U.S. agency's fuzziness costs bank RTC's ill-defined terms prove costly to Household Bank.


Mixed signals from a federal agency led Household Bank FSB to unnecessarily spend thousands of dollars in a campaign to warn depositors they could lose their money because of a technicality, according to bank officials.

The bank sent out letters warning 10,000 former Baltimore Federal Financial customers that they needed to send in ratification forms for their accounts or risk losing their money. It also mobilized hundreds of workers to call the account holders and was even considering personal visits to the affected customers before it learned it was a false alarm.

After receiving inquiries from reporters, the RTC clarified what actions constituted "claiming" an account. Using the new criteria, Household Bank determined that only 500 accounts, instead of 10,000, were at risk.

But Household says its efforts were not fruitless: Its campaign at least helped prod the Resolution Trust Corp., the U.S. agency created to handle the savings and loan crisis, into clearing up confusion over its requirements.

"We're just delighted that the action prompted them to discuss these rules," says John G. Moran, president of the eastern division of Household Bank FSB, which is based in Newport Beach, Calif. "It is very favorable to the customers."

Instead of requiring former Baltimore Federal customers to send in a ratification form, the RTC said the accounts were automatically claimed if the customers received a monthly or quarterly statement or a 1099 tax statement. Only if the statement is returned by the post office as undeliverable is the account not claimed, the RTC said.

Since statements and 1099 forms are routinely sent out to all customers, nearly all of the customers at Household Bank were covered using this procedure.

But this effortless alternative to claiming an account was unknown to Household Bank until last week. In fact, other thrifts that have acquired accounts from the RTC have yet to be informed.

The mix-up stemmed from confusion over the technical meanings of "claim" and "ratify." The confusion was aggravated by the RTC's use of the two terms interchangeably, even though officials later said they are two distinct processes.

The misunderstanding dates to when Household acquired $750 million worth of deposits from the failed Baltimore Federal on April 20, 1990.

Although account holders with less than $100,000 were protected by federal deposit insurance, Household was told that the former Baltimore Federal customers had to ratify their ownership of those accounts within 18 months of the transfer. The deadline was Oct. 19.

Checking and savings account holders could ratify their accounts simply by writing a check, withdrawing money or making a deposit. But holders of long-term certificates of deposits were in a predicament: They could not perform any of those transactions unless they withdrew their money prematurely and incurred a penalty. The simple crediting of interest did not qualify as ratification, Moran says.

To get these and other other customers to ratify their accounts, Household sent out mailings in June and September of last year asking the account holders to send back a ratification certificate in the pre-paid envelope included.

This whittled the number of non-ratified accounts down to 10,000with deposits totaling $36 million -- or about 5 percent of the accounts that Household acquired from Baltimore Federal, according to Moran.

Household was anxious to get the remaining accounts ratified because it believed if an account was not ratified, it would revert to the RTC. The thrift sent out a third letter dated July 17 and started following up with calls from tellers at its 24 branches in Maryland. Telegrams also were being sent to customers who are in other states or countries.

But by the middle of last week, the RTC said Household didn't have to go to all that trouble.

"There is a problem with terminology," said Dennis E. Nolan, senior claims and settlement specialist for the RTC. "I think it's a misinterpretation."

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