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No OD Program - Opt-out all Customers?

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Question: 
We are a small community bank and do not have an overdraft protection program. Do we treat all our customers as opt-out come July 2010?
Answer: 

First, while you may not have an overdraft protection program in the commonly-understood sense of that phrase, you most definitely provide overdraft services (as that term is now defined in Regulation E, http://www.bankersonline.com/regs/205/205-17.html Section 205.17(a)) if you charge a fee when you permit (or are forced to allow, in the case of ATM or debit card transactions) a transaction to post that overdraws a consumer's account. It's an overdraft service even if the payment of checks and ACH transactions, and the assessment of a fee is done on an ad hoc, informal basis (just as it was done by banks during most of the 20th century).

That said, the Regulation E Section 205.17 requirements and prohibitions only apply to overdraft fees assessed for ATM and one-time debit card transactions. If your current policy and practice is to deny authorization requests for such transactions if, at the time of the request, the transaction would overdraw the account, you can skip the requirements found in Section 205.17(b)(1) to provide an opt-in notice, obtain an opt-in and provide a confirmation. You will have to stop assessing any overdraft fees for ATM or one-time debit card transactions that fly under the radar, and overdraw a consumer's account in spite of your policy and practice. That can happen if intervening transactions post before an authorized card transaction posts (late merchant presentment or non-real-time processing), an under floor limit debit card transaction that didn't require authorization hits, or a token authorization such as $1 for a fuel-pump purchase was obtained for a larger purchase amount. That prohibition kicks in on July 1 for accounts opened on or after that date, and August 15 for accounts opened before July 1.

First published on BankersOnline.com 2/15/10

First published on 02/15/2010

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