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Assessing Overdraft Fee-Reg E Interpretation

Answered by: 
Brian Crow

Question: 
We do not offer any overdraft privilege program. Occasionally, debit card transactions are approved when the customer has sufficient funds, but the funds are withdrawn before the completion transaction comes thru 3-4 days later. We interpreted Reg E that we COULD assess our overdraft fee because a) we do not offer any overdraft privilege program, and b) we're not assessing the fee because we're paying the item. We're assessing it only because they are overdrawn. We have no ability to return the debit, so we're not providing a 'service' by paying it. Do you interpret Reg E the same way, or do you think Reg E prevents us from assessing the fee?
Answer: 

Reg E Section 1005.17(b) clearly demonstrates that you CANNOT charge a fee in this case. An overdraft fee can only be charged on an overdraft caused by a one-time POS debit or ATM withdrawal if the institution has complied with the four requirements in 1005.17(b)(i-iv) which include providing a written notice of your overdraft practices (Form A-9), provide an opportunity for the customer to opt-in, obtaining an opt-in, and sending the customer written confirmation of the opt-in. Since you do not offer an overdraft service, you cannot comply with 1005(b)(i-iv) and are prohibited from charging overdraft fees in this situation.

The commentary to this section addresses this prohibition.

iv. Application of fee prohibition. The prohibition on assessing overdraft fees under Section 1005.17(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 Section Section 1005.17(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. Assume an institution does not provide an opt-in notice, but authorizes an ATM or one-time debit card transaction on the reasonable belief that the consumer has sufficient funds in the account to cover the transaction. If, at settlement, the consumer has insufficient funds in the account (for example, due to intervening transactions that post to the consumer's account), the institution is not permitted to assess an overdraft fee or charge for paying that transaction.

I recommend that you consider a voluntary lookback to refund fees for any customers who were charged in violation of the regulation before an examiner requires that you do so.

First published on BankersOnline.com 10/22/12

First published on 10/22/2012

Filed under: 
Compliance
Filed under compliance as: 
ATM
Fees
IT

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