Management wants to set up an Automatic Transfer Authorization for loan payments that states if the customer does not have the funds in their checking account to cover the payment, the payment will be made and an overdraft fee will be assessed to the checking account.

Are there any regulations that would preclude this arrangement?

Are any of you charging an overdraft fee on automatic transfers?

You are going to overdraw checking accounts to pay loans? I think your safety and soundness examiners are going to have a cow and if you are subject to SOX, you are going to have a hard time with that process. It results in the deliberate misstatement of past due loans.

You could implement a return check charge on the loan (if State law allows) and charge them on the loan side for a returned check or automatic debit entry.

I agree with rlcarey. We do not charge a fee or overdraw the checking account to make the loan payment. Our system is set to try five consecutive days and if the funds are not available, the loan payment must be made manually by the customer.