Banking Terms
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.
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.
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.
Chex Systems: The Chex Systems, Inc. network is
comprised of member financial institutions that regularly contribute
information on mishandled checking and savings accounts to a central location.
Chex Systems shares this information among member institutions to help them
assess the risk of opening new accounts. Chex Systems only shares information
with the member institutions; it does not decide on new account openings.
Generally, information remains on Chex Systems 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.
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.
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.
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 Trans Union). 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.
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.
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.
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.
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.
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.
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.
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.)
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.
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.
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.
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).
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.
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.
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.
Variable Rate: Any interest rate or
dividend that changes on a periodic basis.
Wire Transfer: A transfer of funds from
one point to another by wire or network such the Federal Reserve Wire Network
(also known as Fed Wire).
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