hello

Can a bank make participation in an overdraft protection program mandatory for all debit card holders or does a cardholder need to opt into such a program? Are all cardholders assumed to be opted into a program unless they opt out or must the cardholder agree to participate in an overdraft protection program?

Thanks
Regards, CJ

You cannot force a customer to opt in to ODP just because they have a debit card. You definitely cannot assume that someone is opted in unless they actually opt in; quite the opposite, if they do not respond, they must be assumed to opt out.

thanks for the information, would you happen to have the regulation I can reference. thanks

Regards, CJ

cjdod -- Once you've read through that section of Regulation E you might be tempted to suggest that your bank start soliciting opt-ins from debit card holders. Before you do that, come back here and provide a description of how your program would allow one of your debit card holder to overdraft his/her account after he or she signs the opt-in. If you won't be approving overdraft withdrawals at ATMs or overdraft purchases at the point of sale with those debit cards, don't even bother going after opt-ins, because you will still not be able to charge them a fee for overdrawing their accounts.

Thanks guys for all your help. Embarrassingly, the question was regarding myself, as a customer not as a banker. My bank decided to cover my debit card transactions against insufficent funds with funds from my savings account and they charged me $10. when I asked why they just didn't decline the transactions they stated that I am participating in their overdraft protection program and apparently I agreed to this back in 2002 when I opened the account and signed their signature card.

I thought that the covering of debit card transactions was a newer option and required me to opt in as you fine folks confirmed. Anyway I was embarrassed because as a banker I should not be overdrawn and I had made an adding error in my checkbook that resulted in an overdraft for the first time in my life.

What my bank is trying to do is to consider an overdraft protection program where transactions are covered by another linked account or a line of credit and a program that covers debit card transactions as the same type of program. I think different regulations apply and they are not one in the same.

The information provided is helpful to me as a consumer and a banker so thanks guys.
Regards, CJ

We do not have an opt in - do not charge OD fees for ATM and 1 X debit transactions. However if someone have OD protection(savings or a LOC) we do approve against the available funds and will charge a transfer fee. Sounds like what happened to you as you were only charged $10.

we do approve against the available funds

I sincerely hope that this is very prominently disclosed and that people understand the $10 fee. I see this similar to opt in to OD protection due to the fee involved. Any grey area in the disclosure and you are going to be facing a UDAAP.

On another note, I see a California bank was fined $175,000 and has to provide restitution of $1.2MM or more for screwing up their opt-in process.

Not to play devil's advocate, but is it possible this is a sweep program, and not an Overdraft Program as defined in Reg DD? $10 sounds more like a charge for making a sweep and not for an overdraft.

Oh, I'm sure it is a sweep program, but UDAAP situations could be just as present in them as with ODP programs.

For example, if the deposit account is tied to a LOC or savings account as a sweep and those balances are used to approve debit card transactions. If a customer overdraws their account and they are subject to a $10 fee when the sweep occurs, the customer better be extremely aware that debit card purchases will be approved not based on the balance in the checking account the card is tied to but will be approved by including the balances from the sweep account.

It is the exact same concept as approving ATM and one time debit card transactions based on an ODP balance.

no, not a sweep, my bank informed me that apparently I was part of an overdraft protection program that I agreed to on the signature card when I opened the savings account to cover all nsf debits to the checking account, electronic or otherwise.

the only way I apparently can opt out is to bring the savings account to zero, which essentially means close the savings.

Regarding the checking, if that goes insufficent and I have no other accounts to cover the funds, I automatically tap into a $1000 line of credit and if I do not want to participate in that I need to opt out which does not sound legal since I never agreed to that.

the more I dig into this the more confused I become. <g>

Regards, cj

Sounds like a whole lot of UDAAP going on to me.

well apparently my bank has me in both Overdraft protection and overdraft privilege. OD protection covers insufficient items from another account, savings or dda. I was told I enrolled in this automatically when I signed my signature card back in 2002. This protection includes debit card transactions. It probably does use the deficit balance sweep function to transfer the funds.

If I am overdrawn and I have exhausted all other accounts to cover the deficit balance, then I automatically tap into the Overdraft privilege program with is basically an unsecured line of credit for $1,000. Apparently I automatically was opted into this program as well and I would need to opt out if I did not want to participate. both programs incur fees when executed.
I was told the only way to opt out of the overdraft program would be to bring the savings account to a zero balance.
Thanks for all the information
Regards, CJ

In my opinion, your bank has some very serious UDAAP issues.

http://www.consumerfinance.gov/blog/whats-your-status-when-it-comes-to-overdraft-coverage/

You *definitely* must be provided the ability to opt out of overdraft protection, even if you previously opted in. If you didn't even know you opted in (and your opt-in CANNOT be just by signing the signature card), you didn't opt in!

If I were in your shoes, I'd be closing all accounts with this bank and giving the bank's primary regulator a heads up and demanding that this situation be investigated and all customers be made whole (fees refunded). Of course, if you work where you bank, you may not want to kick up a fuss.

You say, "I was told I enrolled in this automatically when I signed my signature card back in 2002."

To refute this, see this: Bureau of Consumer Financial Protection — 12 CFR Chapter X, Part 1005 — Electronic Fund Transfers (Regulation E), § 1005.17 Requirements for overdraft services, "(c) Timing. (1) Existing account holders. For accounts opened prior to July 1, 2010, the financial institution must not assess any fees or charges on a consumer's account on or after August 15, 2010, for paying an ATM or one-time debit card transaction pursuant to the overdraft service, unless the institution has complied with § 1005.17(b)(1) and obtained the consumer's affirmative consent."

If your account's signature card was signed in 2002, you didn't "opt-in" to anything! Wow, this sort of unfair, deceptive way of making non-interest service charge income is what gives banks a bad rep in the public's view. Hard to believe this didn't come to light in any audits or examinations of your bank so far!

BurntSienna, while I agree that there are concerns that this practice may not have been properly discloses and as Randy has pointed out, there may be UDAAP issues, Reg E does not apply here. Note the definitions to 1005.17(a)

(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. The term “overdraft service” does not include any payment of overdrafts pursuant to:

(1) A line of credit subject to Regulation Z (12 CFR part 1026), including transfers from a credit card account, home equity line of credit, or overdraft line of credit;

(2) A service that transfers funds from another account held individually or jointly by a consumer, such as a savings account; or

(3) A line of credit or other transaction exempt from Regulation Z (12 CFR part 1026) pursuant to 12 CFR 1026.3(d).

Since we are talking about a transfer from a line of credit or savings account, 1005.17 opt in requirements do not apply. However, if this "overdraft privilege" line of credit to which the original poster refers is not a line of credit that you applied for under Reg Z, then it will fall under Reg E citation you have provided.

Good point, thank you so much for clarifying that, Brian. Have a great weekend, all!

Brian,

Sorry took awhile to get back on this but it took a while to get a formal response from the bank and you are correct.

I learned that transferring funds from my savings to checking to cover overdrafts is not an overdraft service per Reg E 1005.17 therefore the opt it requirement does not apply.

Honestly, I can see why people hate banks, it looks like an overdraft service, functions like an overdraft service...but it isn't an overdraft service. Seems like the reg was definitely watered down with that additional line under definitions.

thanks again
CJ