The model disclosure for the opting in for the debit card one time transactions shows a $5.00 per day charge after 5 days of being NSF.

Can we do this in Texas? That would be above the usuary or is this excluded?

I think the jury is still out, but there are some interpretations that suggest this would be interest in Texas. If you do a search in the "Texas forum only" under overdrafts, you can probably find the previous discussions.

IBAT just published an answer to this question.

"I'm concerned that some Texas banks might think that the Fed is approving a daily fee. Alternatively, some banks may adopt the Fed's example without noticing that the fee is in the example or without knowing that charging this fee may be usurious.

The Texas case that we call Tony's Tortilla Factory (because that's the name of one of the parties) holds that a one-time charge on an overdraft is not interest because the formula for interest is:

PRINCIPAL X RATE X TIME = INTEREST.

With a one-time charge, there isn't principal, rate, or time; therefore, there is no interest.

If instead you charge $5 per day after the account is overdrawn for 5 business days, you do have principal (the amount of the overdraft), time (one day or more), and rate ($5 per day). If $5 per day is more than 18% per year, then it is usurious. On a $50 overdraft, you could charge $0.02 per day.

By my calculation, in Texas, you may charge $5 per day for overdrafts, but only if the overdraft is $20,277.76 or more."

How does the discussion change if the fee is assesed after 5 days, but is not assessed daily, just once? Look at it as a penalty for being overdrawn too long. Is this fee interest?

According to the IBAT answer above - if you just charge one fee, that's not interest (the time is absent from the interest definition).

we paid an outside party to study other bank extended overdraft charges in texas. Of 11 banks that returned results, only 3 banks (the big boys) charged per 5 day occurence, the rest charged so much per day after 4-17 days. Perhaps they know something others don't.

Bump for updates.

Have a fee/income consultant in the office. This is one of his recommendations. Anybody doing this now? It makes me nervous.

I like these consultants that have no care in the world once they get your fees that you could end up being on the UDAAP hook. Are they suggesting you charge for the weekend too when the customers can't cure the overdraft?????

I bet 9 out 10 of their suggestions are borderline UDAAPs unless you guys are doing something terribly wrong.

I did that for a living once - it's a sleazy business and borders on highway robbery of the bank that pays for this service. They act like they do a great big analysis job, then they pull out their standard dozen or so recommendations and present them.

Go ahead for your overdrafts of $10,138 and above because then you won't be charging over 18% per year.