Overdrafts

Posted By: ledfoot

Overdrafts - 07/18/14 12:57 PM

Management at my bank would like to begin charging an daily overdraft fee. What is being proposed is that if an account has an overdrawn balance for more than say 3 days, a daily overdraft fee of $2.50 would be assessed each day until the account is brought to a positive balance. We currently have an AOD program that makes up to $500 available to the customer to cover overdrafts. For those customers with AOD the daily fee would not be assessed until they exceed the $500.
As I know or understand regulators are all over this topic, which concerns me, especially risk of UDAP violations. However, I also understand it can be done, as long as proper disclosures are made and AOD and non-AOD customers are treated the same.
Posted By: BrianC

Re: Overdrafts - 07/18/14 04:49 PM

Additionally, to comply with Reg E, you are prohibited from charging the fee if the sole source of the overdraft is one/time debit/ATM card transactions and the customer had not opted in for that service. Check with your core processor to ensure that it can differentiate between the sources of overdrafts.
Posted By: John Burnett

Re: Overdrafts - 07/18/14 06:49 PM

One of the primary concerns of regulators (particularly the FDIC) is whether the disclosure concerning the daily fee tracks how the fee is imposed exactly. There is also a concern for fees imposed for calendar days on which the consumer is unable to cure his deposit. Here are some features that might attract some undesirable attention:
  • Disclosure says fee is imposed for each business day an account remains overdrawn after the third consecutive day in overdrawn status, but the fee is actually based on calendar days overdrawn.
  • Disclosure says fee will be imposed each business day after an account has been overdrawn for 5 consecutive days. The fifth consecutive day for a customer is Friday, and the fee is imposed starting on Friday when no curing deposit is received on that day.
  • The fee is imposed on a business day in spite of the fact the consumer made a curing deposit that day because of the order of posting items.
Posted By: Elwood P. Dowd

Re: Overdrafts - 07/18/14 07:47 PM

You've gotten the correct, technical responses you need and all I will add is that you need to verify that state law does not consider such a charge as interest and, therefore, usurious. My personal observation is, however, that this truly is a fee related to the time value of money, not a service. If I went to work for CFPB today, it would be my first target.