Is there a regulation/best practice or similar wherein banks generally forbid employees to have overdrafts in acounts for which they do not have a OD line of credit? We are not finding anything but someone here appears to think that this is the law of the land.....

Our policy prohibits all overdrafts by employees outside of a regular OD Protection program, but I believe they do that as the easiest way to cover all employees without having to specify differences between insiders and non Reg O employees.

This is from 2004, but is an answer to the question about best practices from the Gurus...
http://www.bankersonline.com/operations/guru2004/gurus_op040504b.html

We have language in a bank policy regarding employee overdrafts and we have language in the employee handbook regarding overdrafts. An inadverdent overdraft is okay so long as it is covered within 1 business day. This is monitored by the auditor and anyone abusing it would be reported to HR and the President.

Similar to Midnight, except we allow 1 per calendar year, if they receive a second they are notified to close their account within 30 days and are not allowed a DDA for 24-months.

Thanks, everyone. Helpful responses.

Our state law prohibits employee overdrafts. We do not allow employees to participate in the normal OD program. Instead they need to have a transfer set up from another account or an overdraft line of credit. If they get overdrawn and don't have excess funds, it is a violation of state law. We allow this to happen twice. On the 3rd occurance, they eitehr need to close their account or remove their name.

You might also want to do a simple search on "+employee +overdraft" over the last couple of years as this subject is regularly been beat to death.

An employee OD report is currently provided to board. However there have been no employee accounts overdrawn during the past year. Does this have to be reported to the BOD, or can it be reported at a committee level & noted in committee minutes. Any overdrafts of REG O officers would still be reportable.

I am not aware of any federal regulatory requirement for a board report of employee overdrafts; there may be a general legal prohibition on such overdraft (and therefore possibly a need for a board report) at the state level, but I don't have knowledge of a particular state with such a requirement.

In my experience, restrictions on employee overdrafts was always a policy matter, managed by HR and audited by our IA department. When an audit exception arose, it was reported to our audit committee, but not to the board.

Aside from overdrafts triggering the application of Reg O, the board should have a lot better things to do.

Thanks for the input Ken & John, was hoping you'd respond.