Answer:
Answer by Ken Golliher: If there is anything couched as a "requirement," I am not aware of it. My suggestion would be that they should be eliminated using reversing entries to the account to which they were credited, presumably "Service Charges." Otherwise your income statement would be overstating both income from that source and losses from charged off overdrafts.
Answer:
Answer by John Burnett: In the 2005 Federal Register document in which the Joint Guidance on Overdraft Protection Programs was published, the agencies wrote:
"Overdraft balances should be reported on regulatory reports as loans. Accordingly, overdraft losses should be charged off against the allowance for loan and lease losses. The Agencies expect all institutions to adopt rigorous loss estimation processes to ensure that overdraft fee income is accurately measured. Such methods may include providing loss allowances for uncollectible fees or, alternatively, only recognizing that portion of earned fees estimated to be collectible."
In a footnote to that statement, we read,
"Institutions may charge off uncollected overdraft fees against the allowance for loan and lease losses if such fees are recorded with overdraft balances as loans and estimated credit losses on the fees are provided for in the allowance for loan and lease losses."
Source: 70 FR 9129-30, 2/24/2005
Answer:
Answer by Ken Golliher: Then the operative word would be "may." You bank could do it that way if it felt the distortion of fee income or charge off amounts would be immaterial.
First published on BankersOnline.com 2/18/13
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