I swear I remember reading something, sometime ago that you cannot write off overdrawn checking accounts through the Allowance for Loan Loss. However, I don't remember much more than this.

Do you know if this is ok? Or if its not, why its not?

Thanks!!!

We run all our DDA charge-offs and recoveries through the ALLL. We have a separate account on our general ledger for the DDA allowance, but it is combined with the ALLL for call reporting.

Our examiners (OCC) recently told us that we should be charging overdrawn accounts to the ALLL per GAAP requirements. Our external auditor's deemed the amount immaterial as were taking the write-off to operational losses. However, we have begun charging to the ALLL.

Overdrafts are loans, therefore they should be charged off to the ALLL.

Not only that, but unplanned overdrafts in which the account has been continuously overdrawn for more than 30 days or more must be reported as past due loans on schedule RC-N.

While charging ODs to ALLL has been under GAP for some time, many banks were taking it to operating losses. The regulators reiterated the proper way to handle OD charge-offs in the 2005 OD guidance document:

"With respect to the reporting of income and loss recognition on overdraft protection programs, institutions should follow generally accepted accounting principles (GAAP) and the instructions for the Reports of Condition and Income (Call Report), and NCUA 5300 Call Report. Overdraft balances should be reported on regulatory reports as loans. Accordingly, overdraft losses should be charged off against the allowance for loan and lease losses."

But, should OD fees be charged-off to the ALLL or reversed against fee income?

The guidance says institutions may charge off uncollected overdraft fees against the ALLL if such fees are recorded with overdraft balances of loans and estimated credit losses on the fees are provided for in the ALLL