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FOS Blog

10 Mar
2016

Overdrafts: Regulation is Coming

Overdrafts: Regulation is Coming

As we all patiently wait for the CFPB to address courtesy overdraft services, with almost as much anticipation as Season 6 of Game of Thrones, here’s what we can expect to see down the road. Spoilers ahead…

A few things are certain:

  1. Regulation is coming.
  2. The option for Opt-in on any transactions, including check and electronic transactions.
  3. Established minimums and maximums for overdrafts.

In the meantime, how can you protect yourself? Below are a few best practices that you should follow.

  • The first question you need to ask is “Do you have an Overdraft Risk Assessment?” Best practice might indicate that you should. If an examiner posed the following question: “What’s your position on overdrafts”? Can you adequately answer this question if you haven’t performed a Risk Assessment? Wouldn’t you much rather be able to hand your Examiners a Risk Assessment instead of having them perform one for you? An Overdraft Risk Assessment doesn’t need to be any different than a risk assessment used for other areas of the bank. Use the same format, be consistent and don’t overcomplicate.
  • For those individuals who opted in, there must be a benefit to the consumer in order to charge them a fee. Once the transaction which overdrew the account goes through, best practice would be to charge a fee after the designated cushion period. The consumer should be provided a reasonable amount of time to cure after receiving notification of the overdrawn account but prior to getting charged a fee. Is the fee charged on a certain day or after a certain day? Business days or calendar days? Your procedures must align with your system setup and they must be consistent.
  • If you provide overdraft protection opt in incentives, fair representation and staff training are a must. While opt in incentives are not illegal, best practice is to have a script that front line employees adhere to in order to avoid potential UDAAP issues. Are you charging an overdraft fee on top of an NSF fee? You better not because that could be deemed unfair and abusive.

The above-mentioned items are just a few of the many items to consider in regards to overdrafts. It’s a good place to start until new regulation is created.

For additional information contact the author Andrew Bogan at abogan@fosaudit.com.

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