Overdraft available vs ledger balance

I just recently read through the CFPBs supervisory highlights-winter 2015. Under the deposits section 2.3, the CFPB highlights instances were multiple FI had been scrutinized for switching from a ledger-balance method to an available-balance method etc...My question is: are there any regs that touch on what balance methodology should FI be using for overdraft calculations and what are those regs/best practices?

This seems to not be very clear and I am wanting to gain clarity so to better review our OD program.

Thanks in advance.

Regulatory requirements to use a specific methodology - no. Best practice - sure.

You use ledger balance and you process transactions as they are presented in final form for payment.

I'm glad the CFPB finally publicized this practice as being a UDAAP. I have been warning my clients for a number of years that they should rethink their approach.

My prime example is that I go in to rent a car and they process a $800 pre-authorization to my debit card which may or may not represent my final rental charge. I have $810 in my checking account. I also write 8 $100 checks that then get presented against my account while I am out driving around and since my bank has deducted the $800 pre-authorization from my available balance, the bank bounces the 8 checks, charges me 8 overdraft fees and creates countless other problems with the people that I wrote the checks too.

I then return the rental car and pay the actual $235 rental fee that I owe to them in cash.

I never actually overdrew my checking account .

rlcarey are you talking about a specific best practice or just a logical...'hey this should be a best practice because of what the CFPB said in their highlight?'

Let me know what you think.

Thanks for the response BTW.

I'm not sure what you mean by a specific best practice, but I think the CFPB pretty much outlined what that needs to be in the article.

I understand what you are saying.

I have read through the highlight several times and I see where the CFPB is stating that these practices were "not appropriately disclosed", but what I am not understanding is where did they (CFPB) get the rule or best practice to base this judgment off of? Or was it that it was in and of itself deceptive, because a lack of communication up front, that they are saying 'hey now you should disclose your methodology or disclose it better.'

Sorry for any confusion.

It is a UDAAP issue, meaning: is that practice likely to cause harm to consumers? If you're basically encouraging them to overdraft their account, resulting in substantial OD fees, is that an "unfair", "deceptive" or "abusive" practice?

You don't need to violate a regulation to have a UDAAP violation/issue.

Issue here is how can the consumer ever tell for how much a merchant runs a preauthorization. How can they plan to avoid a fee?? How could you possible "disclose this properly"?

IMHO - Converting the risk of issuing a debit card which is a cost of doing business into an OD income stream is just plain wrong.

Anyone have a link to that document? I couldn't find it on their site.

http://files.consumerfinance.gov/f/201503_cfpb_supervisory-highlights-winter-2015.pdf

Thank you Randy!