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#1621022 - 10/27/11 05:04 PM UDAAP and Overdraft Fees
Village Man Offline
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I was lucky enough to attend Carl Pry's Webinar yesterday on UDAAP and have a question on an abusive practice. In the handouts he stated that "if a customer overdraws his or her account on more than six occasions where a fee is charged in a rolling 12 month period the institution is to undertake meaningful and effective follow-up action". Does this just pertain to those banks with an ODP program or like us does it also pertain to banks that have a pay all policy and will contact the customer to determine if their overdrafts should be paid or returned and incur a charge? We have a bankway software system and they have a report in their system that covers this, but only if we have an ODP program, which we don't.

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#1621105 - 10/27/11 07:06 PM Re: UDAAP and Overdraft Fees Village Man
John Burnett Offline
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It's a reference to one of the keystones of the FDIC's November 2010 Guidance, with which FDIC-supervised banks were supposed to have become compliant by 7/1/11. It applies to banks with automated overdraft payment systems, not to those with ad hoc decision-making. Your system sounds like the latter, and would not be subject to the guidance provision even if it's FDIC-supervised.
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#1628225 - 11/14/11 08:29 PM Re: UDAAP and Overdraft Fees John Burnett
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Question about the meaningful and efective follow up action....The monitoring report that our core is providing included only personal accounts that are participating in the automated overdraft program. If a customer is not participating (they have opted-out, been removed as a problem account, don't meet the qualifying criteria, etc) then their OD fee occurances are not tracked. My question is...as a bank with an automated OD program which clearly is subject to the 2010 FDIC guldance, do we monitor all consumer accounts, or only those enrolled in the program?

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#1628764 - 11/15/11 09:02 PM Re: UDAAP and Overdraft Fees TeeBee
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Such a bank has two separate programs -- an automated program that is covered by the FDIC's Guidance and an ad hoc program that covers the rest of your accounts that is subject only to select parts of the Guidance (payment order and program oversight for safety and soundness).
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#1628876 - 11/16/11 12:37 AM Re: UDAAP and Overdraft Fees John Burnett
EmilyAnn Offline
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Note that there has been discussion that if you have an ad hoc program but had your customers "opt-in" for payment of one-time debit and ATM transactions, the regulators may consider that you have an automated program subject to all of the 2010 FDIC overdraft guidance, at least for the customers that opted in. Crazy, I know!

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#1628883 - 11/16/11 02:44 AM Re: UDAAP and Overdraft Fees EmilyAnn
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" the regulators may consider that you have an automated program subject to all of the 2010 FDIC overdraft guidance, at least for the customers that opted in"

Actually what they have been doing is citing banks for a UDAP violation because the only thing the customer is doing is opting into a fee.
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#1628892 - 11/16/11 03:21 AM Re: UDAAP and Overdraft Fees John Burnett
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John,
So in your opinion would it be appropriate to monitor for six OD fees in a rolling 12 mos on those accounts that are in the OD program only? We are trying to figure out if we need to adjust the monitoring report provided by the core (if possible, or try to find another alternative) or if it is OK to use as is. The accounts that are in the ad-hoc program would still be subject to the posting order, daily limits and deminimus that we have set.
Last edited by TeeBee; 11/16/11 03:23 AM.
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#1628904 - 11/16/11 11:22 AM Re: UDAAP and Overdraft Fees TeeBee
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Not John, but I don't think you can go wrong by applying it across the board.
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#1628908 - 11/16/11 11:58 AM Re: UDAAP and Overdraft Fees rlcarey
Kathleen O. Blanchard Offline

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Originally Posted By: rlcarey
" the regulators may consider that you have an automated program subject to all of the 2010 FDIC overdraft guidance, at least for the customers that opted in"

Actually what they have been doing is citing banks for a UDAP violation because the only thing the customer is doing is opting into a fee.


And didn't many bank's do exactly that?
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#1628996 - 11/16/11 02:52 PM Re: UDAAP and Overdraft Fees Kathleen O. Blanchard
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"[D]idn't many banks do exactly that?"

Yes, in spite of repeated comments here in Bankers' Threads, particularly from Mr. Carey, that the practice would not be looked upon favorably (he mentioned UDAP several times, in fact).
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#1628999 - 11/16/11 02:55 PM Re: UDAAP and Overdraft Fees TeeBee
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I agree with Randy here. You can't go wrong by applying the "6 in 12" guidance to ad hoc OD programs even though a looser standard or different approach could arguably be used to help manage the risk of overdrafts under such programs.
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#1629247 - 11/16/11 06:43 PM Re: UDAAP and Overdraft Fees rlcarey
EmilyAnn Offline
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Originally Posted By: rlcarey
" the regulators may consider that you have an automated program subject to all of the 2010 FDIC overdraft guidance, at least for the customers that opted in"

Actually what they have been doing is citing banks for a UDAP violation because the only thing the customer is doing is opting into a fee.


UDAAP is another issue, but as I read through the threads on this, I gathered that in addition to UDAAP, the regulators were considering ad-hoc programs with opt-in an automated program (at least a hybrid automated program) that required compliance with the 2010 guidance.

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#1629254 - 11/16/11 06:50 PM Re: UDAAP and Overdraft Fees EmilyAnn
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Yes, they have done that at some banks.
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#1629279 - 11/16/11 07:14 PM Re: UDAAP and Overdraft Fees Kathleen O. Blanchard
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They are out of their minds. A bank has no option but to pay these items.
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#1629323 - 11/16/11 07:55 PM Re: UDAAP and Overdraft Fees rlcarey
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I agree - it's crazy. It takes all of the ad hoc programs and makes them virtually nonexistent. Our bank will continue with an ad hoc program with no opt-in and will not comply with the 2010 guidance that relates to automated programs. If this nonsense reaches our regulators we will argue until we're blue in the face.

Not likely that this will get to us, since we're an OCC bank and I haven't heard of OCC examiners trying to pick up the FDIC guidance. But OCC is floating a proposal of their own, so we'll see where that goes...

If someone has heard of the OCC picking it up, please let me know smile

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#1630369 - 11/18/11 06:05 PM Re: UDAAP and Overdraft Fees EmilyAnn
Dani York, CRCM Offline
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Originally Posted By: EmilyAnn
Originally Posted By: rlcarey
" the regulators may consider that you have an automated program subject to all of the 2010 FDIC overdraft guidance, at least for the customers that opted in"

Actually what they have been doing is citing banks for a UDAP violation because the only thing the customer is doing is opting into a fee.


UDAAP is another issue, but as I read through the threads on this, I gathered that in addition to UDAAP, the regulators were considering ad-hoc programs with opt-in an automated program (at least a hybrid automated program) that required compliance with the 2010 guidance.


We are one of those banks that was deemed to have a hybrid program solely because of force-pay items. We do have a bounce protection amount that we pass to ATMs and POS terminals if a customer opts in, but all items are kicked out to exceptions item processing for decisioning. We decision every item even if a customer has the bounce (Bounce is a key factor in the decision to pay or not to pay, but not the only one). Because we still make a decision on every single item for Bounce customers, we are still ad hoc; however, the FDIC has decided that if an item is force pay and you charge a fee for it even though you decision every item and have no choice in forcepay items, you are automated/hybrid at least for those items and therefore must comply with the guidance.
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#1630551 - 11/18/11 08:36 PM Re: UDAAP and Overdraft Fees Dani York, CRCM
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What decision is there on an ATM or one-time POS transaction that has been allowed to process in the first place? You can't return them regardless of current account balance - so I guess I just don't understand????
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#1630556 - 11/18/11 08:38 PM Re: UDAAP and Overdraft Fees rlcarey
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Originally Posted By: rlcarey
What decision is there on an ATM or one-time POS transaction that has been allowed to process in the first place? You can't return them regardless of current account balance - so I guess I just don't understand????


The decision is that you have to pay it....that is what the FDIC is hanging on to. Our system still kick these things into EIP every night so we have to enter the pay code (hence "decision" the item).
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#1630557 - 11/18/11 08:40 PM Re: UDAAP and Overdraft Fees Dani York, CRCM
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Between here and there
Sound like a system limitation??

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#1630559 - 11/18/11 08:41 PM Re: UDAAP and Overdraft Fees MyScamper
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Originally Posted By: MyScamper
Sound like a system limitation??


Nope, it's the way management wanted it set up.... crazy
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#1630561 - 11/18/11 08:43 PM Re: UDAAP and Overdraft Fees Dani York, CRCM
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What I am saying is there is no decision. You can't return them under your card issuer rules - regardless of what management or the regulators might think or how you label them.
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#1630566 - 11/18/11 08:46 PM Re: UDAAP and Overdraft Fees rlcarey
Dani York, CRCM Offline
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Originally Posted By: rlcarey
What I am saying is there is no decision. You can't return them under your card issuer rules - regardless of what management or the regulators might think or how you label them.


I know that. What I am saying is that is what the FDIC is considering a hybrid/automated program if you ran an opt in for those transactions regardless of whether or not the bank uses auto-decisioning.
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#1630567 - 11/18/11 08:46 PM Re: UDAAP and Overdraft Fees rlcarey
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And so, dear friends, what the bank has is a hybrid system. Ad hoc on paper and ACH items on which a pay/return decision can be made, and automated on the card transactions that it made a decision on when it allowed the customers to opt in and gave them a "padded" balance to authorize the overdrafts.

And THAT is why the FDIC is correctly terming your system, Dani, a hybrid system and requiring that you adhere to their Guidance document details on the automated accounts.
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#1630636 - 11/18/11 09:59 PM Re: UDAAP and Overdraft Fees John Burnett
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And Dani, you ran an opt in to be able to charge those customers on the automated ATM and debit transactions? So your bank is charging those who opted in?

Which is where Randy keeps going with the regulators citing UDAAP if a bank had people opt in to a fee.
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#1630640 - 11/18/11 10:05 PM Re: UDAAP and Overdraft Fees Kathleen O. Blanchard
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The difference with Dani's program is that her bank actually provides an OD service for card transactions by passing the balance for authorizations. The banks that somehow convinced cardholders to opt in only to OD fees (no card transactions would knowingly be approved that would OD the account) are the ones that the FDIC is rightfully dumping UDAP all over.
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