There is an interpretation of Reg O from a reputable third party service that says an overdraft violation does not occur until an NSF item is legally “paid into overdraft”. It contends that an NSF item is not actually “paid into overdraft” as long as the item can still be returned to the bank depositing the item. Assuming a 24 hour window to return NSF items, that would mean an item presented for payment against insufficient funds on Monday would be considered NSF, but is not technically an overdraft until the end of business on Tuesday at which time the item can no longer be returned to the depositing bank. Under this same scenario, if a deposit is made to the account before the end of business on Tuesday, then the item would never reach the status of being “paid into overdraft” even though the account would have a negative balance on Monday evening. If this is correct then the account would not have to be evaluated as an overdraft, inadvertent or otherwise, for Reg O purposes.

I cannot find any other source that appears to support this interpretation and wondered if anyone has any experience in this area that you could share to support or nullify this interpretation.

Thank you.

Many thanks! This is exactly the type of information I hadn't been able to locate, and was hoping to get. Thanks again.