ

~y cBflsu'H1frs~•an'iflV'ot&~ sYfrilf!t?rMt'H~'6u~'1IV8Y'IY!'«-tll~~A·~Yl~P\"'t-ll,r.\?"Plfllil(.'ifl. if paid by a certain date, and a higher nmoUJ)! if puid by a latet date. In defin~ ing why customers paid late fees, <me utility study found lhut a significant segment djd so even though they have sufficient fiiHUJci~l resources.-'

Bankers may want to C011sider the way they communicate with thei1' customers regarding ov~tdl.'awn accounts. Compa1·e the sample utility bill referenced a'b~we with the method fim~ncial institutions commonly use to communicate '''ith their customers. Non-bn11k companic~> typically lnfo1·m the c<,nllll(J.1e~ of

their methods of handling thelr account in tbe cveut the consumer d<>es not meot tb.eir obligations on time, and they communic~te tbe fee associated with this. They do not actively entice customers to pay their bills late, but they communica~c how the account will be handled should the consumer pay late. Contrast this with the co1mnunication sent out by the bank. When an item is presented to an acco\l!lt with insufficicmt funds to pay the check, the bank generally sends out a terse notice iodicnting that the customet did not have the futJds in their account to cover the check. The communication usually Jndicates that, although the bank may have pl;l.id the check, the practice of falling bei<Jw the m~nimutn balanc~ in the account is not something the bank encourage~;.

The New Dynamics of Cheoking Accounts and Customer Communicatiou

As new payment option$ have nourished over tbe past several ycn:rs, the methods and means hi wnicb consumers use checkiog accounts have also changed. Rather thn.o. having on I)' checks tlow through their checking account, consumers now have many ways to access their funds, such as Internet a~::cess, ATM acce!l~, etc.

A by-product of having multiple <ieHveJ·y channels is that c.:onsumers now need betteA·, mom specific conm1UI1icatlon from tinancial institutions regarding use of these accounts. financial institutions should be awal'e that in regard to COA1-sunu:n:' attitudes toward late payments, the en\'ironmcnt is changing . .Banks l)ecd to be able to clearly articulate polices so that con5uAncts can make

'I'P£!0< D. t:o!t~n. •!Jot<m•i•l;o~ tho C<\11 Slc;.:llv~no" t11' Utilit)·l.nto P•yn••nt Cb~t~," July 19':14, hllp:il""~v.f<~<,,nline.c,mW~\\'Uio:)drJLA:r'B.FE.!l.ptlr I 17 S.pl<n,b<< :U11)3).

informed dedsions as well as ''nde1·stand the banki; policy I'Cgarding NSF fees when a customer m~stnkenly overdraws.

The Dilemma

Many bankers believe that a response tnnt discourages overdrafts l!'J the accepted

course of a.clion. They believe that ove1'clt·afting a checking account is simply "wrong." They believe that banks should actively discourage ovcrdrans and they view NSF feel; as "pul)itive" fees that are designed to d.i~co,lrage the activit}:

Other bankcl's believe th~1t most of theil' custom~rs u.re good customers t\l.u.t w\11 ultimately clear l'P theh accounts, and that paying an insufficient item is better

for th~ custon1e1" than returning il. Wb.lle not encouraging overdrafts, these

bankers bdicv~; that tbey are actually helping theit customers avoid other fees

and providi.~:~g them a \'aluable service when they pay ovcrdnl.\\'11 items.

Which view is a.pp:eopria.te<l Or more ptecJsely, which view is appropriate fol' yout• ba.nk?

In I"X'!ally case$, these two views are not mutually e>(dusivc .. Bu.nl<ers do not

want to actively encourage overdrafts, but they do wn.nt to provide g~md cm;

l~)mel' service whenever and wherever prudont.

HOW FORMALIZED OVERDRAFT PltOTECTION PROGRAMS WORK

The first qucstiou you migbt a.c;k is, "How do these pfograms wo1·k?" An example may help illustrate the programs' underlying concepts.

Jo!zn Smit/r is a customer at ABC Bank. John sirs down to j)£~~· his !?ills 011 the 9tlt of the month. He gets to his credit card bill atzd he m;tices that the paymem is dlle on ffw 15rll. or he can wait and pay it on the T st oj the followiJtg month, in which case he will be charged a $36 !all: fr;e. He decides to wait and pay the credit card bill late because lze has a11 unexpected emergency expense that he /leeds to pay immediately, John wzderstmzds "the deal" with the credit card compa11_v ~ rhey hl).vq <;ommunlcatad this to him wltlz every bill. John

1/.rzderstands tlzat Jze will inc~r the late fee, but in spite of this. he makes the decision to defer tlze payment.

Jolm isn r ,mre how ABC Bank WO!Ild gel!erally handle it if he were lO preseut I;!/ I NSf' check. In the past he has presented checks thCil were paid wlzan ju11ds were not a1•ailoble. lmt lze ltas also preset1ted some that were returned. The bal!k s communication in both cases was ver:v s/lorr and did not inform Joht! how they made their decision. As a re.~ult. Jolm lza.y no <-"'mjort at all as to how the bank might handle the next check he presents.

ABC Bank decides to begin o!fari11g a formal overdraft progr<1m. Through a variety of teclmiqucs. tlte ballk commtmico.tcts clearly with John t;mr) gcmerally makes him aware of t/leir decision-making process. When Jolm is m!.l!t faced with making the decision of whether or not to pay the credit card bill, l!e now CO!Isiders his options. ffe can COiltinue to pay the bill/ate as he !las 011 occasion in the past, or he em; go ahead and write tlze check to the credit card compa11y today mzd have some C011!/ort that the bank will probably pay it. He wottld pay the; bank $20 (their NSF fee) v~·. payi1Jg the credit catd company $36.

The Informed Consumer Effect

By aommunicating with custome(S, banks that offer formalized ovcrdrl!ft protection progrums achieve the "lnformed Consumer Effect," helping participants

to make an informed decision on how to utilize thj~ sen•ice, should tbc need

adse. 13ecause John is give11 soluc comfort on how his clu~ck wiH be hWJ.dled,

he shifts a fee from the credit card company to the bank and pays less In fees.

Just b.~'>V\' does a hank comm\znicate with a customer? This Js an area whcrt~ bankers shmtld proceed with caution. A non-recommended method ~,f commu-

nlcating witll customers is to market the service aggres:;ivc::ly. A ft:w banks put

\tp billb~)ard!!, take out radio ads, and do regular monthly statement stuffers.

But as th~ Office of the Comptroller of the Currency pointed out ~o. hHerpretive

Letter 914 (IL914), thit1 could have tne appearance that the bank is attempting

to entice customers to c..>Ve.rdraw their accounts, I.I,U ~totivity that at best is "frowMd upon" by consumer groups, and at worst could be considc~·cd an

unsafe pmctkc. At a typical bank, 60% to 70% ofthc customer base ocver (or

raJ·e)y) present an insufficient item, and marketing to thetn is wasteful.

However, an efficient, fah·, and consistent process could also be considered an

O{Jpol."tunity for clen1· communicatlon to customers- a way to enhance a customer relationship. Customers are often confused by tb.e NSF dcch;ion-making

process in tho!le banks that do not have a formalized program, since there ls

often inconsisteocy in payment of NSF items. Banks that o1l'l!r a formalized overdraft program have the opportunity to establish consistent guideHnes for

paying NSF items and to inform and educate customer$ who usl': the service.

WHY ARE MORE B~NKERS CONSID~RING li:'"O:RMAL:XZJ:I:D OV;B:J:R:D!RAJIII'JL'I P:CI..O'.I'lli!C'TT.O.~TQ

As of Jmw:ary 2()03, the Consumer FcdcmtitJU. of America estimated that more

th~:~n l,OOO banks i1) the United St1,1te:. use form~H:l:cd overdraft protection pro

grams, and that number is steadily growing.• Why are more \)al)kers c=onsider

ing these programs'?

1. A New DeOnition of Customer Service Ooe of the most conJmon complaints by consumer groups about ovcrd.raft pro

tection S~:Jrvices is tbat banks with these programs are providing "bad" customer

service. Some consumer groups equate the paying of ove!'drafts with "payday''

lending. They believe that paying an overdrall item is equivalent to taking

ad,•antagc <)fan unh1formed cus(On1eJ·.

However. this sc::erns to be an oversimplification of a much broader issue.

Think about it from the perspective of your customers- would they consider it better customer service lfthe bank paid their check or returned it?

Bank cmplo}'lles also benefit from ~.t. consistent overdraft progt·am that offc::rs them .(;!\\id<tJ1Ce 011 how and when to cove~; overdraft items. Sillce tltey ca11 now

dofiuc their overdraft policy aJHI explain it lo tbe customer, they c:an offer bet

ter Cl,l$tomcr service. Defined overdraft program guidelines cHminale banker and customet confusion and lead to hnprovcd customer service.

2. A Way to Avoid Discrbninatory Practices Organized overdrnt't protection program$ formalize a process th~tl has been han-

v y u ,& "A ">A ....... u ...... ..,., .. ..,- ,.,,. .,. ---- M-.. ... . . .

ctled inlonnally aud in a dlscreliouary manner in the pnst, making it more equi

tabl~ and consistent. In ger)eral, banks have historically paid items for some

customers and not paid them for others, based mostly on a variety of factors,

including account hi11lory and the relationships the customer has with the per

sonal bankers or CSRs working in the branch. By using ovetdraft protection

software and more efficient a,utomation, the banks th.at implernent these pro

gmms state that tbey are attempting to treat all customers more fairly.

3. lnet:eased. Opportunity Wb.cn banks formalize thcit programs and di:;dose them, they lc!!rXI. that some

custt)mers find lhis w be a valuable ~>en· icc. These customer~> ch~)o$e to w!'ite a

check a few days before a deposit a)ld pay the NSF fee rather than pay a. l<J.te fee

lo the check recipient. They choose the bank option because the costs are gener

al!;' lower than th~)Se imposed by the me1·chant or olher payee, and it prc:~ents

. less of u hassle. Financial inslit\ltions that formali7,e thel~ process and disclose it

to custo~;ncrs allow their Cl,llltoroers to make intonnt.~d decisions for;- themselves.

COMMON CONCERNS

Bartl\ers need to address a nmnber of concerns before tbey decide to implemc~1t

such a tonnal overdmtl program, Questions raised by the media aA'd con

sumers groups alike have spawned a variety of concerns.

Perceptions of "Abuslng'' the Customer

Medin and co11sum.cr groups have "~'iced concerns that some overdruft protcc

Uon prog1·ams arc by nature deceptive and designed to t~kc advantage of con

sumers. Q{her media l'eports discuss cases ix) \Vhkh banks have allowed cus

tonw:rs to overdraw with their ATM or dcbil card, at ejther the Al'M or the

pt;Jint of sale, w~thout notitication that they we~c overdrawing the accouiJt oJ'

that tl\ey would be charged a fee. (Reg DD requh·es fcc disclosure at account

opening and on pt?.riodic statements.)

It is interc:-ling ltJ note tha.t in most overdraft discussions \be media and con

~umer )!rouvs ofte11 11loss over individual con~uroer responsibility. PX~.nk!'J only cbarge these fees to consu.mers that present NSP items. Overdrawing i~ a dis-

i"t>. ge 13

cretionary activity and is completely avoidable, much like the decision to US~;> a

foreign ..O:fM. ln both cases, tl~e service provided Is merely responding to ctiS

toroc• !'ICed and bch~vior.

Although the ultimate responsibility lies with the consumer, situations may

arise in which a customer becomes overextended and is unable to pay back the

overdrawn amnunt and :;Ub$equent fees, As t.:UStt)tner service organ)7;ations,

bank:> should be aware ofthe~>e sittJ.ations and work with the customer lo

resolve the ilil!Ue. Any prqgraw allowing dm:>nk cyve!'drafts tht\l put the cus

tomer in difficttlt fim'!llCAnl circumstance)) may seem to take advantage of a cus

tomer and, of course, should be avoided. Banks should communicate cleat·Iy and frcqut:ntly with their customers ~·egarding the status of their accoMt bal

ance. Th.t: bauk may th~n offer the overextended customer a repayment plan, perhaps at a low interest ~.ate, or reduced NSF fees to help d10 uustomer reco,·cr

lrom the Situation. The checl<ix1g .account could be left open and available. as

long as the c\lstomer meets their repayment obligations.

App19arance of Violating C1•edit Laws.

1"'1 ...... ., .... - •• t , .. ,.1'1!-t ..... ··h:.tl•a,..t't l'h:.+ h71nk<'t Af"("' .... AfcircinF" ~r~dit )a,,.,t!~ \Vhen thev 0~\V overdrafts. The reasoning applied was that an overdraft is a short-term loan

l!nd the NSf fee imposed is interest. Some cons\Jmet advocates have stt>tcd that overdrafts amount l~) toaltS with very high intetest rates. somt:tim"s exceeding

1,000%.

These allegations ig.note the fact that many banks charge the same fee whether

the itcn~ is paid or returned, and there is no differential for over<h:awil:f~phc<~,ccount. Mol'e specifically, at mos~ banks customers do nol pay any additional

fee for overdrawitlg (heir accoullts- they me only charged a fee for presenting

an insufficient item and tlte bank subsequently ha!)d}ing the item.

Credit laws apply when a ba11k extends credit to a co\lsUmet. According to the Truth in Lending Act, 15 USC 1601 et seq. (TtLA) and its implem~nting

Fuder"l R"~".r''e R.!-nul-:atir.m Z, l? CFR P"r' ?.?.6. "CtP.dit tnt>:~ns the rieht tn defel" payment of a debt l)f lo ~ncur debt aud defer its paymen l." Th~!. bank UUt::l> llUl ~HUll U H~l!L LV <.n·et Ullll.l'". h I» 11 l..ll~'l..l"-'<l'-1110.l) <>'-'•1 tl•y v•• •I•'- .fl'-'" vr

the ban~- Credit laws have not applied to bank overdraft feos in the past, and it is unlikely thal (b.ey will in the fuh•te.

As sta~ed \)1 the American &uke(S Association letter from ABA Chaitnlan-Elect Ken Fcrgeson, date(! Mal'ch 21.2003. "Overdrat\ protectio•J has been around for a long time, hut has evolved over the years. Under automated bo\1!1.Ce prot~ction systems that are now gaining in p1)puladty, banks disclose that they may pay ovc:rd:ralls up tQ a limit-usually between $100 and $500, depending: on th~ customer. The fc:aLu:rc is typically uvnilabJe to all those eligible to t1pen a:n accoulJL Tbere is no creditworthiness test as there:: i~; for an overdraft line: of crediL. A Hat fee is cl\1l1'ged for lh~ overdraft, regardless oftbe amount.''

Scvcrl:ll bal)ke.rs have showJ'l. hesitancy toward overdraft protection programs

because of potent~al changes (O Regulation Z (Truth in Lendhtg), which would

en use an ovc.rdrafl to be considered a Joan nnd rc:h!tc:d charges to be interest for

APR purposes. For decades, ~lllder the terms of Regulation Z, regulators have

not generally considered ovordtaft. fees to be a loan when the item is paid. Prior hisl~)ry with other regulatj~)11S has shown that the Federal Reserve changes

them only after careful consideration.

Moreover, any change: iJ1 tegulation would likely impact the p~1yment of all NSI..itcms, not just those items at banks with formal ovcrdtllft programs. It would

be a Yery detrimental ch~nge to consumers for the regulators to alter regulations in snch u mal:))ter that banks could effectively no longer pay any overdrat'ts.

Incurring Too Much Risk

lt may appear upon iJ'l.itiaJ review that paying ovordrnfts would increase the qveran riSK JeVO!S ~11 a 11SIHI.. t'\.,llt:r au, Utl:i o.u:i~\1111"'' 11:1 LYJ''"ct."Y u'" '"''-~"'""'"' '" complete. any type of application for the serv\ce. Most banks do not subject

customers ro a formal underwriting proc~::ss pdor to allqwing the customer to

overdraw thtlir a<:c.:Otln t. "l'he bank typically does no~ obtain credit scores.

Prudt::nt ban\<:crs must approach ~Il overdraft program as they would any oth~r

new product or service offering. Analysis of the particular program must be

performed with the l;!anl.ci: overall risk tolcnmce in mind. Acceptable levels of

dsk must be determined \)dor to entering uny prog~arn and monitored after

implemexHation.

Mc1!lt bankers who have imphm:1e11ted a formal overdraft program indicate that

charge-offs do, io fad. increase. However, they also indicate that tbe overall level of charge-oft's is within acceptable levels of risk and the benefits of the

ovei'drafl progrttn1 outweigh the inct·ease in charge-offs.

ADDRESSI.NG THlil Rl!:GULATORY CONCE:SNS

Regulators ha.ve e"pt·cssed concerns whc.11 ~cvi.c~vhtg overdraft protection p~:o

grnms, and all bankers couside)'ing this service should ra.J.;:e care to address

and further defined in the ABA leHer dated March 21, 2003, fwm Ken

r'ergeson, ABA Ch~;~irroan-Elect. IL914 outlines three types of regula.tory con

cerrll> wHh re~puct to one particular overdraft protection program. They

include: l) Compliance Issues, 2.) Supervillory Concerns, and 3) Polley lssues.

We recommend studying IL9l4 in depth and reviewing the COJ)Cetns of the

OCC with legal counsel. Howevel', there arc basic steJ?S bankers can take to be

proactive in addrussillg these regulatory concern:>-

Define the J.>J"ocess Specifically. For mauy years banks have paid checks on au inconsistent basis, oftel1 times

lacking uni\·ersal guidelines that employees could follow. Often, banks did not

have a, formal policy in place to guide ban.kers o.o b.ow and when to cover an

overdraft. Defining the proc-ess spncit1cally will help to allovinte compliaJ)ce

concenJS. Due to simple human nature, when paying Ol' returning an overdraft using only personal discretion as a guide, inconsistencies will result. By applying consistent criteria across the b~)I\J'd, the entire prot'ess should become:: con

siw~ntly impl~Io.ented with all customers.

Pg.ge 16

Use Detailed Reporting and Tracking. As pnrt of the banks formal process, the bank should use detailed reporting and lrncking of accounts in the overdraft prolcc::t.o.u program. This wm ensure that

all levels of management rernaln apprised of the program, and that potential abusers of Ulc service can be ::;potted and addfcsscd appropriately, iJ;~,cludin.g being removed ftwn the program .

.Avoid Statements that Seem Like Commitments. In oJJ written communication to customers, be certain to stay away from statcInents that sound like absolute cornmitments to pay ovcrdnlft$ (e.g .. "never inc1,u a mca:chant charg-e again"). The Office of the CQmptroller of the Curn::ncy in its Interpretive Letter 914 (IL914) (JOints Oltt that the Federal Trade Commission Act prohibits dec-eptive acts or practice1i, including representations or omh;sions that an: likely to mislead reasonable consumers, Carefully

word all the ba11k s customer comm\mtcations to explaio the overdraft proces!l clearly and directly. )3e sure to acknowledge that the process to pay NSFs is

complete.ly discrcti(mary and that all 1werdrnfts will not be paid a.utornatically.

Avotd ".Entlcin,g" Customers to :6egin l'resenting N'Sli's. St\1dies bave shown that most customers do not overdl'aw their accounts, nor do they want to. ln 2002, Rnddon financial Group estimated tnat nearly 60% of customers hal'e little or no interest in NSl; sen·ices. Heavy marketing or an overdraft proteclAon program could give the llJ?pearance that the bank. is attempting to entice customers who currently do not oVel'draw acco11nts to begin overdrawing them. Aggt·cssive marketing can potentially back.fifc:, even though the i1Hent may simply be to inform the customer of a helpftll, ucw scrv~ icc: that ls now available. Instcl,ld, establish sound, custon:u::r-setv{ce responseM oriented policies for customets who overdraw their nccou11ts. Abovl:' all, do not sluto ~ht'l~ overdrawing is an acccptublc practice; offct• alternatives. The bnAtk should also provide appropriate disclosures at the ATM and teller '"'indow if customers are allowed to ov~rdmw their accoullts at those channels.

Use the Same Fee for .Both PayiXI.g and Returojng.

One of the "tests'' offered in 1L914 for determining if an overdraft fee is a

tinance charge or not, ns stated under Regulation Z, is whether an NSF fee is the

same regardless of whether a check is paid or retut·ned. By charging: the same fee in both insranc~s, th,e fee is unlikely to be considered a ''finance charge .. "

Page ~ 7

Utilize Eff~etive Risk Management Techniques. Bmlks tbat monitor customer behavior can r;ontact those custom~;~rs \Vho exhibit

c;x.cessive or abusive 11s:1ge and inform them of bani:: programs that can help

them m<tnage their account balances. This practic~ should identify customers

who sho'" a serious lack of accou11t management so that bank o1anagement can

make decisions on the C\lstome~l> continued invoh•ement in the banks over

draft program.

RECOMMENDED BEST PRACTICE "DO'S AND DON•TS"

ln addition to taking ptoactive steps to address t'egulatory conceJ:ns, adhering

to certain "bc~t practices"' will help ensure that an ovcrdrafl protecti<>n program

take:; the right approach. The ma~n best practices that all bnnkel's should know include;

Best :Practice "DO'$"

l. Do h'fonn customers that tbe bank has other ws.ys to handle oveJ;"· dm(ts, such al5 liPes of credit and auton~atlc tl-a•tsfers. Clear cornrounicn

tion will give customers all the information they need t\1 ~nal\e at) informed

decision. Let your customers know that the bank h~s othq·, potentially less

expensive ways to hnndle overdrafts,

2. Do proactively offer an "opt-out'' giving the customel"S a choice. Some customcl's may not want to nave their items paid, nod they should be given this

choice. By sending each qualified customer a letter with ao opt-out clause before the program is implemented, bankers arc ensuring that all customers are duly jnformcd u1~d a~e aware of their altcmatives.

3. Do monitor customllt aetivlty, and don't let customers abuse the service. Utilize software tools to generate detailed reports that will allow the hank lo track CliS\omets who ll.)ay he abusing the privilege. Coxlsidel' contacting and notifying freque.nt overdraftcrs of (he c~1$t of these services, and suggest a n'Jecting with bank officers to consider other altcrnalive~ to ovetdrafting.

P "-!!' e 1 8

4.l)o apply good risk management teclmlques, using software to monitor usage. IL914 notes that overdraft protection programs co\ll<.i increase a bank's credit risk J?rofHe (e.g .. higher delinquency and loss rates) by extending credit t\1 borrowers whQ may not have normally quallfi.ed for payment of overdrafts or oYerdraft protection, By utilizing software ~ools with rob\tst rQpottlng capabilities. you should be able to .minimize this ri$ls. and manage it nc:cotdiugly.

5. Do communicate -with customers often, using :multiple channels (i.e., letters, phone calls, email). Tt is imperative that bankers notify custO!\,ei'S as overdrafts are presented and then contintle to communicate with tbe customer while tbey a~e overdrawn. A$ ABA Senior Federal Counsel Nessa Feddis states in :a.XJ. April 2003 ABA Bankins Journal artklc, "A con!iUll.ler underst:mdiJlg of bank practices ill I h. iS matti>J," (s absolutely critic(l} to avoid charges Of tU)fair play."' Cotnmunication and educatiou of customers will help to dispel the mystery ofthe p\\1Cess and enhance the overall customer rela!jonship as well.

Best P:~:aetice "llon'ts"

1. Don"'; use aggJ:essive marketiJJ.g, ODe of the biggest red fl~;~.gs for (egulators and consumer grours allJ<e is n progrmn that tries to achieve increased revel)uc

through aggressive marketing techniques. This kind of customer communication ~lso makes )t seem as if lhr, btln.k is attempting to encourage customers who have not prc;!:;entcd NSF!i to begin presenting lhcro.

2. Don't step over the line from a compllance pen;pective. Regulators may q\testion programs that give the wro1~g Jmprm;sion about the scope of protection offered by the program and in turn ovcrscll its benefits. When communicating with customers. it is important to use clear, precise, mld nccUI'ate language Lbat U~)vS 11'-'t attempt to ovcn;cJl the cu~torner. Keep in mind Lhat thi$ servic:e is disc)'etional')'. and therefore uvoid pro\-ni~c5 ~1r w~,mls that sound like

commitments to customers. Claims nf"no more charges from ret~ilers fqr insufficic::nt chect-s," "make a mistak~ -you 'Te covc::red!' <Hid "wdte a check or u::;e an ATM for more than you have ill \be hank - you're covered" are overly broad statements, given the limitation~ of these progr:m-~s.

·'l'oddi.•, 4(1.

3. Donl allow customers the opportunity to access funds that will pnt their account into a negative balance at tbe ATM, through "VOS, or teller w~ndow without customer knowledge. .Banll:s should communicate dearly witb theil." customers and disclose all fees and charge!> associated with

If bankers make the decisioo to .allow customers to over<i ~.nv tb.eir account b~l

ance at the ATM, tlll'ougb POS. or toller windowj if technically feasible the bank

should inform the customer at the time of the transaclion that they will incur

an additional fee for overdra,ving under (he circumstanctlS. rf this is not tech

nically foasil:>lc, the bank sho\Ild place notices at the ATM or h.avc a policy An

()Jace th.at does not alh)w tbe customer to Qv~rdraw the account ul the .A:rM .

.LAU.~I.\...J "'&AV,•A..J. A.,~o,•~ •••.&..,1.,.,,.,..., \:~,.,...,&,. ....,.._ • ..,.-..,,.,,,.,-,. •• ··- ~o- .. a __ •••"• .,l\ t. ,,1.,,. ••

account and they should clearly present balances t~1 their customers in a format

th.u.t is easy to understand. For e,:ample, if the ovcrd.rnft limit is included in an

''available balance," tbc tcx.t on the ATM scrccx~ a1~d receipt should :;pecificaUy

state that the balance irJcludes the overdraft limit. Mistakes are easily made if this infr;m•)atiot\ is not communicated to the customer clearly at the time of the

transaction. Additionally, bnnks should consider waivh1g any initial NSF fees for cll$tomers who inadvcrtenUy t)Verdrew their checking a,ccount due to any lypc: of COilfusion at electro1~ic chnnoels.

4. Donrt l~ave Qut effective risl\ mnnage~ent. Given the h.)~S history of bank

overdraft programs. bank management should develop reasonable loss recogni

tion guidelines and establish loan loss reserve methodologies to ensure timely !~151.1 recog,lition and estimated loss c~we~age. This is imperative. Strict lossrecognition prograrns and tracking are l'ecommeJJdcd.

CONCLUDING REMARKS

With the \\'Ade rangC' of opinions and heartfelt emotions concerning 0\'erdrafl programs, it is no wonder that maoy inside and outside tbc indust•·y question

either the pmctice or ~he methods of overdrat\ services. ln sorting th<o~1gb the facts and opinions, history can be n.o. excellent guide. Jn the lv1ay 20, 1961, issue of Busi,zess Week, the h~adline read, .. With tbe Fed showing no signs of

easing lts regulations, bnoks are doubting the wisdom. of offering certificates of

deposit.''~ Belitve it or not, thi:; ~tatement was made concerning negotiable

CDsl

Even the most pedestrian of bank product::: todny, certificates of deposit, were

once the subject of nmch debate and con~;ern. Consumer needs often are a!)ead

of regulato<y management and public policy. Such may be the ~;nse with for" maHzed overdr~;~.fl programs. Ba\1kcrs, however, ml).:;t carefully conside!' all sic;les of the r~)fma.li7;ed overdraft \)ption. to make the bet;l decision for lht:jr

banks.

:;:

APPENDIX Letter to Bank CEOs f1•om tbe ABA Cba.i.l:'man-Eleot.

Date: March 2 J , 2003 1o; Bunk C:EOs from! l<cn Fcrgeson, ABA Chairman-Elect

7T •• ,. .. ,,l..~., ... ...l..,. ,..,,C J,... •. ,..,t,..,. n""A n.W.o..t•lna ~ttft'\n'\OtPt"t hnnnr&- :ntf'\fP.£".tinn On Checlcinll accounts, a new version of bi.l.nkcrs' traditional practice of pnyi:og overdr~fts. Many other banks are con.~idering it Tl'lat's why rm writing. As ABAS Cbl\itroan-F.Iect andll c:ommunity banker. I'm hearine a lot of conceto about this producland the consequences of offering and promoting it.

AJl l)anl5.ers wa.nt a lau: return. oul vau,11.cu, UH>v 1, .. ,.,.," '"'"l'v''"'v'"'' ,..., .. ,.,, ...

customers f~tirly and provide them with clear, conspicuous disclosures. One misleading phrase or questionable ad can destroy your customets' trust in a

heartbeat, an s.wfuUy high price lo pny. As one compliance officer wrote about paying interest on investable l;>alaJlces, "Its cut~. lt's legal. Don't do it!'' Wbcn put under a spotlJgbt, that practice Jed Congress to e~Jnct the Truth-i1,-SuviA1gs Act and the F~d to iss\Ie Reg DD. That example could ben preview of coming attractions if bankers don't look carefully before they leap into this.

Consurocrll Jill.~: uvtm.h tt:fl P'~'to:t.:ti<"lll. It can s;,:vc thc.:m ;ctul'!1cd. ch..,ck fear,

fr\1m t:l'editors or roerchants and avoid turnb;hing their credit rating in credit bureat1s and databases. But some of tbese products have drawn fire from the rr:gnlators and in lhe medin-and litigation won\ be far behind, n5 customers stat•t complaining l.l.bout unfair treatment.

Overdraft protection has been uround fo~ a long time, b\st has evolved over the years. Undcs: automated bounce protection systems thai are HO\V gahl\ng in popularity, bauks disclose that they may pay mertlrafts up to a. limit-usually bct'l'\·een $100 and $500, depending on the customer. The feature ls typically available to all those eligible to open an account. There is no ct·editworthin.css

test as th~r~ is for an overdraft line of c;rcdit. A t1at fee is charged for th~: overdraft, regardleS$ of the amount.

Page 23

Befo1·c you offer a bounce protcctiou ptoduct, decide if you'd want to detend the one you're considering in yoUt local newspaper or to your regulator. To

protect you~:self and your institutions reputation. you should, ul a minimum;

• Disclose, disclose, disclose. Disclose costs and terms in thr:: agreement fully

and conspicuottsly. including treatment of debit card ovet•drafts. And

disclose charges pl.'ominentl;y in statements.

• Make clear that toe bank is t)ot promising to pay checks, even jf the

consumer meet~ the criteria for payi:ng an overdraft.

• Do not e)lcouragc overdrafts hl your marketing materials, advertising or

co1nmunications. Some customers have bounced checks b!:'C<IU$e, on

to their true baiMce, leadh1g them to beli~:n'c they have more tb.at~ they do.

Some bm1k messages encourage them to use the product anytime,

• Monitor the account for frequent use of the service. Customers may not

understand how t(J U.Stl i£ appropriately,

,..'\ll of these efforts may still not be enough, Done carefully, automated bounce

protecti<m programs can be good for your c~Istomm·.~ and for the banks. But

\l.rithout undcrslaodh1g how your program wHI be seen and judg~d ill your

communitY, in lh" O::l:eocies and in co1,1rt, i_t could ber.-omr Y''''' Wf\l'!';t nirlh!· \U~~t:~ A'A ,t0u Ull\..1 uh\:1., ~.11\t\..'-'-''1.,1 "'-'""" '"-UUH....,u u.uv niiY""'~ v"•A'O.I , .... w ........... ""ev-·

If you ho.vo nny <j\\<lCt.ionc Ol' conc11rno:, pl.,nj)P. r.-•:>llf<>l'>t AP.A 'R<>glll,tnry DirP.rtnr

Jim Mcuu•ghl\o, at 1-800-BANKERS.

BIBLIOGRAPHY

Bercnsen. Alt!x,. "Some Bank~ Encoucage Ovc,:rdrafts. Reaping Profit" NtM York Tinws, 22 January 2003 1 A\.

Board ofGovern<JfS of the Federal Reser,•e System. Allll!l(l{ Rt!.porl fr> flirt Congre.~> IJII

Retail Fee.~ and Set·vh-es of Depository lrtstitutio/ls. June 2002.

Consumer FcderQ.tio.n of America Md National Consumer Law Center. "BoUt)Ce

Protcclion: How &'ulks Turn Rubber into Gold by Entlclng Con~urners ro Write &"d

Checks.'' 27 Jan. :l-003; http://www.cons\Lmerred.org/bouncenppendix012803.pdf,

17 September 2003.

C<1lton, Roger D. "D~ternlitlhlg tb.c Cost Eff~:r.:tiveuess of Utility l..<ltl;l P:).yment

Chafge~:· July 1994. http:l/www.fsconlinc.com/downloads/LATE-FF.iB.pdf.

17 Septc111ber 2003.

Fed dis, Nessa Eileen. "Will We Kill a Useful Ser~·icc'?" ABA Bwtf::ing JOUI"fi(Jl, Arfil 2003. 38-42.

Fergcson. Ken. LcUcr to B:mk CEOs f1'0il1 tile ABA Chairmm\-Eicct. ~I March 2003.

Office o( the Comptroller of the Currency. btterpretive Letmr #9 /4. 15 USC 169 I, I Z

CFR 2 I 5, I :2 CFR 226, S.BJ CONS, Septeml)IH 2001.

Rutldon Finandal Group. ··con~umer Trends in CnecKillg AccQU11ls:' Spring :Z.002.

''S~1me s~cond Thoughts on CDs." Busille.1·.~ Week. 20 May 1961, 138.