We're still trying to figure out if this applies to us. Currently if our customer tries to make a debit card transaction or ATM withdrawal and there are insufficient funds in their account, it will decline the transaction. So, according to the section below, the requirements would NOT apply to us. We just want to be absolutely certain we're understanding this correctly. Are we interpreting this correctly?

§ 205.17(4)
Exception to the notice and opt-in requirements. The requirements of §205.17(b)(1) do not apply to an institution that has a policy and practice of declining to authorize and pay any ATM or one-time debit card transactions when the institution has a reasonable belief at the time of the authorization request that the consumer does not have sufficient funds available to cover the transaction. Financial institutions may apply this exception on an account-by-account basis.

Well, you are almost right. Unfortunately, the regulation is not a model of clarity. The exception applies only to the notice and opt-in requirements. It does not apply to the prohibition against imposing an OD fee for a card transaction if the customer has not opted in.

That means that if your consumer's account is taken OD by an unauthorized (under floor limit) POS transaction, an under-authorized POS transaction ($1 fuel pump authorization, $30 purchase amount), or a late-presented POS transaction (checks paid bring balance down after POS authorization). And if your customers' ATM withdrawals don't get held against their current balance, even ATM withdrawals could overdraw accounts and you won't be able to impose a fee.

John - I'm sorry to be coming in so late but we have a real issue with this and our core processor. We were like Funky Falcon, "Currently if our customer tries to make a debit card transaction or ATM withdrawal and there are insufficient funds in their account, it will decline the transaction." Our issue is with the daily fee. OD first day, second day, still overdrawn so we would impose a $5.00 daily fee. Our core processor has implemented a calculation to determine the daily fee if the items that overdrew the account were POS/ATM debits. Our fee schedule states $5.00 and with their calculation I have seen a daily fee of $.74 and $4.73. My concern is this, first is it right to calculate (our auditor says no guidance has been issued on the calculation) and two our fee schedule and what our core processor is charging don't match. Can you steer me in the right direction to understand this change?

There's no change involved. This has been the rule since July 2010. If you don't obtain an opt-in from a cardholder consumer, you may not impose any sort of overdraft fee -- including a daily fee -- if the account is overdrawn due solely to an ATM or one-time debit card transaction. If, however, the account is overdraft at least in part due to a check, ACH item or other item that is not an ATM transaction or one-time debit card transaction, you may impose a daily fee. If the daily fee is imposed "X" days after the start of the period of continuous overdraft status, the start of that period must be based on the date on which the non-card transaction was posted. For example, if the account goes OD on 8/27 due to a POS transaction that you had to honor, and further overdrawn on 8/29 because you paid an ACH debit, the days to be counted toward triggering the daily OD fee start with the 29th, not the 27th.

If you disclose a $5 daily overdraft fee, and only impose some part of the $5, your disclosure would be inaccurate, but probably not considered to be misleading or a violation. But I imagine that your customers find it terribly confusing.

Customers find it terribly confusing??? How about the staff! What I still question is the calculation used. I have sent two emails to our regulator but have yet to get a response. Thanks for you input and explanation.