Our bank (in Texas) frequently slams overdraft DDA accounts on Existing loans that an OD customer has. Isn't that a Reg Z violation? I am interested in hearing any feed back regarding the law on this so I can have a valid argument to discourage this. I feel that our bank will be in serious trouble or be in a lawsuit.

Reg Z has very little to say about post closing changes to loans. This is nevertheless a questionable practice. Do your notes allow for additional advances under these circumstances? If not, how would you enforce collection of this extra amount?

You should consult counsel. This may not be seen as a valid form of setoff, there could be questions as to collateralizing the overdraft and of moving a short term overdraft to the loan, effectively "hiding" a problem. Your deposit agreement and loan contracts would need to be reviewed.

I have heard of this before. I can't say it is wrong, but I believe it is gray at best. While not a "Z" issue, it certainly could be a questionable practice.

If you are adding to a home loan would you not need a right of recission on the increase?

These OD accounts are never added to R/E loans, only loans that are secured by property (cars, tractors,CD's, etc.) This is a common practice here and the loan customer is never asked or told that this is being done. A situation has come up recently with a customer that has almost finished paying off his truck note and the bank had slammed $1000 on the note. The customer paid about half off and refused to pay the rest when he figured out what the amount was from (Mainly NSF fees) and now our bank is trying to repo the cusomers truck. This is one of many cases here.

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You should consult counsel.

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I think Andy has the best answer for you here. It sounds to me you may be heading for some problems. If your loans have "spreader clauses" in them, you may find a loophole, but definitely take Andy's advice and contact your legel counsel.

When you say truck loan, are you adding the overdrafts to closed end loans too?

Are you accruing interest on these? Interest on the fees would be a definite no-no.

Yes we are. It is to my understanding that If any of the overdraft amount is NSF fees, then you should not add interest. The bank has been nearly fined in a previous audit. It seems that depending on the auditor, a clear answer is never given as to the legal issue.

You need to get the bank's attorney to review this practice.