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Overdraft protection fees
Question: We are planning to offer an overdraft protection product and we have some questions about fees for this product. If we charge a daily fee for a continuous overdraft, is that a finance charge?
Answer: It depends. It may be a finance charge if the overdraft product involves credit. This would be the case if the customer's overdraft triggers a loan from the institution to the customer to cover the overdraft. This product is clearly credit and charges related to this credit would be finance charges.
Theoretically, it could be possible to provide an overdraft protection service that is not credit. If that is the case, the fee would be a deposit-related fee that should be disclosed under Truth in Savings.
Either way, you have to provide the customer with disclosures. If the arrangement is credit - and it probably is - then you must comply with the open-end disclosure requirements of Regulation Z. If you conclude that the agreement does not involve credit, then you have some additional disclosures to make for purposes of Regulation DD.
Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 6, No. 16, 1/02
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