Has anyone had any experience with offering a "3 Free" type overdraft program? The situation being considered would allow 3 free overdrafts, i.e. overdraw 3 times with no fee associated, for a 12 month rolling calendar. After the three freebies, the new fee would be imposed. Disclosure of the fee and how/when the fee would be charged would all be provided. Any thoughts?

As a banker, I'd say it's generous and limit it to no more than 2 a year. As a consumer, of course I would assume that it would never apply to me, but would appreciate it if it ever did.

It might be easier to track if you did it on a calendar year basis; the "count" could be objectively derived from the periodic statements and readily apparent to both the bank and the customer. Fewer "conversations..."

Thanks, Ken. I wanted to make sure I wasn't overlooking anything. Our regular OD fee will increase. I wanted to make sure we were thinking through any downsides. While the 3 free is great, the increased OD fee (against those that are obviously repeat offenders)might be scrutinized as abusive? Just trying to think like an examiner. Thanks again!

I believe the current median fee (half are higher, half are lower) is $27. What is your current fee and what are you considering raising it to?

You also need to consider your system constraints. Will your system know not to count "waived" OD fees associated with ODs created by POS/ATM transactions where the customer has not opted in? If you are an ad hoc bank, how will your decisioning employees know if the customer has already had their "3 free" ODs?

Thanks! I think the fee increase be discussed is about $5. The reasoning given for the increase is that the per nsf fee will actually be much below the median fee because of factoring in the three free. However, IMHO, the customer is only seeing/reasoning about the actual charge that shows on their statement/account. They tend to forget the freebies when they are charged. As to the system specs, we are reviewing that as well.

While it's true that the better customers will on average benefit from the three free ODs, the chronic (ab)users of your OD program will quickly wipe out any savings and actually pay more with the increased fee, even after getting three freebies.

Since you mention that the when/how would be disclosed, I thought I'd put my UDAAP goggles on knowing that overdrafts are quite the hot topic in CFPBland these days.

Make certain that your disclosures are crystal clear about how the fees are determined (i.e. one item = one fee.) I could see consumer groups crying foul if the disclosures incorrectly lead a consumer to believe that you will waive all the fees on three separate days during the year. It is certainly possible for me to have four overdrafts in a single day and still end up paying one fee after my three freebies and being out of them for the year.

Thanks so much for your feedback!

I'd like to compliment your bank on its thought processes. Your approach avoids profiteering from a customer's mistake and it also makes it plain that you are not encouraging the activity.

I'm saying this to you because I don't think you are going to hear it from the regulators. As your caution suggests, they will try to find something wrong, in part because what you're doing is out of the ordinary. If your regulators are evenhanded enough to compliment you, please feel free to exhume this thread months from now and point out my error. It will please me greatly.

Thanks, Ken! I would be thrilled to be able to point out that error....but I'm not gonna hold my breath!