Earned Credits: When The Money Isn't Yours

For decades, earned credit programs existed in commercial banking relationships. Traditionally, those credits were generated from a company’s own operating funds and used to offset treasury or service costs.

Today, in some HOA management environments, those credits may instead be generated from association deposits - funds that belong collectively to the clients and homeowners who pay into the system.

As companies that participate grow, portfolios grow, and the financial value created from those deposits can become substantial. In some cases, the management firm may earn more from the association’s balances than the association itself earns in interest.

And here is a distinction that may matter - what was the original intent around earned credits? Was it for businesses to earn incentives based upon their own financial stability - or was it intended to create revenue streams for management companies to benefit off money that does not belong to them?

Why Boards Should Pay Attention

Earned credits, as being currently described, are not automatically improper. Concern arises when:

• The board is unaware credits are being generated

• The value created is not clearly disclosed

• The association does not receive the financial benefit

• The arrangement is not explicitly described in the management agreement

• Banking relationships are structured in ways the board does not directly control

  
  

When financial value is produced from deposits that do not belong to the management company, transparency should not be optional.

The Scale of the Issue

In conversations with both legal and banking professionals, I have been told that the amounts involved in some earned-credit and cost-remuneration programs can be significant.

One attorney shared that they had personally observed monthly remuneration payments tied to pooled association deposits that approached seven figures. While I have not independently verified that amount, the scale illustrates how quickly revenue tied to client balances can grow. And this was for a mid-sized firm.

Separately, a banking industry professional described how some financial institutions collectively pay management firms hundreds of millions of dollars annually across large portfolios through remuneration and deposit-based incentive structures.

These statements reflect professional observations rather than independently verified financial disclosures, but they highlight an important structural reality:

The larger the management portfolio, the greater the potential financial benefit generated from association funds.

When revenue is driven by balances rather than service performance, boards should understand exactly how those incentives are structured.

A Current Legal Case Bringing This Issue Into Focus

A recently filed federal case, Riva on the River Homeowners Association v. The Management Trust, is examining how earned-credit related banking arrangements were disclosed and implemented in one management relationship. It is anticipated that this may turn into a class action lawsuit as more concerned boards are asking questions.

According to the complaint, the association alleges that financial benefits were generated from association deposits and retained without adequate disclosure to the board, raising questions about fiduciary obligations and transparency.

The case includes causes of action related to:

• Breach of fiduciary duty

• Breach of contract

• Unfair business practices

• Failure to disclose material financial relationships

• Unjust enrichment

  
  

The litigation does not question whether earned credits exist - that is already established across the industry - but rather how they were structured, disclosed, and whether the association’s interests were fully protected.

The outcome may influence how attorneys, boards, and management firms evaluate these arrangements going forward.

Questions Every Board Should Be Asking

• Are earned credits generated from our association’s accounts?

• Who receives those credits?

• Does our management company receive any remuneration tied to our deposits?

• Where is this disclosed clearly in writing?

• Is the banking relationship directly between the association and the bank?

Most board members are volunteers. They should not have to discover financial relationships buried in technical language or indirect disclosures.

The Larger Issue

This discussion is not about attacking management as a profession.

Many firms refuse these arrangements.

The issue is alignment.

When financial value is created from money that belongs to homeowners, the people responsible for that money deserve clear, plain-language understanding of how it is being used and who benefits.

Transparency is not achieved when something is not disclosed or technically disclosed.

Transparency exists when it is fully understood and both parties agree it is in their best interest.