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#1901003 - 02/28/14 01:48 PM Reg. E Overdrafts for Authorized POS debits
biglebowski Offline
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Our institution has an overdraft program and solicits opt ins from customers. My question is around debit card transactions that are “approved” at time of purchase because funds are in the account, but then other transactions may sneak in before these items actually post, deplete the account, and then the “approved” debit overdrafts the account a few days later.

In this case, I see the opt in as irrelevant as the item was approved because there were funds in the account. We didn’t technically cover the transaction. So, can an overdraft fee be charged in these cases?

To me, it would seem unfair to only charge those who opted in during situations such as this because in both cases, the same result occurs. We are forced to pay these items whether the customer opted in or opted out, and I can see UDAAP being cited for charging those who opted in a fee but not those who opted out. Could you treat both groups of customers the same by charging the fee regardless of opt in?

This is not a practice that our institution does or wants to do, but I was rather curious for my own knowledge.

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#1901008 - 02/28/14 01:57 PM Re: Reg. E Overdrafts for Authorized POS debits biglebowski
rlcarey Offline
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You can only charge the fee if they have opted-in, regardless of the reason an ATM or one-time debit card transaction causes an overdraft.

We are forced to pay these items whether the customer opted in or opted out,

Yes you are. It is called the cost of doing business if you want to offer debit cards.
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#1901018 - 02/28/14 02:10 PM Re: Reg. E Overdrafts for Authorized POS debits rlcarey
biglebowski Offline
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That's what I thought and it makes sense and is what we are doing. Thanks.
Last edited by big lebowski; 02/28/14 02:10 PM.
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#1901032 - 02/28/14 02:23 PM Re: Reg. E Overdrafts for Authorized POS debits rlcarey
biglebowski Offline
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Afterthought-

You can only charge the fee if they have opted-in,

How is it fair to charge the customer who opted in a fee in this situation and not the customer who opted out? The same result has to occur since we are forced to pay these transactions, so wouldn't that be a case where they are "opting into a fee"?

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#1901036 - 02/28/14 02:33 PM Re: Reg. E Overdrafts for Authorized POS debits biglebowski
rlcarey Offline
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They are not opting into a fee. They are opting into including their debit card transactions in the ODP program, which means that the bank will authorize debit card transactions based on the dollar limit they allow for the customer for overdraft protection and not just their available balance in the account.

If you are not authorizing debit card transactions based on this premise, that is when the customer is only opting in to a fee.
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#1901047 - 02/28/14 02:39 PM Re: Reg. E Overdrafts for Authorized POS debits biglebowski
biglebowski Offline
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Thanks Randy, that helped me out a lot.

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#1901738 - 03/03/14 07:44 PM Re: Reg. E Overdrafts for Authorized POS debits biglebowski
John Burnett Offline
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Where banks have gotten into trouble is by soliciting overdraft opt-ins for card and ATM transactions when they provide no overdraft service by knowingly authorizing transactions that will overdraft the account.
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#1901747 - 03/03/14 07:49 PM Re: Reg. E Overdrafts for Authorized POS debits biglebowski
John Burnett Offline
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In other words, they only get the consumer to agree to be charged for transactions they have to pay for "free" if no opt-in is given.
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#1908742 - 03/26/14 04:00 PM Re: Reg. E Overdrafts for Authorized POS debits John Burnett
biglebowski Offline
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John, thank you for your input, I just now saw it.

Am I interpreting Supplement I to Part 205 (official staff interpretations) of 205.17(b)(1)(iv) of the final rule correctly in that: if we as in institution have a practice of not paying ATM and one time debit card transactions into overdraft, that we do not have to even provide an opt-in (as long as we do not charge fees when an occasional item causes an overdraft)?

A longwinded version of what I am reading from the official staff commentary is as follows:

"The prohibition on assessing overdraft fees under § 205.17(b)(1) applies to all institutions. For example, the prohibition applies 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. However, the institution is not required to comply with §§ 205.17(b)(1)(i)–(iv), including the notice and opt-in requirements, if it does not assess overdraft fees for paying ATM or one-time debit card transactions that overdraw the consumer’s account."

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#1909765 - 03/28/14 06:41 PM Re: Reg. E Overdrafts for Authorized POS debits biglebowski
tryin2comply Offline
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On a related note, I'm curious about the timing of the opt-in. According to the official interpretation of 205.17, implementing at account opening, you may ask the customer to choose to opt-in or not at account opening as long as you give a separate disclosure. Question: wouldn't this ONLY be if you are giving them immediate access to your overdraft program? Example: customers are only approved for OD program after 90 days in good standing. Could you ask them to opt-in to a program they "might" qualify for? Is there a citation that specifies that?

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#1909824 - 03/28/14 08:43 PM Re: Reg. E Overdrafts for Authorized POS debits biglebowski
John Burnett Offline
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Originally Posted By: big lebowski
John, thank you for your input, I just now saw it.

Am I interpreting Supplement I to Part 205 (official staff interpretations) of 205.17(b)(1)(iv) of the final rule correctly in that: if we as in institution have a practice of not paying ATM and one time debit card transactions into overdraft, that we do not have to even provide an opt-in (as long as we do not charge fees when an occasional item causes an overdraft)?

A longwinded version of what I am reading from the official staff commentary is as follows:

"The prohibition on assessing overdraft fees under § 205.17(b)(1) applies to all institutions. For example, the prohibition applies 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. However, the institution is not required to comply with §§ 205.17(b)(1)(i)–(iv), including the notice and opt-in requirements, if it does not assess overdraft fees for paying ATM or one-time debit card transactions that overdraw the consumer’s account."


First, let's agree that the version of Reg E you should be looking at is the CFPB's, which is 12 CFR Part 1005. The words, however, are the same except for the section citations.

Your understanding is correct.
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#1909830 - 03/28/14 08:49 PM Re: Reg. E Overdrafts for Authorized POS debits tryin2comply
John Burnett Offline
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Originally Posted By: cosborne
On a related note, I'm curious about the timing of the opt-in. According to the official interpretation of 205.17, implementing at account opening, you may ask the customer to choose to opt-in or not at account opening as long as you give a separate disclosure. Question: wouldn't this ONLY be if you are giving them immediate access to your overdraft program? Example: customers are only approved for OD program after 90 days in good standing. Could you ask them to opt-in to a program they "might" qualify for? Is there a citation that specifies that?
I'll suggest that you also drop the FRB version of Reg E in favor of Part 1005 from the CFPB.

I don't think there's a problem with obtaining an opt-in (preceded by the correct disclosures, which should explain the 90-day delay) as long as you confirm the opt-in and remind the consumer he or she can cancel the opt-in at any time. But make certain that if one of those "under the radar" POS debits overdraws the account before the service is approved by the bank and turned on, you don't impose an OD fee. I also recommend that you send the customer a notice when the 90 days is up to notify him/her that OD coverage was not approved (in which case the opt-in would be voided) or was approved so that any transaction taking the account negative will result in a fee (and again reminding him/her the opt-in can be canceled at any time).
Last edited by John Burnett; 03/28/14 08:50 PM.
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#1909868 - 03/30/14 12:51 PM Re: Reg. E Overdrafts for Authorized POS debits John Burnett
biglebowski Offline
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Thank you, John. Both responses were very helpful.

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#1910487 - 04/01/14 05:45 PM Re: Reg. E Overdrafts for Authorized POS debits John Burnett
biglebowski Offline
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To further build on this topic, I have an additional question to submit:

Currently, we do not authorize ATM/POS transactions into our courtesy OD program. If one slips though because there was enough at authorization but at settlement the account has been depleted, we pay the item but do not charge the customer a fee (either NSF or COD).

One might ask: why would a bank do this? Why not solicit opt ins and provide the service for customers (and yes, get the fee income)?

I was told that every time a customer is going to engage in a one time debit or ATM transaction that will take their account negative, we have to disclose to the customer at that very moment that they are going to do so. This could be done at proprietary ATM terminals, but how would one control this at a merchant’s terminal? Or a foreign ATM? After reading 1005.17, I can’t seem to figure out where my colleagues may have gotten this idea and was wondering if someone could point me in the right direction; or, tell me that we are mistaken.

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#1910496 - 04/01/14 05:59 PM Re: Reg. E Overdrafts for Authorized POS debits biglebowski
John Burnett Offline
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The 2005 Interagency Overdraft Protection Guidelines stated (on the last page of that document) that as a best practice an issuer should "provide a specific consumer notice, where feasible, that completing the withdrawal may trigger the overdraft fees (for example, it presently may be feasible at a branch teller window). This notice should be presented in a manner that permits consumers to cancel the attempted withdrawal or transfer after receiving the notice. If this is not feasible, then post notices (e.g., on proprietary ATMs) explaining that transactions may be approved that overdraw the account and fees may be incurred."

While I am sure that regulators would salivate at the possibility of notification at non-proprietary ATMs and merchant terminals, they didn't in any way suggest that such a warning is required (at the time, they weren't even sure it would be feasible on proprietary ATMs).
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#2081681 - 06/03/16 02:57 PM Re: Reg. E Overdrafts for Authorized POS debits biglebowski
Snowmann Offline
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I've seen and heard opposing opinions on this topic, and would like to throw it on here for discussion.

Can an institution structure their overdraft bounce protection program where if the consumer wants to opt in to the overdraft coverage program, that they MUST also opt in to the ATM/Debit Card program as well? And if they do not want to be able to overdraw with their debit cards, then they can’t have the overdraft protection at all?

In other words, can an institution offer an all or nothing scenario, rather than separating out the two?

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#2081683 - 06/03/16 03:02 PM Re: Reg. E Overdrafts for Authorized POS debits biglebowski
David Dickinson Offline
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I think that would be asking for trouble. What opinion supports this?
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#2081693 - 06/03/16 03:25 PM Re: Reg. E Overdrafts for Authorized POS debits biglebowski
Snowmann Offline
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I should note that it wasn't a "legal opinion". Rather correspondence from a compliance consultant. It was stated that these programs can be structured with the customer being all-in or all-out (both opt-in's or no bounce coverage), where something in the middle is just bringing on unnecessary headaches.

I understand when we can and can't charge, and collecting the opt-in's and everything. We see the same common issues as other institutions where customers that have opted out of ATM/Debit Card are running signature based transactions, overdrawing the account, and not being charged. I do understand that is the cost of doing business with debit cards, but we are looking at other avenues, including this all-or-nothing structure. I have reservations about it, but wanted to hear what others thought.

Do you think the trouble with this idea is a fairness/UDAAP issue, If both opt-in's were still collected?

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#2081775 - 06/03/16 06:17 PM Re: Reg. E Overdrafts for Authorized POS debits Snowmann
Elwood P. Dowd Offline
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Oh how quickly we forget:

17(b)(2) Conditioning payment of other overdrafts on consumer's affirmative consent. A financial institution shall not(emphasis supplied):

(i) Condition the payment of any overdrafts for checks, ACH transactions, and other types of transactions on the consumer affirmatively consenting to the institution's payment of ATM and one- time debit card transactions pursuant to the institution's overdraft service; or

(ii) Decline to pay checks, ACH transactions, and other types of transactions that overdraw the consumer's account because the consumer has not affirmatively consented to the institution's overdraft service for ATM and one-time debit card transactions.
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#2082146 - 06/07/16 02:08 PM Re: Reg. E Overdrafts for Authorized POS debits biglebowski
John Burnett Offline
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The compliance consultant appears to have forgotten that key provision of the Fed's controversial rule. It's a violation, plain and simple.
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