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#1559817 - 06/02/11 07:01 PM Overdraft Guidance
LSmith Offline
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Can someone clarify as to the interpretation of Overdraft Payment Supervisory Guidance concerning whether or not a fee paid to return a check must be included in the daily limit for fees charged for payment of overdrafts?

In other words if there are 2 overdraft checks paid and 2 overdraft check returned, are the two that are returned counted in the daily limit for fees charged

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#1559857 - 06/02/11 07:46 PM Re: Overdraft Guidance LSmith
Elwood P. Dowd Offline
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The Q & A, published after the FDIC teleconference, is clear:

Quote:
An “occasion” occurs each time an overdraft transaction generates a fee. For example, this would include a per-transaction overdraft fee or a daily fee for an outstanding overdraft status.


A return item fee, which regulation DD indicates is not a synonym for "overdraft fee," is not an "occasion" for triggering an outreach requirement.

Less reliable than the written word, but somewhat credible is the exchange between "Victoria" and "Michael" at 30:59 in the FDIC teleconference where she asked him if NSF fees were included in the count. He responded "No." He went on to indicate that those fees were assessed because there were insufficient funds and the item was being returned.
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#1559859 - 06/02/11 07:48 PM Re: Overdraft Guidance LSmith
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If your reference is to the FDIC Guidance issued in November, no. Fees for returning checks unpaid are not considered overdraft fees for the purpose of the Guidance.It isn't written in the Guidance or in the FAQ (it should be there, IMO), but it was stated by the FDIC staff members who conducted the March 2010 teleconference on the Guidance.
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#1559889 - 06/02/11 08:14 PM Re: Overdraft Guidance John Burnett
LSmith Offline
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Thanks

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#1559938 - 06/02/11 09:12 PM Re: Overdraft Guidance LSmith
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So, if we were to set a limit on the daily charges, as 'recommended' in the guidance, it would apply solely to the Overdraft Fees (i.e., any one-time charge and any daily fee) and NOT to the NSF fee?

As an example, let's say we have a $25 per-item Overdraft Charge, a $25 NSF Charge and a $7.50 daily Overdraft Fee and we 'cap' the daily fee at $57.50; if we pay two checks and return two checks, and the customer is in an overdraft position, we could charge him with the $57.50 in OD fees, but could still charge the $50 NSF fee (for the two returns) and this would be okay since it's not an OD fee?
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#1559966 - 06/02/11 09:41 PM Re: Overdraft Guidance Doug Hendrickson
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Doug -- IMO, yes. Of course a bank is free to include its fee for returning items unpaid under the cap if it wants to and I'm absolutely certain the FDIC would not cite a violation, but it would be a voluntary act with negative fiscal consequences.
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#1560045 - 06/03/11 11:49 AM Re: Overdraft Guidance Doug Hendrickson
Elwood P. Dowd Offline
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I agree; no one is suggesting banks should cap return item fees. Doing so would be a business decision and a poor one at that.

While an overdraft created by three debits is still one overdraft, three return items are three separate units of work. There is no "fairness" argument that says a bank should be willing to absorb the incremental expenses involved in handling multiple return items.

P.S. Sooner or later, it will dawn on banks that "compliance" with the guidance will cause them to return checks they might otherwise have paid because the decision is revenue neutral. I doubt seriously that the FDIC will ever figure that out.
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#1560054 - 06/03/11 12:05 PM Re: Overdraft Guidance Elwood P. Dowd
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I have a few small banks that just return all checks. The customer is called in the morning if they hit the overdraft and unless a deposit is made by noon, back the checks or items go (accept for ATM and authorized one-time debit card transactions) and a returned item fee is asssesed. In this manner, they never assess an overdraft fee. They seem to survive on the revenue they generate and don't have to deal with any of the overdraft requirements (opt-in) or other guidance. Plus, they end up with a lot of really good customers that don't need constant hand-holding. They feel the trade-off is worth it.
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#1560062 - 06/03/11 12:24 PM Re: Overdraft Guidance rlcarey
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Quote:
They seem to survive on the revenue they generate...


They never got addicted to the easy stuff.
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#1560090 - 06/03/11 01:17 PM Re: Overdraft Guidance Elwood P. Dowd
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A-men, Randy and Ken.
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#1561139 - 06/06/11 08:25 PM Re: Overdraft Guidance John Burnett
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When does the rolling 12 month period begin? July 1st, January 1st?

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#1561175 - 06/06/11 08:57 PM Re: Overdraft Guidance DCollins
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A "rolling" 12 month period by definition does not have a fixed beginning date. Today the beginning of a rolling 12 month period is June 6, 2010. Tomorrow your rolling 12 month period begins June 7, 2010, etc...
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#1561184 - 06/06/11 09:07 PM Re: Overdraft Guidance DCollins
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I don't think the guidance specified a date, so it depends on whether or not your system can generate that information for you now (based on the last 12 months) or if you need to make changes to be able to track over a rolling 12-month period.
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#1561442 - 06/07/11 03:41 PM Re: Overdraft Guidance Doug Hendrickson
John Burnett Offline
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At minimum, I think you have to have or acquire the ability to look at the last 12 months of history. You might be able to convince your examiner to agree that on June 7, 2011 that means having information on June 2010 through May 2011. You may not.
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#1561899 - 06/08/11 12:43 PM Re: Overdraft Guidance John Burnett
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Are we required to list posting order on our Truth in Savings Act disclosures? We have it on our overdraft payment program disclosure. Is that enough?

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#1562289 - 06/08/11 07:34 PM Re: Overdraft Guidance DCollins
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It's not required by Regulation DD (TISA). It's also not required that you list your posting order in the the FDIC's most recent Guidelines (in fact, unless it's required by state law, it could increase your risk of a depositor suit). You need to ensure that your payment order isn't established in order to maximize consumer fees (as would a largest-to-smallest policy); the FDIC wants you to ensure that it's "neutral." But you don't need to publish it or disclose it.
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#1562358 - 06/08/11 08:17 PM Re: Overdraft Guidance John Burnett
Sheldon Hendrix Offline
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We disclose transaction posting order, but only as a matter of transparancy. It's on the OD Program Disclosure developed internally that describes all OD Program terms, fees, and limitations.

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#1562499 - 06/08/11 09:30 PM Re: Overdraft Guidance Sheldon Hendrix
ahou Offline
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It's in the OCC's proposed ODP guidance.

• Clear disclosure about the order of
processing transactions and the fact that
the order can affect the total amount of
overdraft fees incurred by a customer.
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#1562528 - 06/08/11 09:52 PM Re: Overdraft Guidance ahou
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I'm not really sure that the OCC proposed guidance, which you've accurately quoted, Ahou, is really intended to have national banks lay out their actual posting order. I think it's something that should be clarified in the final rule, however.

For the record, the banker that asked the question is from an FDIC-supervised bank.
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#1563571 - 06/10/11 05:59 PM Re: Overdraft Guidance John Burnett
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Would I be correct in thinking that it is not necessary to notify existing customers that you are imposing daily limits on the number of overdrafts you will charge them for? The Reg E model opt-in form requires us to state this information, but I don't see any requirements under Reg E to redisclose this if we chose to change from "there is no limit on the number of fees" to "6 per day" which is what we are going to.

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#1563637 - 06/10/11 06:58 PM Re: Overdraft Guidance c@c
John Burnett Offline
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Actually, it's a Reg DD question except for the limited requirement to disclose OD plan information in connection with offering overdraft coverage for ATM and one-time debit card transactions (where, as you've correctly stated, you'd have to include the fee caps).

Regulation DD doesn't require the disclosure of fee caps. So you would not be required to notify customers if you add the caps to the program.

CAVEAT: As soon as you have a customer realize that a cap applies (and it won't take long if you have some "frequent flyers" in your program), they might get the idea they'll get coverage for no fee. And they'd be correct, if that's how you operate your program. But many banks, I imagine, will be starting to return checks unpaid after the daily cap is reached (as is their right). That may prove a surprise to customers if they've not had a check bounced in a while.

CONSIDER as a suggestion that you go ahead and notify customers of the new cap, and at the same time remind them that paying items that overdraw the account is discretionary. Something like "We're establishing a daily maximum overdraft fee of $XXX.XX beginning [date], but want to remind you that we may pay or return items that would overdraw your account at our discretion."
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#1563643 - 06/10/11 06:56 PM Re: Overdraft Guidance John Burnett
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Thanks, John. Good advice.

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#1563730 - 06/10/11 08:32 PM Re: Overdraft Guidance ahou
Elwood P. Dowd Offline
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Compare the OCC's guidance on order of payment to the relevant portion of the Interagency Guidance from 2005:

Explain impact of transaction clearing policies. Clearly explain toconsumers that transactions may not be processed in the order in which they occurred, and that the order in which transactions are received by the institution and processed can affect the total amount of overdraft fees incurred by the consumer.

At that time, it was not discussed as mandating the disclosure of an order of payment. Examples given involved the fact that fees could be affected by the order in which things were presented for payment; e.g. your ATM withdrawal from today may post before the check you wrote yesterday, etc.
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#1564409 - 06/14/11 02:09 PM Re: Overdraft Guidance Elwood P. Dowd
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If we're notifying customers of the change in processing order & that we're imposing a daily cap on the number of OD fees, is this considered an advertisement under Reg DD where we must disclose the additional information under 230.11?

Thanks.

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#1564435 - 06/14/11 02:43 PM Re: Overdraft Guidance donnac
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A change of terms notice is not advertising.
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