We are thinking of automatically opting in those customers that did not respond to the opportunity to opt-in previously to ATM and one time debit card transactions.

We understand that we cannot charge these people for the overdrafts associated with these transactions.

Has any bank done this and been examined and criticized for doing it?

You can't automatically opt them in. If they don't opt in, they don't opt in and you cannot charge them nor use any OD balances due to ATM/POS overdrafts to charge them any recurring overdraft fees. I would think examiners would chop your head off if you did that.

To be technically correct, you can pay all the ATM and one-time debit card transactions you want that overdraw the consumer's account, whether or not he opts in, but without an opt-in you cannot impose any form of overdraft fee as a result, either at the time of the overdraft or later.

So one wonders why a bank would choose such a strategy, which would increase its risk of overdraft chargeoffs with no fee income (other than interchange fees) to mitigate the losses.

In fact, my cynical side is whispering in my ear wondering if a consumer might allege that the bank encouraged or allowed him to succumb to a landslide of overdraft debt (to borrow a phrase from the FDIC's overdraft guidelines FAQ). And that wakens the cautious compliance conscience in me that starts worrying about UDAP problems.

What options do we have with an account that is going overdrawn with debit/atm card transactions and we can't charge for those items.

Is there a possibility of canceling their debit/atm card because of the overdrafts?

Any thoughts?

Most card agreements have clauses that state the card is the property of the bank and may be cancelled at any time, but be careful. Reg E requires that you treat opt in and opt out customers the same except for declining the debit card items. You must use the same criteia (number of overdrafts, length of time overdrawn, amount of overdraft, etc.) for cancelling a card for either situation.

If the occaisional ATM/debit card transaction slipping through would not result in the cancellation of a card for an opt-in customer, then you cannot cancel the card for an opt-out customer.

Thanks for your comments. I really appreciate the feedback.

John - where you state above "...you cannot impose any form of overdraft fee as a result, either at the time of the overdraft or later." Are you saying that if an overdraft is a result of an ATM or one time Debit card transaction that OTHER items that come in for payment at the same time (on the same day or subsequent to that OD) cannot be charged an OD fee? For example, an ATM transaction overdraws the account (we don't charge them) but then for the next several days other transactions occur to further overdraw the account, are we able to charge for those overdrafts?

Some banks charge a continueous overdraft fee each day for accounts that have been overdrawn over a period of time. Reg E prohibits you from charging the fee on overdrafts that are created by ATM/Debit card transactions on an opt-out customer. (Hence the statement no fee now or later.)

You can continue to charge as normal for checks and ACH debits.

That clarifies it. Thank you!

You can charge fees if other check / ACH items are a part of the overdraft balance. See this section of the commentary on 205.17

9. Daily or Sustained Overdraft, Negative Balance, or Similar Fee or Charge
i. Daily or sustained overdraft, negative balance, or similar fees or charges. If a consumer has not opted into the institution’s overdraft service for ATM or one-time debit card transactions, the fee prohibition in § 205.17(b)(1) applies to all overdraft fees or charges for paying those transactions, including but not limited to daily or sustained overdraft, negative balance, or similar fees or charges. Thus, where a consumer’s negative balance is solely attributable to an ATM or one-time debit card transaction, the rule prohibits the assessment of such fees unless the consumer has opted in. However, the rule does not prohibit an institution from assessing daily or sustained overdraft, negative balance, or similar fees or charges if a negative balance is attributable in whole or in part to a check, ACH, or other type of transaction not subject to the fee prohibition. When the negative balance is attributable in part to an ATM or one-time debit card transaction, and in part to a check, ACH, or other type of transaction not subject to the fee prohibition, the date on which such a fee may be assessed is based on the date on which the check, ACH, or other type of transaction is paid into overdraft.
ii. Examples. The following examples illustrate how an institution complies with the fee prohibition. For each example, assume the following:
(a) the consumer has not opted into the payment of ATM or one-time debit card overdrafts; (b) these transactions are paid into overdraft because the amount of the transaction at settlement exceeded the amount authorized or the amount was not submitted for authorization; (c) under the account agreement, the institution may charge a per-item fee of $20 for each overdraft, and a one-time sustained overdraft fee of $20 on the fifth consecutive day the consumer’s account remains overdrawn; (d) the institution posts ATM and debit card transactions before other transactions; and (e) the institution allocates deposits to account debits in the same order in which it posts debits.
a. Assume that a consumer has a $50 account balance on March 1. That day, the institution posts a one-time debit card transaction of $60 and a check transaction of $40. The institution charges an overdraft fee of $20 for the check overdraft but cannot assess an overdraft fee for the debit card transaction. At the end of the day, the consumer has an account balance of negative $70. The consumer does not make any deposits to the account, and no other transactions occur between March 2 and March 6. Because the consumer’s negative balance is attributable in part to the $40 check (and associated overdraft fee), the institution may charge a sustained overdraft fee on March 6 in connection with the check.
b. Same facts as in a., except that on March 3, the consumer deposits $40 in the account. The institution allocates the $40 to the debit card transaction first, consistent with its posting order policy. At the end of the day on March 3, the consumer has an account balance of negative $30, which is attributable to the check transaction (and associated overdraft fee). The consumer does not make any further deposits to the account, and no other transactions occur between March 4 and March 6. Because the remaining negative balance is attributable to the March 1 check transaction, the institution may charge a sustained overdraft fee on March 6 in connection with the check.
c. Assume that a consumer has a $50 account balance on March 1. That day, the institution posts a one-time debit card transaction of $60. At the end of that day, the consumer has an account balance of negative $10. The institution may not assess an overdraft fee for the debit card transaction. On March 3, the institution pays a check transaction of $100 and charges an overdraft fee of $20. At the end of that day, the consumer has an account balance of negative $130. The consumer does not make any deposits to the account, and no other transactions occur between March 4 and March 8. Because the consumer’s negative balance is attributable in part to the check, the institution may assess a $20 sustained overdraft fee. However, because the check was paid on March 3, the institution must use March 3 as the start date for determining the date on which the sustained overdraft fee may be assessed. Thus, the institution may charge a $20 sustained overdraft fee on March 8.
iii. Alternative approach. For a consumer who does not opt into the institution’s overdraft service for ATM and one-time debit card transactions, an institution may also comply with the fee prohibition in § 205.17(b)(1) by not assessing daily or sustained overdraft, negative balance, or similar fees or charges unless a consumer’s negative balance is attributable solely to check, ACH or other types of transactions not subject to the fee prohibition while that negative balance remains outstanding. In such case, the institution would not have to determine how to allocate subsequent deposits that reduce but do not eliminate the negative balance. For example, if a consumer has a negative balance of $30, of which $10 is attributable to a one-time debit card transaction, an institution complies with the fee prohibition if it does not assess a sustained overdraft fee while that negative balance remains outstanding.

All you have to have to do that is software smart enough to trace the overdraft back to its source...