I have spent so much time on lending changes and HMDA I need to clear my head on ODP again.
I skimmed the guidance again and it appears that this applies to accounts with overdraft protection programs.

1-If you have a checking account customer ( no ODP) who consistently overdraws his or her account and you return the checks with charge, are these covered under the guidelines? Anotherwords should we limit the number of NSF charges for these accounts as well? You can talk to customers but some just don't listen.

2-If a customer abuses the overdraft protection guidelines and we cut them off for that reason would this become a UDAP issue?

The guidance doesn't address at all the fees a bank charges for returning checks unpaid. The regulatory focus on overdraft programs has really been on protecting consumers from being misled or from going into a downward overdraft spiral. That said, the regulators would certainly not be upset if you showed such a customer the door if he or she can't manage the checking account.

As for shutting off a customer's access to OD coverage because of abuse, I don't see a problem. There are two ways, apparently, to deal with a customer that uses ODP to excess. Contact and counsel the customer, offering alternatives to ODP that the bank has in its product mix and for which the consumer qualifies, or suspending or canceling the overdraft privilege. If you made transparent disclosures at the front end, you told your customer you don't promise to pay any item and that the bank can pull the plug in such cases. I don't see a UDAP issue.

Thank you John! One more question-- If a customer has 3 overdrafts in one day does that count as one instance or 3?

No one seems to know. The ABA asked that question in a recent missive to Mark Pearce, FDIC's Director of the Division of Consumer Protection about the Guidance. The ABA suggested that the Guidance in FIL-81-2010 didn't provide enough guidance.

The obvious danger is that the industry won't like the answers from the FDIC (if any are forthcoming). But compliance officers as a species abhor uncertain outcomes.

Assuming no guidance is issued for the guidance, I'm reaching the completely independent conclusion that if the recidivist overdrafter has been adequately harrassed with messages pointing out the error of his ways, it might be prudent to simply say your bank will pay no more NSF items unless the customer affirmatively opts in. That should remove any ambiguities.

There is danger in interpreting these things so far out...

The fact that the customer has "opted-in" may not be enough to remove the ambiguities.