Reg E vs Reg O: Overdraft w/o Opt In

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Question:

Reg E vs Reg O? The President of our bank is on a joint account with his teenage son. The account is marked as a Reg O account in the system. The teenage son has a debit card. He did not opt in for Reg. E. The son used his debit card for fuel and created an overdraft in the account. As a Reg O account, we would have to charge an OD fee. Since the son did not opt in for Reg E, we cannot charge a fee. Which one should we violate? How do we prevent this from happening again?

Answer:

Actually, you don't have to violate either Regulation E or Regulation O, because Regulation O gives you an "excuse."Specifically, Regulation O's Section 215.4(e)(2) provides that the prohibition against overdrafts in accounts of executive officers or directors does not apply to “inadvertent overdrafts on an account in an aggregate amount of $1,000 or less, provided: (i) The account is not overdrawn for more than 5 business days; and (ii) The member bank charges the executive officer or director the same fee charged any other customer of the bank in similar circumstances.” [Emphasis added]

The bank is prohibited by Regulation E Section 205.17 from charging a consumer an overdraft fee for paying an ATM or one-time debit card transaction that overdraws the consumer's account. The executive officer is a consumer protected by that prohibition. So the bank is charging the same fee it would charge any other customer of the bank in similar circumstances: $0.00.

First published on BankersOnline.com 11/14/11