Regulation DD and Disclosures for DESAs

Issue/Inquiry

If the Bank offers Landlord/Tenant Deposit Escrow Security Accounts (“DESA”), is it required to provide disclosures to the tenants/sub-account holders?

Response Summary

TISA disclosures do not have to be made, since the account is held by the landlord for a business purpose.

Response Detail

Regulation DD requires the Truth in Savings Act (“TISA”) disclosures to be provided to a consumer before an account is opened or a service is provided, whichever is earlier. An “account” means a deposit account at a depository institution that is held by or offered to a consumer. 12 CFR §§1030.2(a);4(a)(1)(i).

A “consumer” is a natural person who holds an account for personal, family, or household purposes. The term does not include a natural person who holds an account for another in a professional capacity. Examples of accounts held by a natural person in a professional capacity for another include attorney-client trust accounts and landlord-tenant security accounts. 12 CFR §1030.2(h); Official Interpretations, 1030.2(h) – 1.

In the case of a landlord DESA, the account is held by the landlord for a business purpose; consequently, no TISA disclosures would be provided. Even if the landlord were a natural person, the landlord would not be considered a consumer, since the account would be held in a professional capacity. While the tenants may be considered beneficiaries of any sub-accounts opened, neither the main account nor the sub-accounts are held by the tenants, so no TISA would be provided to them.

State law may require additional disclosures to be made. Under New Jersey law, for example, the tenant must be provided with written notice pertaining to a landlord DESA, including the following:

• Name and address of the investment company, state or federally chartered bank, savings bank or savings and loan association
• Type of account in which the security deposit is deposited or made
• Current rate of interest for that account
• Amount of such deposit or investment

This notice must be provided by the landlord to the tenant. N.J.S.A. 46:8-19(c).

The Bank should consult with outside legal counsel with respect to disclosures required by the law of the state in which it is located.

This entry was posted on Monday, August 13th, 2018 at 6:00 am.