Our CEO has proposed a workaround to ODP opt in that I dont think will fly, but I am not sure what to cite to counter him. For customers who have NOT opted in for Reg E ODP fees, he is suggesting we charge an NSF fee for declining these transactions. He says that does not go against the requirements as defined by 1005.17 because we are not charging for "paying an ATM or one-time debit card transaction pursuant to the institution's overdraft service" since we are not paying it.

This seems wrong to me, but I am not sure where exactly this is prohibited.

No, it won't fly.

1005.17
(2) Conditioning payment of other overdrafts on consumer's affirmative consent. A financial institution shall not:

(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.

To play devils advocate--wouldn't those be separate from what he is suggesting? Nothing to do with checks/ACH/or other types of transactions would change based on whether they opt-in. He is wanting to charge an NSF fee on ATM and one time debit transactions that we decline because they exceed the customers available balance.

I know it *feeels* wrong, but I am having trouble finding wording that actually adresses it.

any bank looking to add a "new nsf fee" that is not currently in place during this time of regulatory focus on "junk fees" is painting a target on their shop. the amount of time and effort you will need to put in place to defend this during your next regulatory review will more than eat whatever revenue this new fee generated, and we won't even talk about what happens when you have to refund to clients and possibly face sanctions.

feel free to cut and paste that directly to your CEO.

I think UDAAP and not Reg E is where your issue is going to be. I do not think charging an nsf fee for ATM or one time debit violates Reg E opt-in requirements.

Please reread the original post.

"For customers who have NOT opted in for Reg E ODP fees, he is suggesting we charge an NSF fee for declining these transactions. "

From this statement, these are never making it to the bank, they are declined at the point of transaction. Definite UDAAP in my mind.

Two problems:

1) This is different than NSF fees for checks or ACH debits, which are transactions presented for payment and then returned. For ATM/One time debit transactions, you would be charging for a transaction that was not ever initiated because it was declined at the authorization stage. Definitely some UDAAP risk there.

2) You are essentially imposing a fee only on people that have exercised a Reg. E right (the right not to opt into OD coverage for ATM and one-time debit transactions). Check out the CFPB's statements in both guidance and consent orders on FI activities that discourage people from exercising Reg. E rights or penalize them for doing so. I think this would be a problem.

Reg E aside, let's consider the recent guidance on multiple fees for multiple presentments of the same item and the fact that the consumer has no control over how many times a merchant attempts to authorize a debit using the card information.

For example, I have my car insurance set to automatically charge my debit card each month. Now suppose that I don't have enough money in my account so the transaction declines. There is nothing to stop the merchant from running my card every single day trying to collect my premium. You charge me a decline fee every day. As a consumer, I won't reasonably expect to be charged and I have no way of preventing the charge since I have no control over what the merchant does.

Not only is this a Reg E issue, but this is also a UDAAP issue. I foresee reimbursements and lookbacks in your future if you try to implement this.

How is your CEO defining "declining"?

What if the ATM is out of cash? What if there is an internal bank system issue that's not updating balances?

As someone posted above, ADDING fees in this banking climate? Good luck with that.

Your CEO wants to charge a fee for declining an authorization?! WTH? Seriously, in what reality is he thinking this is OK? The bank can avoid any potential overdraft by simply declining the authorization. This is fee harvesting, no way around it. There is nothing justifiable about the fee, and it is a junk fee through and through.

Banks everywhere are dropping NSF fees everywhere, yet he wants to add an unfair NSF fee... a fee that is unexpected and unavoidable - on an event that has not even reached the level of being a transaction yet.

Consider this from the CFPB: "An overdraft fee can become a surprise fee when the customer doesn’t reasonably expect their actions to incur an overdraft fee. For instance, even if a person closely monitors their account balances and carefully manages their spending to avoid overdraft fees, they can easily incur penalties when financial institutions employ processes that are unintelligible or manipulative." Link

Direct him to the CFPBs writings on Junk Fees (here), and document like crazy. If he pushes his way through, you need to show that it was against your advice and approval. He WILL end up with very bad consequences, no doubt about it.

This absolutely stinks of UDAAP. As previously stated, these aren't even presented to the bank for payment, because they've been declined. There's nothing to return, nothing to consider. Imagine standing in line waiting to pay with cash - the price rings up $35 but all you have is $30. The transaction ends, nothing occurred. There's not really a big difference with a card transaction. You only have $30, so the transaction ends, nothing occurred. Your bank didn't do anything in either scenario. Consider "Unfair":

1) Causes or is likely to cause consumer harm. Check - your customer is definitely financially harmed by this practice.
2) The injury is not reasonably avoidable by consumers. Check - There is nothing a consumer can do to prevent this. In fact, they tried to prevent this fee by NOT opting in.
3) The injury is not outweighed by countervailing benefits. BIG check - What benefits could possibly be argued here? Your customer doesn't receive anything. They didn't get the merchandise they were trying to purchase, they didn't get the cash they were trying to withdraw, because the transaction was declined. The only benefit here is added fee income to your bank.

Nothing about this is a good idea.