BANKING TERMS
A
Account Agreement:
The contract governing your
open-end credit account, it provides information on changes that may occur to
the account.
Account History:
The payment
history of an account over a specific period of time, including the number of
times the account was past due or over limit.
Account Holder:
Any and all
persons designated and authorized to transact business on behalf of an account.
Each account holder's signature needs to be on file with the bank. The
signature authorizes that person to conduct business on behalf of the account.
Accrued
Interest:
Interest that
has been earned but not yet paid.
Acquiring Bank:
In a merger, the
bank that absorbs the bank acquired.
Adjustable-Rate
Mortgages (ARMS):
Also known as
variable-rate mortgages. The initial interest rate is usually below that of
conventional fixed-rate loans. The interest rate may change over the life of
the loan as market conditions change.
There is
typically a maximum (or ceiling) and a minimum (or floor) defined in the loan
agreement. If interest rates rise, so does the loan payment. If interest rates
fall, the loan payment may as well.
Adverse Action:
Under the Equal
Credit Opportunity Act, a creditor's refusal to grant credit on the terms
requested, termination of an existing account, or an unfavorable change in an
existing account.
Adverse Action
Notice:
The notice
required by the Equal Credit Opportunity Act advising a credit applicant or
existing debtor of the denial of their request for credit or advising of a
change in terms considered unfavorable to the account holder.
Affidavit:
A sworn
statement in writing before a proper official, such as a notary public.
Alteration:
Any change
involving an erasure or rewriting in the date, amount, or payee of a check or
other negotiable instrument.
Amortization:
The process of
reducing debt through regular installment payments of principal and interest
that will result in the payoff of a loan at its maturity.
Annual
Percentage Rate (APR):
The cost of
credit on a yearly basis, expressed as a percentage.
Annual
Percentage Yield (APY):
A percentage
rate reflecting the total amount of interest paid on a deposit account based on
the interest rate and the frequency of compounding for a 365-day year.
Annuity:
A life insurance
contract sold by insurance companies, brokers, and other financial
institutions. It is usually sold as a retirement investment. An annuity is a
long-term investment and can have steep surrender charges and penalties for
withdrawal before the annuity's maturity date. (Annuities are not FDIC
insured.)
Application:
Under the Equal
Credit Opportunity Act (ECOA), an oral or written request for an extension of
credit that is made in accordance with the procedures established by a creditor
for the type of credit requested.
Appraisal:
The act of
evaluating and setting the value of a specific piece of personal or real
property.
Authorization:
The issuance of
approval, by a credit card issuer, merchant, or other affiliate, to complete a
credit card transaction.
Automated
Clearing House (ACH):
A computerized
facility used by member depository institutions to electronically combine,
sort, and distribute inter-bank credits and debits. ACHs process electronic
transfers of government securities and provided customer services, such as
direct deposit of customers' salaries and government benefit payments (i.e.,
social security, welfare, and veterans' entitlements), and preauthorized
transfers.
Automated Teller
Machine (ATM):
A machine,
activated by a magnetically encoded card or other medium, that can process a
variety of banking transactions. These include accepting deposits and loan
payments, providing withdrawals, and transferring funds between accounts.
Automatically
Protected:
As of May 1,
2011, up to two months of Federal benefits such as Social Security benefits,
Supplemental Security Income benefits, Veteran’s benefits, Railroad Retirement
benefits, and benefits from the Office of Personnel Management that are direct
deposited to an account may be protected from garnishment. The amount
automatically protected will depend upon the balance of the account on the day
of review.
Automatic Bill
Payment:
A checkless
system for paying recurring bills with one authorization statement to a
financial institution. For example, the customer would only have to provide one
authorization form/letter/document to pay the cable bill each month. The
necessary debits and credits are made through an Automated Clearing House
(ACH).
Availability
Date:
Bank's policy as
to when funds deposited into an account will be available for withdrawal.
Availability
Policy:
Bank's policy as
to when funds deposited into an account will be available for withdrawal.
Available
Balance:
The balance of
an account less any hold, uncollected funds, and restrictions against the
account.
Available
Credit:
The difference
between the credit limit assigned to a cardholder account and the present
balance of the account.
B
Balance
Transfer:
The process of
moving an outstanding balance from one credit card to another. This is usually
done to obtain a lower interest rate on the outstanding balance. Transfers are
sometimes subjected to a Balance Transfer Fee.
Bank Custodian:
A bank custodian
is responsible for maintaining the safety of clients' assets held at one of the
custodian's premises, a sub-custodian facility or an outside depository.
Bank
Examination:
Examination of a
bank's assets, income, and expenses-as well as operations by representatives of
Federal and State bank supervisory authority-to ensure that the bank is solvent
and is operating in conformity with banking laws and sound banking principles.
Bank Statement:
Periodically the
bank provides a statement of a customer's deposit account. It shows all
deposits made, all checks paid, and other debits posted during the period
(usually one month), as well as the current balance.
Banking Day:
A business day
during which an office of a bank is open to the public for substantially all of
its banking functions.
Bankrupt:
A bankrupt
person, firm, or corporation has insufficient assets to cover their debts. The
debtor seeks relief through a court proceeding to work out a payment schedule
or erase debts. In some cases, the debtor must surrender control of all assets
to a court-appointed trustee.
Bankruptcy:
The legal
proceedings by which the affairs of a bankrupt person are turned over to a
trustee or receiver for administration under the bankruptcy laws. There are two
types of bankruptcy:
- Involuntary bankruptcy-one or more creditors of an insolvent debtor file a petition having the debtor declared bankrupt.
- Voluntary bankruptcy-the debtor files a petition claiming inability to meet financial obligations and willingness to be declared bankrupt.
Beneficiary:
A person who is
entitled to receive the benefits or proceeds of a will, trust, insurance
policy, retirement plan, annuity, or other contract.
Billing Cycle:
The time
interval between the dates on which regular periodic statements are issued.
Billing Date:
The month, date,
and year when a periodic or monthly statement is generated. Calculations have
been performed for appropriate finance charges, minimum payment due, and new
balance.
Billing Error:
A charge that
appears on a periodic statement associated with an extension of credit (e.g.,
credit card) that
- was not authorized by the cardholder or the cardholders' designee,
- is not properly identified, and
- was not accepted by the cardholder or the cardholder's designee.
A billing error
can also be caused by a creditor's failure to credit a payment or other credit
to an account as well as accounting and clerical errors.
Bond, U.S.
Savings:
Savings bonds
are issued in face value denominations by the U.S. Government in denominations
ranging from $50 to $10,000. They are typically long-term, low-risk investment
tools.
Business Day:
Any day on which
offices of a bank are open to the public for carrying on substantially all of
the bank's business.
C
Canceled Check :
A check that a
bank has paid, charged to the account holder's account, and then endorsed. Once
canceled, a check is no longer negotiable.
Cashier's Check:
A check drawn on
the funds of the bank, not against the funds in a depositor's account. However,
the depositor paid for the cashier's check with funds from their account. The
primary benefit of a cashier's check is that the recipient of the check is
assured that the funds are available.
Cease and Desist
Letter:
A letter
requesting that a company stops the activity mentioned in the letter.
Certificate of
Deposit:
A negotiable
instrument issued by a bank in exchange for funds, usually bearing interest,
deposited with the bank.
Certificate of
Release:
A certificate
signed by a lender indicating that a mortgage has been fully paid and all debts
satisfied.
Certified Check:
A personal check
drawn by an individual that is certified (guaranteed) to be good. The face of
the check bears the words "certified" or "accepted," and is
signed by an official of the bank or thrift institution issuing the check. The
signature signifies that
- the signature of the drawer is genuine, and
- sufficient funds are on deposit and earmarked for payment of the check.
Charge-off:
The balance on a
credit obligation that a lender no longer expects to be repaid and writes off
as a bad debt.
Check:
A written order
instructing a financial institution to pay immediately on demand a specified
amount of money from the check writer's account to the person named on the
check or, if a specific person is not named, to whoever bears the check to the
institution for payment.
Check 21 Act:
Check 21 is a
Federal law that is designed to enable banks to handle more checks
electronically, which is intended to make check processing faster and more
efficient. Check 21 is the short name for the Check Clearing for the 21st
Century Act, which went into effect on October 28, 2004.
Check
Truncation:
The conversion
of data on a check into an electronic image after a check enters the processing
system. Check truncation eliminates the need to return canceled checks to
customers.
Checking
Account:
A demand deposit
account subject to withdrawal of funds by check.
ChexSystems:
The ChexSystems,
Inc. network is comprised of member financial institutions that regularly
contribute information on mishandled checking and savings accounts to a central
location. ChexSystems shares this information among member institutions to help
them assess the risk of opening new accounts.
ChexSystems only
shares information with the member institutions; it does not decide on new
account openings. Generally, information remains on ChexSystems for five years.
Closed-End
Credit :
Generally, any
credit sale agreement in which the amount advanced, plus any finance charges,
is expected to be repaid in full by a specified date. Most real estate and
automobile loans are closed-end agreements.
Closed-End Loan:
Generally, any
loan in which the amount advanced, plus any finance charges, is expected to be
repaid in full by a specified date. Most real estate and automobile loans are
closed-end agreements.
Closing a
Mortgage Loan:
The consummation
of a contractual real estate transaction in which all appropriate documents are
signed and the proceeds of the mortgage loan are then disbursed by the lender.
Closing Costs:
The expenses
incurred by sellers and buyers in transferring ownership in real property. The
costs of closing may include the origination fee, discount points, attorneys'
fees, loan fees, title search and insurance, survey charge, recordation fees,
and the credit report charge.
Collateral:
Assets that are
offered to secure a loan or other credit. For example, if you get a real estate
mortgage, the bank's collateral is typically your house. Collateral becomes
subject to seizure on default.
Collected Funds:
Cash deposits or
checks that have been presented for payment and for which payment has been
received.
Collection
Agency:
A company hired
by a creditor to collect a debt that is owed. Creditors typically hire a
collection agency only after they have made efforts to collect the debt
themselves, usually through letters and telephone calls.
Collection
Items:
Items-such as
drafts, notes, and acceptances-received for collection and credited to a
depositor's account after payment has been received. Collection items are
usually subject to special instructions and may involve additional fees. Most
banks impose a special fee, called a collection charge, for handling collection
items.
Collective
Investment Funds (CIFs):
A Collective
Investment Fund (CIF) is a trust created and administered by a bank or trust
company that commingles assets from multiple clients. The Federal securities
laws generally require entities that pool securities to register those pooled
vehicles (such as mutual funds) with the SEC. However, Congress created
exemptions from these registration requirements for CIFs so long as the entity
offering these funds is a bank or other authorized entity and so long as
participation in the fund is restricted to only those customers covered by the
exemption. If these limitations are met, CIFs are exempt from SEC registration
and reporting requirements.
Co-Maker:
A person who
signs a note to guarantee a loan made to another person and is jointly liable
with the maker for repayment of the loan. (Also known as a Co-signer.)
Community
Reinvestment Act:
The Act is
intended to encourage depository institutions to help meet the credit needs of
the communities in which they operate, including low- and moderate-income
neighborhoods. It was enacted by the Congress in 1977.
Consumer Credit
Counseling Service:
A service which
specializes in working with consumers who are overextended with debts and need
to make arrangements with creditors.
Consumer
Reporting Agency:
An agency that
regularly collects or evaluates individual consumer credit information or other
information about consumers and sells consumer reports for a fee to creditors
or others. Typical clients include banks, mortgage lenders, credit card
companies, and other financing companies.
Conventional
Fixed Rate Mortgage:
A fixed-rate
mortgage offers you a set interest rate and payments that do not change
throughout the life, or "term," of the loan.
A conventional
fixed-rate loan is fully paid off over a given number of years-usually 15, 20,
or 30. A portion of each monthly payment goes towards paying back the money
borrowed, the "principal"; the rest is "interest."
Co-Signer:
An individual
who signs the note of another person as support for the credit of the primary
signer and who becomes responsible for the obligation. (Also known as a
Co-maker.)
Credit
Application:
A form to be
completed by an applicant for a credit account, giving sufficient details
(residence, employment, income, and existing debt) to allow the seller to
establish the applicant's creditworthiness. Sometimes, an application fee is
charged to cover the cost of loan processing.
Credit Bureau:
An agency that
collects individual credit information and sells it for a fee to creditors so
they can make a decision on granting loans. Typical clients include banks,
mortgage lenders, credit card companies, and other financing companies. Also
commonly referred to as a consumer reporting agency or a credit reporting
agency.
Credit Card
Account Agreement:
A written
agreement that explains the
- terms and conditions of the account,
- credit usage and payment by the cardholder, and
- duties and responsibilities of the card issuer.
Credit Card
Issuer:
Any financial
institution that issues bank cards to those who apply for them.
Credit Disability
Insurance:
A type of
insurance, also known as accident and health insurance, that makes payments on
the loan if you become ill or injured and cannot work.
Credit Life
Insurance:
A type of life
insurance that helps repay a loan if you should die before the loan is fully
repaid. This is optional coverage.
Credit Limit:
The maximum
amount of credit that is available on a credit card or other line of credit
account.
Credit Repair
Organization:
A person or
organization that sells, provides, performs, or assists in improving a
consumer's credit record, credit history or credit rating (or says that that
they will do so) in exchange for a fee or other payment. It also includes a
person or organization that provides advice or assistance about how to improve
a consumer's credit record, credit history or credit rating. There are some
important exceptions to this definition, including many non-profit
organizations and the creditor that is owed the debt.
Credit Report:
A detailed
report of an individual's credit history prepared by a credit bureau and used
by a lender in determining a loan applicant's creditworthiness.
Credit Score:
A number,
roughly between 300 and 800, that measures an individual's credit worthiness.
The most well-known type of credit score is the FICO® score. This score
represents the answer from a mathematical formula that assigns numerical values
to various pieces of information in your credit report.
Banks use a
credit score to help determine whether you qualify for a particular credit
card, loan, or service.
Cut-Off Time:
A time of day
established by a bank for receipt of deposits. After the cut-off time, deposits
are considered received on the next banking day.
D
Debit:
A debit may be
an account entry representing money you owe a lender or money that has been
taken from your deposit account.
Debit Card:
A debit card
allows the account owner to access their funds electronically. Debit cards may
be used to obtain cash from automated teller machines or purchase goods or
services using point-of-sale systems. The use of a debit card involves
immediate debiting and crediting of consumers' accounts.
Debt Collector:
Any person who
regularly collects debts owed to others.
Debt Elimination
Scheme:
A debt
elimination scheme is a plan that is advertised as a way for an individual to
eliminate various types of debt simply by paying someone a small fee compared
to the amount of debt to be eliminated. These schemes are fraudulent.
As a result of
using a fraudulent scheme, individuals will lose money, could lose property,
will damage their credit rating, and possibly incur additional debt. In
addition, a creditor may take legal action against an individual to resolve a
fraudulent attempt to eliminate debt. It is also possible for the victim to
have identify theft occur by participating in such a fraudulent scheme.
Debtor:
Someone who owes
monies to another party.
Debt-to-Income
Ratio (DTI):
The percentage
of a consumer's monthly gross income that goes toward paying debts. Generally,
the higher the ratio, the higher the perceived risk. Loans with higher risk are
generally priced at a higher interest rate.
Decedent:
A deceased
person, ordinarily used with respect to one who has died recently.
Deferred
Payment:
A payment
postponed until a future date.
Delinquency:
A debt that was
not paid when due.
Demand Deposit:
A deposit of
funds that can be withdrawn without any advance notice.
Deposit Slip:
An itemized
memorandum of the cash and other funds that a customer presents to the bank for
credit to his or her account.
Derogatory
Information:
Data received by
a creditor indicating that a credit applicant has not paid his or her accounts
with other creditors according to the required terms.
Direct Deposit:
A payment that
is electronically deposited into an individual's account at a depository
institution.
Direct Dispute:
A dispute
submitted directly to the furnisher about the accuracy of information in your
consumer report that relates to an account or other relationship you have with
the furnisher.
Disclosures:
Certain
information that Federal and State laws require creditors to give to borrowers
relative to the terms of the credit extended.
Draft:
A signed,
written order by which one party (the drawer) instructs another party (the
drawee) to pay a specified sum to a third party (the payee), at sight or at a
specific date. Typical bank drafts are negotiable instruments and are similar
in many ways to checks.
Drawee:
The person (or
bank) who is expected to pay a check or draft when it is presented for payment.
Drawee bank:
The bank upon
which a check is drawn.
Drawer:
The person who
writes a check or draft instructing the drawee to pay someone else.
E
Electronic
Banking:
A service that
allows an account holder to obtain account information and manage certain
banking transactions through a personal computer via the financial
institution's Web site on the Internet. (This is also known as Internet or
online banking.)
Electronic Check
Conversion:
Electronic check
conversion is a process in which your check is used as a source of
information-for the check number, your account number, and the number that
identifies your financial institution. The information is then used to make a
one-time electronic payment from your account-an electronic fund transfer. The
check itself is not the method of payment.
Electronic Funds
Transfer (EFT):
The transfer of
money between accounts by consumer electronic systems-such as automated teller
machines (ATMs) and electronic payment of bills-rather than by check or cash.
(Wire transfers, checks, drafts, and paper instruments do not fall into this
category.)
Embezzlement:
In most States,
embezzlement is defined as theft/larceny of assets (money or property) by a
person in a position of trust or responsibility over those assets. Embezzlement
typically occurs in the employment and corporate settings.
Encoding:
The process used
to imprint or inscribe MICR characters on checks, deposits, and other financial
instruments. [Magnetic Ink Character Recognition (MICR) is a
character-recognition technology adopted mainly by the banking industry to
facilitate the processing of checks. Each check in encoded at the bottom with
the dollar amount of the check. If that information is entered incorrectly,
there is an encoding error.]
Enforcement
Action:
A regulatory
tool that the OCC may use to correct problems or effect change in a national
bank.
Equal Credit Opportunity Act (ECOA):
Prohibits
creditors from discriminating against credit applicants on the basis of race,
color, religion, national origin, sex, marital status, age, or because an
applicant receives income from a public assistance program.
Error
Resolution:
The required
process for resolving errors involving electronic transfers to and from deposit
accounts.
Escheat:
Reversion of
real or personal property to the State when 1) a person dies without leaving a
will and has no heirs, or 2) when the property (such as a bank account) has
been inactive for a certain period of time.
Escrow:
A financial
instrument held by a third party on behalf of the other two parties in a
transaction. The funds are held by the escrow service until it receives the
appropriate written or oral instructions-or until obligations have been
fulfilled. Securities, funds, and other assets can be held in escrow.
Escrow Analysis:
The periodic
examination of escrow accounts by a mortgage company to verify that monthly
deposits are sufficient to pay taxes, insurance, and other escrow-related items
on when due.
Escrow Funds:
Funds held in
reserve by a mortgage company to pay taxes, insurance, and other
mortgage-related items when due.
Estate Account:
An account held
in the name of a decedent that is administered by an executor or administrator
of the estate.
Exception Hold:
A period of time
that allows the banks to exceed the maximum hold periods defined in the
Expedited Funds Availability Act.
.
F
Fair and
Accurate Credit Transactions Act of 2003 (FACT Act or FACTA):
The purpose of
this Act is to help consumers protect their credit identities and recover from
identity theft.
One of the key
provisions of this Act is that consumers can request and obtain a free credit
report once every 12 months from each of the three nationwide consumer credit
reporting companies (Equifax, Experian, and TransUnion). AnnualCreditReport.com
provides consumers with the secure means to request their free credit report.
Fair Credit
Reporting Act (FCRA):
A Federal law,
established in 1971 and revised in 1997, that gives consumers the right to see
their credit records and correct any mistakes.
The FCRA
regulates consumer credit reporting and related industries to ensure that
consumer information is reported in an accurate, timely, and complete manner.
The Act was amended to address the sharing of consumer information with
affiliates.
Fair Debt
Collection Practices Act (FDCPA):
The Fair Debt
Collection Practices Act is a set of United States statutes added as
Title VIII of the Consumer Credit Protection Act. Its purpose is to ensure
ethical practices in the collection of consumer debts and to provide consumers
with an avenue for disputing and obtaining validation of debt information in
order to ensure the information's accuracy. It is often used in conjunction
with the Fair Credit Reporting Act.
Federal Deposit
Insurance Corporation (FDIC):
A government
corporation that insures the deposits of all national and State banks that are
members of the Federal Reserve System.
Federal
Emergency Management Agency (FEMA):
Federal agency
responsible for the emergency evaluation and response to all disasters, natural
and man-made. FEMA oversees the administration of flood insurance programs and
the designation of certain areas as flood prone.
Federal Reserve
System:
The central bank
of the United States.
The Fed, as it is commonly called, regulates the U.S. monetary and financial system.
The Federal Reserve System is composed of a central governmental agency in Washington, D.C. (the
Board of Governors) and twelve regional Federal Reserve Banks in major cities
throughout the United States.
You can divide
the Federal Reserve's duties into four general areas:
- Conducting monetary policy
- Regulating banking institutions and protecting the credit rights of consumers
- Maintaining the stability of the financial system
- Providing financial services to the U.S. government
Fiduciary:
Undertaking to
act as executor, administrator, guardian, conservator, or trustee for a family
trust, authorized trust, or testamentary trust, or receiver or trustee in
bankruptcy.
Finance Charge:
The total cost
of credit a customer must pay on a consumer loan, including interest. The Truth
in Lending Act requires disclosure of the finance charge.
Financial
Regulatory Agency:
An organization
authorized by statute for ensuring the safe and sound operation of financial
institutions chartered to conduct business under that agency's jurisdiction.
The primary
regulators are the following:
- OCC (Office of the Comptroller of the Currency)
- FDIC (Federal Deposit Insurance Corporation)
- FRB (Federal Reserve Board)
- NCUA (National Credit Union Administration)
- State regulatory agencies
First Mortgage:
A real estate
loan which is in a first lien position, taking priority over all other liens.
In case of a foreclosure, the first mortgage will be repaid before any other
mortgages.
Fixed Rate Loan:
The interest
rate and the payment remain the same over the life of the loan. The consumer
makes equal monthly payments of principal and interest until the debt is paid
in full.
Fixed Rate
Mortgage:
A mortgage with
payments that remain the same throughout the life of the loan because the
interest rate and other terms are fixed and do not change.
Float:
1) The amount of
uncollected funds represented by checks in the possession of one bank but drawn
on other banks. 2) The time that elapses between the day a check is deposited
and the day it is presented for payment to the financial institution on which
it is drawn.
Flood Insurance:
Flood insurance
protects against water from an overflowing river or a hurricane's tidal surge
and also covers damage from water that builds up during storms.
Flood Plain:
A strip of
relatively flat and normally dry land alongside a stream, river, or lake that
is covered by water during a flood.
Foreclosure:
A legal process
in which property that is collateral or security for a loan may be sold to help
repay the loan when the loan is in default.
Foreign
Transaction Fees:
A fee assessed
by your bank for making a transaction at another bank's ATM.
Forged Check:
A check on which
the drawer's signature has been forged.
Forgery:
The fraudulent
signing or alteration of another's name to an instrument such as a deed,
mortgage, or check. The intent of the forgery is to deceive or defraud.
Fraud Alert:
A key provision
of the Fair and Accurate Credit Transactions Act of 2003 is the consumer's
ability to place a fraud alert on their credit record. A consumer would use
this option if they believe they were a victim of identity theft.
The alert
requires any creditor that is asked to extend credit to contact the consumer by
phone and verify that the credit application was not made by an identity thief.
Freedom of
Information Act (FOIA):
A Federal law
that mandates that all the records created and kept by Federal agencies in the
executive branch of government must be open for public inspection and copying.
The only exceptions are those records that fall into one of nine exempted
categories listed in the statute.
Frozen Account:
An account on
which funds may not be withdrawn until a lien is satisfied and a court order or
other legal process makes the account available for withdrawal (e.g., the
account of a deceased person is frozen pending a court order distributing the
funds to the new lawful owners).
An account may
also be frozen when there is a dispute regarding the true ownership of an
account. The bank will freeze the account to preserve the existing funds until
legal action can determine the lawful owner.
Furnisher:
An entity that
provides information about a consumer to a consumer reporting agency for
inclusion in a consumer report.
G
Garnishment/Garnish:
A legal process
that allows a creditor to remove funds from your bank account to satisfy a debt
that you have not paid. If you owe money to a person or company, they can
obtain a court order directing your bank to take money out of your account to
pay off your debt.
Guaranteed
Student Loan:
An extension of
credit from a financial institution that is guaranteed by a Federal or State
government entity to assist with tuition and other educational expenses. The
government entity is responsible for paying the interest on the loan and paying
the lender to manage it. The government entity also is responsible for the loan
if the student defaults.
Guarantor:
A party who
agrees to be responsible for the payment of another party's debts should that
party default.
H
Hold:
Used to indicate
that a certain amount of a customer's balance may not be withdrawn until an
item has been collected, or until a specific check or debit is posted.
Home Equity Line
of Credit (HELOC):
A line of credit
secured by the equity in a consumer's home. It can be used for home
improvements, debt consolidation, and other major purchases. Interest paid on
the loan is generally tax deductible (consult a tax advisor to be sure). The
funds may be accessed by writing checks against the line of credit or by
getting a cash advance.
Home Equity
Loan:
A home equity
loan allows you to tap into your home's built-up equity, which is the
difference between the amount that your home could be sold for and the amount
that you still owe.
Homeowners often
use a home-equity loan for home improvements, to pay for a new car, or to
finance their child's college education. The interest paid is usually
tax-deductible.
Because the loan
is secured by your home's equity, if you default, the bank may foreclose on
your house and take ownership of it.
This type of
loan is sometimes referred to as a second mortgage or borrowing against your
home.
I
Inactive
Account:
An account that
has little or no activity; neither deposits nor withdrawals having been posted
to the account for a significant period of time.
Index-linked
Certificate of Deposit:
An index-linked
CD is a deposit obligation of the issuing bank and is often sold through bank branches
and affiliated and unaffiliated brokers. Index-linked CDs provide the investor
the ability to participate in the appreciation, if any, of a particular index,
during the term of the CD. Index-linked CDs may have complicated payout
structures and may not be suitable or appropriate for all investors. Investors
should carefully review the investment risk considerations detailed in the
relevant offering documents and disclosure statements. Index-linked CDs are not
securities and are not registered under securities laws.
Individual
Account:
An account in
the name of one individual.
Individual
Retirement Account (IRA):
A retirement
savings program for individuals to which yearly tax-deductible contributions up
to a specified limit can be made. The amount contributed is not taxed until
withdrawn. Withdrawal is not permitted without penalty until the individual
reaches age 59 1/2.
Insufficient
Funds:
When a
depositor's checking account balance is inadequate to pay a check presented for
payment.
Insurance
(Hazard):
Insurance to
protect the homeowner and the lender against physical damage to a property from
sources such as but not limited to fire, wind, or vandalism.
Insured
Deposits:
Deposits held in
financial institutions that are guaranteed by the Federal Deposit Insurance
Corporation (FDIC) against loss due to bank failure.
Interest:
The term
interest is used to describe the cost of using money, a right, share, or title
in property.
Interest Rate:
The amount paid
by a borrower to a lender in exchange for the use of the lender's money for a
certain period of time. Interest is paid on loans or on debt instruments, such
as notes or bonds, either at regular intervals or as part of a lump sum payment
when the issue matures.
Interest Rate
Index:
IA table of
yields or interest rates being paid on debt that is used to determine
interest-rate changes for adjustable-rate mortgages and other variable-rate
loans.
J
Joint Account:
An account owned
by two or more persons. Either party can conduct transactions separately or
together as set forth in the deposit account contract.
K
Kiting:
Writing a check
in an amount that will overdraw the account but making up the deficiency by
depositing another check on another bank. For example, mailing a check for the
mortgage when your checking account has insufficient funds to cover the check,
but counting on receiving and depositing your paycheck before the mortgage
company presents the check for payment.
.
L
Late Charge:
The fee charged
for delinquent payment on an installment loan, usually expressed as a
percentage of the loan balance or payment. Also, a penalty imposed by a card
issuer against a cardholder's account for failing to make minimum payments.
Lease:
A contract
transferring the use of property or occupancy of land, space, structures, or
equipment in consideration of a payment (e.g., rent).
Lender:
An individual or
financial institution that lends money with the expectation that the money will
be returned with interest.
Lien:
Legal claim
against a property. Once the property is sold, the lien holder is then paid the
amount that is owed.
Line of Credit:
A pre-approved
loan authorization with a specific borrowing limit based on creditworthiness. A
line of credit allows borrowers to obtain a number of loans without re-applying
each time as long as the total of borrowed funds does not exceed the credit
limit.
Loan-to-Value
Ratio (LTV):
The ratio of the
loan principal (amount borrowed) to the appraised value (selling price). For
example, on a $100,000 home, with a mortgage loan principal of $80,000, the
loan-to-value ratio is 80 percent. The LTV will affect programs available to
the borrower; generally, the lower the LTV, the more favorable the program
terms offered by lenders.
Loan Contract:
The written
agreement between a borrower and a lender in which the terms and conditions of
the loan are set.
Loan Fee:
A fee charged by
a lender to make a loan (in addition to the interest charged to the borrower).
Loan
Modification Provision:
A contractual
agreement in a loan that allows the borrower or lender to permanently change
one or more of the terms of the original contract.
Loan Proceeds:
The net amount
of funds that a lending institution disburses under the terms of a loan, and
which the borrower then owes.
Local Check:
A check payable
by, at, or through a bank in the same check processing region as the location
of the branch of the depository bank. The depository bank is the bank into
which the check was deposited. As of February 27, 2010, the Federal Reserve
consolidated its checking processing centers into one processing center.
Therefore, all checks are now considered local.
M
Manufactured
(mobile) home:
A structure,
built on a permanent chassis, transported to a site in one or more sections,
and affixed to a permanent foundation. The term does not include recreational
vehicles.
Maturity:
The date on
which the principal balance of a loan, bond, or other financial instrument
becomes due and payable.
Media:
Any organization
in the business of informing the public with news or commentary. The various
forms of media include print, television, internet, and radio.
Minimum Balance:
The amount of
money required to be on deposit in an account to qualify the depositor for
special services or to waive a service charge.
Minimum Payment:
The minimum
dollar amount that must be paid each month on a loan, line of credit, or other
debt.
Missing Payment:
A payment that
has been made but not credited to the appropriate account.
Mobile home: To
be eligible for coverage under the National Flood Insurance Program, a mobile
home must be on a permanent foundation and meet specific anchoring requirements
for it location. See manufactured (mobile) home.
Money Market
Deposit Account:
A savings
account that offers a higher rate of interest in exchange for larger than
normal deposits. Insured by the FDIC, these accounts have limits on the number
of transactions allowed and may require higher balances to receive the higher
rate of interest.
Money Market Fund:
An open-ended
mutual fund that invests in short-term debts and monetary instruments such as
Treasury bills and pays money market rates of interest. Money market funds
usually offer checkwriting privileges. They are not insured by the FDIC.
Mortgage:
A debt
instrument used in a real estate transaction where the property is the
collateral for the loan. A mortgage gives the lender a right to take possession
of the property if the borrower fails to pay off the loan.
Mortgage Loan:
A loan made by a
lender to a borrower for the financing of real property.
Mortgagee:
The lender in a
mortgage loan relationship.
Mortgagor:
The borrower in
a mortgage loan relationship. (Property is used as collateral to make payment.)
Mutual Fund:
A fund operated
by an investment company that raises money from shareholders and invests it in
stocks, bonds, options, commodities, or money market securities. These funds
offer investors the advantages of diversification and professional management.
To participate, the investor may pay fees and expenses. (Mutual funds are not
covered by FDIC insurance.)
N
National Bank:
A bank that is
subject to the supervision of the Comptroller of the Currency. The Office of
the Comptroller of the Currency is a bureau of the U.S. Treasury Department. A
national bank can be recognized because it must have "national" or
"national association" in its name.
National Bank
Examiner:
An employee of
the Comptroller of the Currency whose function is to examine national banks
periodically to determine the financial position of a bank and the security of
its deposits. The examiner also verifies that the bank maintains procedures
consistent with Federal banking laws and regulations.
National Credit
Union Administration (NCUA):
The Federal
regulatory agency that charters and supervises Federal credit unions. (NCUA
also administers the National Credit Union Share Insurance Fund, which insures
the deposits of Federal credit unions.)
National Flood
Insurance Program (NFIP):
The program of
flood insurance coverage and floodplain management administered under the Flood
Disaster Protection Act (FDPA or Act) and applicable Federal regulations found
in Title 44 of the Code of Federal Regulations, Subchapter B.
Negotiable Order
of Withdrawal Account (NOW):
A savings
account from which withdrawals can be made by negotiable orders of withdrawal
(functional equivalent of checks). This is an interest-bearing account for
which the bank must reserve the right to require the depositor to provide at
least seven days notice of his/her intent to withdraw funds.
Not
Automatically Protected:
There are
several types of Federal benefits that are not automatically protected under
31CFR 212: Federal benefits received by check rather than direct deposit;
Federal benefits received more than two months before the bank received the
garnishment order or Federal benefits that were transferred to another bank
account. The benefits may be exempt from garnishment but you will have to alert
the court or creditor.
O
Official Check:
A check drawn on
a bank and signed by an authorized bank official. (Also known as a cashier's
check.)
Offset, Right
of:
Banks' legal
right to seize funds that a guarantor or debtor may have on deposit to cover a
loan in default. It is also known as right of setoff
Online Banking:
A service that
allows an account holder to obtain account information and manage certain
banking transactions through a personal computer via the financial
institution's web site on the Internet. (This is also known as Internet or
electronic banking.)
Open-End Credit:
A credit
agreement (typically a credit card) that allows a customer to borrow against a
preapproved credit line when purchasing goods and services. The borrower is
only billed for the amount that is actually borrowed plus any interest due.
(Also called a charge account or revolving credit.)
Operating
Subsidiary:
National banks
conduct some of their banking activities through companies called operating
subsidiaries. These subsidiaries are companies that are owned or controlled by
a national bank and that, among other things, offer banking products and
services such as loans, mortgages, and leases.
The Office of
the Comptroller of the Currency supervises and regulates the activities of many
of these operating subsidiaries.
Outstanding
Check:
A check written
by a depositor that has not yet been presented for payment to or paid by the
depositor's bank.
Overdraft:
When the amount
of money withdrawn from a bank account is greater than the amount actually
available in the account, the excess is known as an overdraft, and the account
is said to be overdrawn.
Overdraw:
To write a check
for an amount that exceeds the amount on deposit in the account.
Overlimit:
An open-end
credit account in which the assigned dollar limit has been exceeded.
P
Participating
Community:
A community for
which the Federal Emergency Management Agency (FEMA) has authorized the sale of
flood insurance under the National Flood Insurance Program (NFIP).
Passbook:
A book in ledger
form in which are recorded all deposits, withdrawals, and earnings of a
customer's savings account.
Past Due Item :
Any note or
other time instrument of indebtedness that has not been paid on the due date.
Payday Loans:
A small-dollar,
short-term loan that a borrower promises to repay out of their next paycheck or
deposit of funds.
Payee:
The person or
organization to whom a check, draft, or note is made payable.
Paying (Payor)
Bank :
A bank upon
which a check is drawn and that pays a check or other draft.
Payment Due
Date:
The date on
which a loan or installment payment is due. It is set by a financial
institution. Any payment received after this date is considered late; fees and
penalties can be assessed.
Payoff:
The complete
repayment of a loan, including principal, interest, and any other amounts due.
Payoff occurs either over the full term of the loan or through prepayments.
Payoff
Statement:
A formal
statement prepared when a loan payoff is contemplated. It shows the current
status of the loan account, all sums due, and the daily rate of interest.
Payor:
The person or
organization who pays.
Periodic Rate:
The interest
rate described in relation to a specific amount of time. The monthly periodic
rate, for example, is the cost of credit per month; the daily periodic rate is
the cost of credit per day.
Periodic
Statement:
The billing
summary produced and mailed at specified intervals, usually monthly.
Personal
Identification Number (PIN):
Generally a
four-character number or word, the PIN is the secret code given to credit or
debit cardholders enabling them to access their accounts. The code is either
randomly assigned by the bank or selected by the customer. It is intended to
prevent unauthorized use of the card while accessing a financial service
terminal.
PITI:
Common acronym
for principal, interest, taxes, and insurance—used when describing the monthly
charges on a mortgage.
Point of Sale (POS):
1) The location
at which a transaction takes place. 2) Systems that allow bank customers to effect
transfers of funds from their deposit accounts and other financial transactions
at retail establishments.
Power of
Attorney:
A written
instrument which authorizes one person to act as another's agent or attorney.
The power of attorney may be for a definite, specific act, or it may be general
in nature. The terms of the written power of attorney may specify when it will
expire. If not, the power of attorney usually expires when the person granting
it dies.
Some
institutions require that you use the bank's power of attorney forms. (The bank
may refer to this as a Durable Power of Attorney: The principal grants specific
rights to the agent.)
Preauthorized
Electronic Fund Transfers:
An EFT
authorized in advance to recur at substantially regular intervals.
Preauthorized
Payment:
A system
established by a written agreement under which a financial institution is
authorized by the customer to debit the customer's account in order to pay
bills or make loan payments.
Preferred Risk
Policy (PRP):
A policy that
offers fixed combinations of building/contents coverage or contents-only
coverage at modest, fixed premiums. The PRP generally is available for property
located in B, C, and X Zones in Regular Program Communities that meets
eligibility requirements based on the property’s flood loss history.
Prepayment:
The payment of a
debt before it actually becomes due.
Prepayment
Clause:
A clause in a
mortgage allowing the mortgagor to pay off part or all of the unpaid debt
before it becomes due.
Prepayment Penalty:
A penalty
imposed on a borrower for repaying the loan before its due date. (In the case
of a mortgage, this applies when there is not a prepayment clause in the
mortgage note to offset the penalty.)
Previous
Balance:
The cardholder's
account balance as of the previous billing statement.
Principal
Balance:
The outstanding
balance on a loan, excluding interest and fees.
Private Mortgage
Insurance (PMI):
Insurance
offered by a private insurance company that protects the bank against loss on a
defaulted mortgage up to the limit of the policy (usually 20 to 25 percent of
the loan amount). PMI is usually limited to loans with a high loan-to-value
(LTV) ratio. The borrower pays the premium.
Q
.
R
Real Estate
Settlement Procedures Act (RESPA):
Federal law
that, among other things, requires lenders to provide "good faith"
estimates of settlement costs and make other disclosures regarding the mortgage
loan. RESPA also limits the amount of funds held in escrow for real estate
taxes and insurance.
Reconciliation:
The process of
analyzing two related records and, if differences exist between them, finding
the cause and bringing the two records into agreement. Example: Comparing an
up-to-date check book with a monthly statement from the financial institution
holding the account.
Redlining:
The alleged
practice of certain lending institutions of not making mortgage, home
improvement, and small business loans in certain neighborhoods-usually areas
that are deteriorating or considered by the lender to be poor investments.
Refinancing:
A way of
obtaining a better interest rate, lower monthly payments, or borrow cash on the
equity in a property that has built up on a loan. A second loan is taken out to
pay off the first, higher-rate loan.
Refund:
An amount paid
back because of an overpayment or because of the return of an item previously
sold.
Regular Program
Community:
A community
wherein a Flood Insurance Rate Map is in effect and full limits of coverage are
available under the Flood Disaster Protection Act (FDPA or Act).
Release of Lien:
To free a piece
of real estate from a mortgage.
Renewal:
A form of
extending an unpaid loan in which the borrower's remaining unpaid loan balance
is carried over (renewed) into a new loan at the beginning of the next
financing period.
Residual
Interest:
Interest that
continues to accrue on your credit card balance from the statement cycle date
until the bank receives your payment.
For example, if
your statement cycle date was January 10 and the bank received your payment on
January 20, there were ten days for which interest accrued. This amount will be
posted on your next statement.
Return Item:
A negotiable
instrument—principally a check—that has been sent to one bank for collection
and payment and is returned unpaid by the sending bank.
Reverse
Mortgage:
A reverse
mortgage is a special home loan product that allows a homeowner aged 62 or
older the ability to access the equity that has accumulated in their home. The
home itself will be the source of repayment. The loan is underwritten based on
the value of the collateral (home) and the life expectancy of the borrower. The
loan must be repaid when you die, sell your home, or no longer live there as
your principal residence.
Revolving
Credit:
A credit
agreement (typically a credit card) that allows a customer to borrow against a
preapproved credit line when purchasing goods and services. The borrower is
only billed for the amount that is actually borrowed plus any interest due.
(Also called a charge account or open-end credit.)
Right of Offset:
Banks' legal
right to seize funds that a guarantor or debtor may have on deposit to cover a
loan in default. It is also known as the right of set-off.
Right of
Rescission:
Right to
cancel, within three business days, a contract that uses the home of a person
as collateral, except in the case of a first mortgage loan. There is no fee to
the borrower, who receives a full refund of all fees paid. The right of
rescission is guaranteed by the Truth in Lending Act (TILA).
S
Safe (or Safety)
Deposit Box:
A type of safe
usually located in groups inside a bank vault and rented to customers for their
use in storing valuable items.
Safekeeping:
A service
provided by banks where securities and valuables are protected in the vaults of
the bank for customers.
Satisfaction of
Mortgage:
A document
issued by a mortgagee (the lender) when a mortgage is paid in full.
Service Charge:
A charge
assessed by a depository institution for processing transactions and
maintaining accounts.
Signature Card:
A card signed by
each depositor and customer of a bank which may be used as a means of
identification. The signature card represents a contract between the bank and
the depositor.
Special Flood
Hazard Area (SFHA):
An area defined
on a Flood Insurance Rate Map with an associated risk of flooding.
Stale-Dated
Check:
Presented to the
paying bank 180 days (6 months) or more after the original issue date. Banks
are not required by the Uniform Commercial Code to honor stale-dated checks and
can return them to the issuing bank unpaid. The maker of a check can discourage
late presentment by writing the words "not good after X days" on the
back of the check.
State Bank:
A bank that is
organized under the laws of a State and chartered by that State to conduct the
business of banking.
State Banking
Department:
The organization
in each State that supervises the operations and affairs of State banks.
Statement:
A summary of all
transactions that occurred over the preceding month and could be associated
with a deposit account or a credit card account.
Stop Payment:
An order not to
pay a check that has been issued but not yet cashed. If requested soon enough,
the check will not be debited from the payer's account. Most banks charge a fee
for this service.
Student Loan:
Loans made,
insured, or guaranteed under any program authorized by the Higher Education
Act. Loan funds are used by the borrower for education purposes.
Substitute
Check:
A substitute
check is a paper copy of the front and back of the original check. A substitute
check is slightly larger than a standard personal check so that it can contain
a picture of your original check.
A substitute
check is legally the same as the original check if it accurately represents the
information on the original check and includes the following statement:
"This is a legal copy of your check. You can use it the same way you would
use the original check." The substitute check must also have been handled
by a bank.
Substitute
checks were created under Check 21, the Check Clearing for the 21st Century
Act, which became effective on October 28, 2004.
T
Terms:
The period of
time and the interest rate arranged between creditor and debtor to repay a
loan.
Time Certificate
of Deposit:
A time deposit
evidenced by a negotiable or nonnegotiable instrument specifying an amount and
maturity.
Time Deposit:
A time deposit
(also known as a term deposit) is a money deposit at a bank that cannot be
withdrawn for a certain "term" or period of time. When the term is
over it can be withdrawn, or it can be held for another term. The longer the
term, the better the yield on the money. Generally, there are significant
penalties for early withdrawal.
Trust Account:
A general term
that covers all types of accounts in a trust department, such as estates,
guardianships, and agencies.
Trust
Administrator:
A person or
institution that manages trust accounts.
Truth in Lending
Act (TILA):
The Truth in
Lending Act is a Federal law that requires lenders to provide standardized
information so that borrowers can compare loan terms. In general, lenders must
provide information on
- what credit will cost the borrowers,
- when charges will be imposed, and
- what the borrower's rights are as a consumer.
U
Uncollected
Funds:
A portion of a
deposit balance that has not yet been collected by the depository bank.
Uniform
Commercial Code (UCC):
A set of
statutes enacted by the various States to provide consistency among the States'
commercial laws. It includes negotiable instruments, sales, stock transfers,
trust and warehouse receipts, and bills of lading.
Uniform Gift to
Minors Account:
A UGMA provides
a child under the age of 18 (a minor) with a way to own investments. The money
is in the minor's name, but the custodian (usually the parent) has the
responsibility to handle the money in a prudent manner for the minor's benefit.
The parent cannot withdraw the money to use for his or her own needs.
Usury:
Charging an
illegally high interest rate on a loan.
Usury Rates:
The maximum rate
of interest lenders may charge borrowers. The usury rate is generally set
by State law.
V
Variable Rate:
Any interest
rate or dividend that changes on a periodic basis.
W
Wire Transfer:
A transfer of
funds from one point to another by wire or network such the Federal Reserve
Wire Network (also known as FedWire).