Unlike federal law, state law plays a very active role in the operation of a safe-deposit lease. State statutes, regulations, and case law can all affect safe-deposit operations. These state laws vary widely. Some have specific statutes to regulate safe-deposit services and often require specific lease provisions. Other states have very little law at all. Thus, it is critical for you to consult with your legal counsel to find out how state law affects you. The Safe-Deposit Lease The safe-deposit box lease document is the contract between you and the depositor. Among other things, it establishes the rental relationship and access to the box. It sets the rules and obligations both you and the renter can rely on in the event of a problem, and it lays the foundation that supports your procedures. For example, the lease will govern the liability provisions and the obligations of the renter to pay rent. As with any account opening documentation, your staff must be able to accurately explain the various terms and provisions of the lease agreement to the renter. To maintain that understanding, you should regularly review the terms of your lease to insure that explanations are accurate and that procedures are not inconsistent with the lease. Beyond ensuring that your lease agreement complies with the law and tracks your process, there are a number of practical compliance points to consider, including:
- Provide a copy of the lease. Because the safe-deposit lease is a contract between you and the renter, both parties need to retain a copy of the agreement.
- Altering the terms can be risky. It is not generally a good idea to modify the terms of your safe-deposit lease to fit the needs of a particular customer. If you start making exceptions even for one or two customers, it becomes infinitely harder to administer those leases and to keep all of the rights and obligations straight. If for no other reason than operational consistency, it makes sense to maintain standard lease provisions and not make exceptions to your policy.
- Don’t forget record retention. You need to safeguard your lease documents and treat them as you would other important records. Store the original leases in your vault or in some other fire-resistant or water-resistant cabinet. Also, consider making copies on film and storing them off-site for permanent retention in the event of a disaster.
Formal Policies and Procedures As with other areas of compliance, policies and procedures should guide your conduct in the safe-deposit area. Because there are so many areas where mistakes can be made, strict adherence to formal policies and procedures is essential to a successful safe-deposit program. Senior management or an executive committee should draft a general policy that states your commitment to safe and controlled access and your desire to follow state law and prudent business practices. Once written, your policy should be approved by the board of directors. Once policies are in place, it is important to develop and document your safe-deposit procedures and processes. In drafting your procedures, a good place to start is with the law. Obviously, where state law specifically prescribes a task that must be performed, you’ll want to have a detailed procedure that implements the requirement. Specific issues that should be addressed in your procedures include:
- Handling depositor inquiries
- When to drill the box due to nonpayment of rent
- Delivery/control of keys, lost keys, and keys to unrented boxes
- Vault access and day-to-day operations
- Rent collection and delinquent rents
- Box surrender or exchange in the event of lease termination, death of an owner, or owner competency issues
Documentation of every aspect of the safe-deposit operation is the key to controlling your risk and managing your safe-deposit services. Availability of Insurance There are really two issues involving insurance. First, keep in mind that deposit insurance does not apply to safe-deposit services. Often, the renter is under the impression that some sort of federal insurance is available to cover the contents of their safe-deposit box. FDIC or NCUA deposit insurance covers only deposit accounts and does not insure the contents of a safe-deposit box. Secondly, renters often assume that the institution insures the property stored in the box. It is virtually impossible for the financial institution to adequately insure against loss, since you have no idea what the contents of the box are. It is recommended that you explain this during the lease interview process and suggest that renters may want to seek additional coverage through their home owner’s or renter’s policy carrier. For your own protection, your lease should disclaim your liability beyond your reasonable standard of care. Also, be careful not to otherwise misrepresent the protection you provide. Have a Disaster Plan Another practical issue to consider as a holder of the renter’s valuable property is your safe-deposit disaster plan. Flooding, for example, is not an uncommon occurrence in institutions that locate their safe-deposit operations on a lower level. Your disaster plan should be documented and communicated to your safe-deposit personnel. If your staff is not aware of the plan and their role in it, some important tasks can get overlooked. Fire or water damage can result in the loss of leases or access cards, in which case you can be left with no way of confirming identity and granting access. Conclusion Safe-deposit services are likely to continue to be an important service within your institution. In light of possible risk issues, it is important for every institution to have a proper lease agreement as well as policies and procedures in place. Back to Top |
