We are tossing around the idea of starting an automated overdraft program and I have a question...do banks allow ATM transactions to overdraw an account and use some of their OD privileges? If so, are there disclosures that need to pop up?

Take a look at the requirements under Reg E Section 1005.17 regarding overdraft services. I'd also recommend reviewing the FDIC's Overdraft Guidance issued in 2010.

I also suggest you read through the recently released Enforcement Action against River City Bank in Sacramento, California, particularly if you are supervised by the FDIC. You can access the list of Actions at http://fdic.gov/news/news/press/2013/pr13094a.html, then search through the list for the River City Bank (it has a $175,000 CMP amount). That bank had some problems with its disclosures about its overdraft payment program as well as solicitations of opt-ins for overdraft coverage of ATM and one-time debit-card transactions. I am a firm believer in learning from others' mistakes.