In the past we have paid overdrafts on business accounts. If we decide to stop paying for some of the customers that have been repeatedly overdrawn, must we disclose this to the customers prior to the change? I have reviewed Reg DD, & Reg E and they only cover consumer accounts. These are only discretionary overdraft programs, which are not tied to a line of credit, and we do not advertise this service. Is there any other regs that would require prior disclosure due to the potentially negative impact to the customer? Would it be a UDAP area of concern because this is a service we have provided in the past to our business customers? Any guidance or comments would be appreciated!

Assuming that the overdrafts are "incidental;" i.e. not for large amounts, did not happen often, and they have been satisfied promptly in the past, I do not think you have a problem in changing your philosophy.

Several years ago there was a spate of lender liability lawsuits against banks that had routinely and systematically paid NSF items for their business customers. The amounts were large and the overdraft conditions were prolonged, in some cases, almost an "evergreen" loan. When the banks got nervous, the banks simply shut them off with no notice.

The "borrowers" argued that the overdrafts constituted a course of dealing on which they had relied and, when the banks shut them off, some actually went out of business. As foreign as it sounded to me at the time, some of the customers actually won. It was particularly helpful to their cause when they could quote bank employees as having said they would continue to honor the NSF items.

Note that I offered my opinion on the question before I offered the history lesson. The latter may be of no relevance to you at all. However, it's good to remember that extreme fact situations yield extreme results. If you have specific customers in mind I do suggest that you offer them the courtesy of telling them in advance about your change of philosphy, perhaps when you tell them about the availability of a line of credit.

Communicate with your customers whether it is required or not.

Thanks for the advice. I wanted to make sure I hadn't missed something in the regulations that addressed ODP's for business customers. I agree that it would be best to send prior notification to the customer as a courtesy. I appreciate you sharing the scenario. It serves as a reminder that just because the regulation doesn't specifically address the issue, doesn't mean the customer can't file a lawsuit.