Allow me to bump this one and offer another scenario and request some opinions on compliance status.

We did have an overdraft program, and in 2010, solicited opt-ins for payment of ATM/debit entries into overdraft, and collected the fees. After some FDIC criticism of our overdraft program, and after consideration of the required monitoring under the new OD guidance, management decided to discontinue the overdraft program, effective July 1, 2011.

The question has now come up on how to handle those customer accounts that opted into the Reg E payment into OD of ATM/Debits and authorized the bank to collect the OD fee in that case. If the program has been discontinued, but these customers have an inadvertent overdraft occur, (when the debit was authorized on sufficient funds then another check or ACH entry posted first, leaving insufficient funds to cover the debit/ATM entry)....can the bank charge an overdraft fee?

Since the customer was opting into a program that allowed payment of insufficient debit/ATM entries (and charging the fee), but the program no longer exists, would this be considered a compliance violation? We have some different opinions, but my concern is that we've sold the customer on a benefit that now has been discontinued (and duly notified customers of same), and we should not be charging a fee for an inadvertent overdraft whether the customer opted in or not. Perhaps I'm taking this too far, and obviously, management would like to collect that bit of income, if allowable. Would this be a potential UDAP issue?

If the program no longer exists, I think you are definitely open for a UDAP citation if you try to argue that the opt-ins are still valid. The customers opted in to something that no longer exists, so IMO the opt-ins are null and void.

I've considered overdraft programs and opt-ins on ATM and one-time POS to be two distinct 'services'.

If you have no overdraft program, conceivably you could still have an opt-in and cover those inadvertent OD's that were described by Gigi03. The problem I see with this set up is it's 'hit and miss'...but it does seem to be two different issues...no?

I may be misreading the post, but it appears that the payment of those ATM/POS payments was via the OD program that went away. I would think that the opt-ins went away with the program and new opt-ins are needed to continue to charge, if that is the case.

If they were unrelated, then it would be okay to continue to charge on those customers who opted in for ATM/POS ODs.

I see what you are saying KB..and that makes perfect sense. For one, the current opt-ins may be misleading because rather than having a balance at the ready to cover OD's, you will now only cover those that squeak through the system.

"If you have no overdraft program, conceivably you could still have an opt-in "

I disagree - there is nothing to opt-in to except the OD charge. You have no choice but to pay these items. I see this practice as a UDAP violation all the way.

I don't see it that way. Why would you be able to charge on a customer who "opts-in" when you have a "program"...but other folks have no choice in the matter. You couldn't charge on those transactions that go through, but there is a choice to reject those that don't...perhaps the customer would rather they be approved rather than returned?

For checks, could you have a policy of returning and charging for all NSF checks on accounts with no opt-in?

Why would you need an opt-in for checks? Or, do you mean you offer an opt-in for ODP programs in general and they don't opt in. There is nothing that says you have to pay an account into overdraft, so I see nothing wrong with your procedure.

The OCC proposed guidance on overdrafts is looking to require new customers to opt-in for all courtesy overdraft programs, not just the current Reg E requirement for one time ATM/Debit Card transactions.

If you're returning all NSF checks, you cannot be accused of encouraging your customers to overdraw their accounts and profitting by it which is what has drawn the cristism of the regulators in recent years.

Ah..oops.I didn't realize this was an OCC discussion.

::bows out and runs fast!::

I don't think it started out as one, but I took a stab based on ahou's post regarding opting-in for checks.

If you don't have an overdraft program, then there is nothing to opt-in too. If you have a program to pay these into the overdraft, then you have a program. These transactions would be rejected at the ATM or POS terminal if there wasn't a sufficient balance in the account if you don't transmit an ODP limit along with the account balance. So, the only ones that would cause an overdraft are the ones that are presented and cause an overdraft due solely to the timing of actual presentment. They are all pre-authorized, so you can't return them. So therefore, the only thing they would be opting into is the charge.

FWIW, I agree with Randy. When I revoke overdraft privledges as a result of bankruptcy, excess usage, etc. I also revoke the opt-in at that time. Although I still offer a program, I am no longer offering it to that customer. No question that it is UDAP to charge a customer for a service that I am no longer providing.

Ok, thanks guys...well, that answered a question for me and something I don't need to look into deeper...I appreciate it!

My position has been the same as Randy's, that we offered a service to the customer, to pay their debits into overdraft, and authorized the charge along the way. Taking away the service also takes away the "opt-in" to the charge, IMO. I was concerned about the UDAP threat, especially with all the attention overdrafts and OD programs are currently receiving by the regulators.

Along the way, some customers that were not part of the OD program were also opted in (zealous front line staff), which has permitted charging on those inadvertent overdrafts by debits/ATM entries. Never liked that either, but I've been overruled. My preference would be to do away with the opt-in status in our case because we no longer offer the overdraft program. Management wants to wait and see what the regulators say at the next exam.

Another question arises, how are other banks handling "potential" overdrafts caused by debit holds? We had charged for them, but stopped. The customer's statement may never show an overdraft balance, but would see the OD charge when the debit card hold caused a check or ACH item to be insufficient, pending the posting of the debit/ATM. If the customer made a deposit that posted prior to the debit, but after the checks or ACH were presented for payment against the "held" funds, do you charge in that situation?

"Management wants to wait and see what the regulators say at the next exam."

That is an extremely dangerous approach. What do they think they are going to tell them? We really don't like this and we think you should quit, pretty please?? How about the reality of a citation for a UDAP violation and mandatory restitution.

You return a check on me when I don't have a negative balance due to some merchant putting a hold on my account for some debit card transaction that may or may not happen and I would sue you for wrongful dishonor and making that a class action lawsuit would be a snap. I think UDAP is the least of your worries on that practice.

We dont have an overdraft program but we ask the customer to opt in, in the event that a debit (POS)charge comes in higher than the account balance and we are force to pay due to Visa and Mastercard rules such as gas station transactions. Is this a form of UDAP?

What are they opting into? If you don't have an overdraft program, they are opting into paying a fee only.

The whole point of the Reg E opt in is for consumers to choose whether or not you authorize and pay them into overdraft. From the description you gave at your bank, for inadvertant overdrafts you haven't approved them into overdraft, you authorized their transaction based on a positive balance it only went into OD when it cleared because of a vendor delay, other inclearing items, or your posting order.

I don't know if it is a UDAP per se, though anything can be a UDAP these days depending on the examiner you get and the mood they are in on that particular day. It does seem to indicate though that either you have some very foolish customers to pay a fee when they don't have to or the disclosure and accompanying explanatory material you provided have led your customers to believe that they will be authorized and paid into overdraft on covered transactions (which could turn into a UDAP). you may want to research further into why your customers have opted into paying this fee (especially if you have a majority that have), and then make a decision.

I'd review carefully the disclosure form you're providing your customers when soliciting that opt-in Bat21. How you describe your overdraft practices and fees, and the wording of the Q&As in your version of Model Form A-9 can mean a lot, and if it could lead a debit card customer to believe that you're going to authorize and pay card transaction overdrafts, even at your discretion, you could have set yourselves up for a UDAP allegation. First, because you aren't authorizing them and second, there's no way you have discretion in doing so.

Also find out what your staff is telling the customers when they are discussing the opt in. It could be that your staff is misleading the customer to sign the form, intentional or not.

So if a gas station authorizes $1.00 but settles for $50 and the customer only has $1.00 in there account and mastercard/visa forces the transaction through due card rules. An insufficent funds conditon of $49.00 occurs because of the force post and the bank has to pay, can we charge a fee only if the customer signed the Reg E opted in or even at all...

Would this example be even considered as a Overdraft or could we just charge a insufficent funds fee?

confused...

My interepretation from reading the threads is that you would need to have an Overdraft Protection product and the customer would have had to of Opted In to the REG E one time OD program before you could charge.

If you don't offer overdraft protection there is nothing for your customer to Opt In to so no overdraft charges would be allowed in this scenario.

Paying a POS charge forced by the card networks that causes the account to go in to negative balance, wouldnt that be considered as overdraft technically?

205.17 states...

§ 205.17 Requirements for overdraft services.

(a) Definition. For purposes of this section, the term "overdraft service" means a service under which a financial institution assesses a fee or charge on a consumer's account held by the institution for paying a transaction (including a check or other item) when the consumer has insufficient or unavailable funds in the account.



I guess my question should be to keep it simple, in the above post (POS)transaction occurs can I

1) Charge the customer for insufficent funds?
2) If yes, what do i need to do to charge.

I need clarification. Thanks for any help.

If a customer's account goes negative because your bank paid an item that they did not have funds to cover, it is an overdraft....you have overdrawn their account to pay an item.

In your gas station scenario, the 49.00 overdraft is an inadvertant overdraft. Per the Reg E rules, unless you have an opt in from the customer, you cannot charge a fee. The Fed has even said too bad for inadvertant overdrafts. That being said, if your customer is dumb enough to opt in to paying a fee, then you can charge. Where you are going to run into to problems is how did you disclose your practices, and can the way you disclosed be misleading to indicate that you do authorize into OD when you don't.

In your gas station scenario, you authorized the 1.00 transaction because they had 1.00 in their account. You did not authorize them into the 49.00 overdraft. You have to pay the additional 49.00 dollars because it is a force pay item due to your original authorization that you would pay the 1.00 transaction. If you have no opt int, you can not charge a fee for the 49.00 overdraft. Unfortunately the Reg E rules don't tell merchants that they have to get authorizations for the full amount, nor do they require merchants to settle timely. The Fed thinks that banks can provide industry pressure to get that corrected.

To answer your direct questions:
1--It doesn't matter what you call the fee, you cannot charge a fee when you have paid a customer into the negative on an ATM or one-time POS item without an opt in.

2--You can solicit an opt in if you can dislcose properly and a customer just wants to pay a fee. however, you cannot use the newly obtained opt in to charge retroactively.