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#1472248 - 11/24/10 03:11 PM
FDIC "Final OD Payment Supervisory Guidance"
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Cape Cod
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The FDIC just announced its FIL-81-2010: Overdraft Payment Programs and Consumer Protection -- Final Overdraft Payment Supervisory Guidance." Highlights: FDIC-supervised banks are expected to -- - Promptly honor customers' requests to decline coverage of overdrafts (opt-out) relating to non-electronic transactions.
- Give consumers the opportunity to affirmatively choose the OD payment product that overall best meets their needs
- Monitor accounts and take meaningful and effective action to limit use by customers as a form of short-term, high-cost credit, including, for example, giving customers who overdraw their accounts on more than six occasions where a fee is charged in a rolling twelve-month period a reasonable opportunity to choose a less costly alternative and decide whether to continue with fee-based overdraft coverage
- Institute appropriate daily limits on OD fees; and consider eliminating OD fees for transactions that OD an account by a de minimis amount
- Not process transactions in a manner designed to maximize the cost to consumers.
- Exercise careful oversight over any third-party vendor operating their OD payment program.
The FIL states that the FDIC will take action where OD payment programs pose unacceptable safety and soundness or compliance risks or result in violations of laws and regulations, including UDAP and fair lending laws. The FDIC reiterated its earlier statement that positive CRA consideration will be provided for "responsible transaction accounts and affordable small-dollar loan programs or other lower cost credit alternatives, particularly for low- and moderate-income consumers." The FDIC expects banks to have their acts together on the final guidance by 7/1/2011.
Last edited by John Burnett; 11/24/10 04:14 PM.
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John S. Burnett BankersOnline.com Fighting for Compliance since 1976 Bankers' Threads User #8
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#1472321 - 11/24/10 04:07 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
Sheldon Hendrix
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Power Poster
Joined: Nov 2004
Posts: 6,866
Illinois
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one could predict that banks will eventually stop offering this service altogether. The risks and costs are just getting too high. The regulators have stopped short of doing away with these products themselves, but clearly these "guidances" are put to in place to encourage financial institutions to do so of their own free "please let go of my arm before the elbow snaps" will.
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#1472332 - 11/24/10 04:18 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
BrianC
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Power Poster
Joined: Oct 2009
Posts: 3,927
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So let me get this straight, we don't want to encourage OD behaviour, but let's provide a de minimis amount so that they can OD and not be charged. And then let's be responsible for monitoring that behaviour to make sure they don't do it too often. And if they do, then let's talk to them about which program might make sense for them. How about closing the account 'cause they can't manage their own finances??????????
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#1472509 - 11/24/10 06:37 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
Sheldon Hendrix
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Georgia Plum
Unregistered
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So, our comments meant NOTHING, as usual. I don't plan on changing antyhing. We are not 'gouging' customers, we are not enticing them into OD programs, (we don't have any) and if I have a customer who happens to be on the OD list every day for the next 10 years and he's OK with it, so am I. I'm not going to insult his intelligence by 'counseling' him. The only alternative would be to close the account since we only have an ad hoc program. I'll take my chances.
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#1472514 - 11/24/10 06:42 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
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Joined: Oct 2009
Posts: 3,927
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I agree...we don't have an ODP, just the standard overdraft service where they get charged an NSF fee and/or OD fee as appropriate. If they want to keep p....ing away money on those fees, they're adults!
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I hear and I forget. I see and I remember. I do and I understand.--Confucius
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#1472571 - 11/24/10 08:05 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
Sheldon Hendrix
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100 Club
Joined: Feb 2006
Posts: 178
LA
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We have an OD Program, disclose it, don't market it, have already placed a de mimimus amount into procedures; now we have to max the amount they pay. Unbelievable...as we all know, some customers will figure out how to "work" the system to their benefit. I agree gouging in any industry is deplorable...but, really, personal responsibility has gone out the window. Easy fix, don't spend the money if you don't have it...and balance your checkbook...IMHO.
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#1472607 - 11/24/10 08:32 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
dcl1963
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Joined: Apr 2003
Posts: 148
Texas
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As for the "more than six occasions" on overdrafts, is that per overdraft occurrence where that one overdraft could go on for many business days, or does it apply to individual overdraft transactions? An account could stay overdrawn all year, coming out only 5 times, and technically only have 6 overdraft occasions.
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#1472641 - 11/24/10 09:07 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
Sheldon Hendrix
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Joined: Nov 2006
Posts: 105
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Define automated... If your system automatically covers the customers that opt-in and rejects the overdrafts (ATM & point of sale debits) for the ones that didn't opt-in are you considered automated? We don't advertise our overdraft program but we do let customers overdraw if they have opted in under the guidelines for overdrafts.
Do the new guidelines apply?
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#1472859 - 11/26/10 04:41 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
Heather301, CRCM
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Posts: 40,086
Cape Cod
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"Automated" suggests that you have parameters in your processing system that drive an automated pay/return decision on items presented for payment, based on account and/or customer characteristics and data (average balance, previous ODs, date opened, yada, yada, yada). It has nothing to do with a flag set on your system to decline authorization requests for ATM or debit card transactions that would overdraw an account.
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John S. Burnett BankersOnline.com Fighting for Compliance since 1976 Bankers' Threads User #8
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#1472972 - 11/26/10 08:31 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
John Burnett
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Gold Star
Joined: Feb 2005
Posts: 299
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Does anyone know if this guidance covers Fed and OCC regulated banks? Why wasn't this issued as joint guidance?
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#1472976 - 11/26/10 08:34 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
banjo
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Joined: Aug 2006
Posts: 2,407
Midwest
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We do not have any "automated" OD program. Each day, a member of senior management evaluates each overdrawn account on a case-by-case basis and makes the decision to pay or return each item. Does this regulatory guidance apply to us? For example: Do we have to monitor for more than 6 in 12 months? Do we have to limit the number of OD fees we can charge? Thank you in advance for any advice/guidance; I'm confused.
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#1473041 - 11/27/10 12:06 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
banjo
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10K Club
Joined: Aug 2001
Posts: 21,939
Next to Harvey
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Banjo,
If I was the compliance officer for an FRB or OCC supervised bank I would use the guidance to line my bird cage.
Only the other agencies could explain why this guidance was not issued jointly. My guess is that the FRB would say We alone have the power to issue regulations interpreting Regulations E and DD. This guidance clearly deals with the subject matter addressed in those regulations and adds psuedo requirements not addressed in law or regulation. If we thought this was necessary, we would have incorporated it in our regulations.
Will FRB & OCC examiners enforce or even tout "guidance" issued only by the FDIC? I really, really doubt it. Several commenters mentioned that this guidance creates different consumer protections based on who regulates a particular institution. That's because it was issued by only one agency.
Personal opinion, very strongly held: This is nothing short of a power grab by the FDIC. They should be embarassed. What would the industry do if the FDIC issued "guidance" on Regulation Z compliance that added a couple more boxes to the TIL disclosure? Hopefully, it would laugh out loud. The industry's apparent inability to grasp the parallel may be attributable to the fact that we all know promoted overdraft programs are inherently slimey.
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#1473048 - 11/27/10 12:54 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
BurntSienna
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Joined: Aug 2001
Posts: 21,939
Next to Harvey
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Cornflower, If the FDIC is your primary federal regulatory agency, I suggest you make every effort to comply with the guidance where you can. (Note that the difference between this suggestion and the one involving the bird cage turns entirely on who your federal functional regulatory agency is.) There is language that indicates following my suggestion is unnecessary: Ad hoc overdraft payments typically involve irregular and infrequent occasions on which a bank employee exercises discretion in a specific instance about whether to pay an item or not, as a customer accommodation and not on a pre-determined or formulaic basis. Such ad hoc activities are not the focus of this guidance. Regardless, whether the FDIC knows it or not, you and I both know that every bank has customers whose overdrafts are both regular and frequent even though that bank has never promoted overdrafts and continues to make pure case by case "pay or return" decisions. The adverse effects on those consumers are identical to those who bank with more predatory institutions. I am suggesting it is the business of all FDIC supervised banks to protect fools. As an aside, John supplied a well worded, credible definition for “automated overdraft program.” However, it doesn’t appear in quotes because it did not come from the guidance. This is not a defined term. Neither is “overdraft payment program” which the guidance also uses. The FDIC clearly avoided the use of Regulation E’s defined term “overdraft services.” It also made no attempt to distinguish between banks that do or do not “promote” overdrafts although Regulation DD does make that distinction. If the FDIC had incorporated such definitions it would be even more apparent that the agency is interpreting regulations which it is not empowered to interpret. Just like “the length of the King’s foot” was found to vary, this definition will undoubtedly vary with the opinion of individual examiners. On those days, it is they who will get to be King.
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#1473054 - 11/27/10 05:11 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
Elwood P. Dowd
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Diamond Poster
Joined: Aug 2006
Posts: 2,407
Midwest
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Ken, thank you for posting your insight. Yes, we are FDIC regulated and yes, we have the usual assortment of frequent/regular OD'ers... the precise reason I was thinking that we most likely need to worry about following this guidance, even though we don't have an "automated" program.
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"Gratitude makes sense of our past, brings peace for today, and creates a vision for tomorrow." - Melody Beattie
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#1473110 - 11/29/10 02:35 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
Sheldon Hendrix
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Member
Joined: Jun 2010
Posts: 96
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I realize this guidance is not focused on ad hoc programs. However, what about: instituting an opt-out policy for non-electronic transactions.
If we do not have an overdraft program, just an ad hoc program, should we be worried at all about this?
Also, I think as it stands, this is open for interpretation (very vague guidance as mentioned above), but for institutions who need to offer the opt-out for non-electronic transactions, would I be correct in assuming the customer must ask for the opt-out and we don't have to market the option to all these customers?
Just curious on everyones opinion on this.
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#1473169 - 11/29/10 04:17 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
villenbe
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Power Poster
Joined: Apr 2001
Posts: 4,828
Between the lines
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I need a little clarification, please excuse me for tagging in on this thread.
The comment in the guidance regarding 6 occurances, are you treating that as 6 items or 6 different days on which ODs occur? I am thinking that I should be looking at the 6 times that they have overdraft items and not necessarily the number of items that might hit on any one day.
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#1473537 - 11/30/10 09:54 AM
Re: FDIC "Final OD Payment Supervisory Guidance"
SMQ, CRCM
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10K Club
Joined: Aug 2001
Posts: 21,939
Next to Harvey
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I agree with your theory; i.e. it should be the number of days an overdraft was created, not the number of items paid (or returned) that created the overdraft(s).
There is a shaky parallel in Regulation CC's interpretation of what constitutes a "frequent overdrafter;" i.e. it is based on the number of days the customer was overdrawn. (Note, that's not the same as the number of days an overdraft was created.)
It's worth noting that your particular King for the Day (your field examiner) may disagree with us. Since neither side will have anything but theory to rely on, it could be a warm discussion and the result in your bank could differ from that in the bank down the street.
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In this world you must be oh so smart or oh so pleasant. Well, for years I was smart. I recommend pleasant.
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#1473652 - 11/30/10 03:38 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
Elwood P. Dowd
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Power Poster
Joined: Apr 2001
Posts: 4,828
Between the lines
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Since I am not an FDIC bank, this guidance is not as "gospel-ish" for me as it is for other banks. I plan to consider, but at this time, I don't think they can hold me to this one.
Thanks for verifying my logic.
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NOLA is my Beach!
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#1473675 - 11/30/10 04:03 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
SMQ, CRCM
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Diamond Poster
Joined: Jan 2010
Posts: 1,028
Utopia
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SoccerMomQueen, I'm in the same postion, not FDIC but keeping a close eye on this because anything can happen in a flash, as we all know!
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#1474128 - 12/01/10 01:26 PM
Re: FDIC "Final OD Payment Supervisory Guidance"
Soccer
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Junior Member
Joined: Nov 2009
Posts: 40
Kentucky
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