Overdraft Protection and NSF Fees

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Overdraft Protection and NSF Fees
Answer by: Lucy Griffin, BOL Guru
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Question: As many other banks are now doing, our bank has formalized our overdraft protection plan (deposit product). There are a few other banks that have been observed that have incorporated a 'continuous daily overdraft fee' in addition to the NSF fee. I have been asked if our bank can do this since other banks are charging this daily fee. Would this daily fee suggest 'time and money' charges and fall under Reg Z and require disclosures?

Answer:
Charging the fee is legal unless prohibited by state law. However, if the arrangement you have with the customer is credit -- and overdraft protection usually is -- then the fee is probably a finance charge under Truth in Lending. If the service does not involve an extension of credit then the fee you charge would be a Truth in Savings disclosure issue.

First published on BankersOnline.com 1/7/02

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