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Our FDIC examiners looked at our fee schedule, which includes a charge for overdrafts that are not resolved (“continuous overdrafts”). The examiners told us to add a disclosure to the fee schedule stating that we may assess a fee for a “continuous overdraft” caused by a bank fee. We were thinking about adding a line stating that continuous overdrafts would “include OD as a result from bank charges.” Does the FDIC have any guidance on how to phrase this disclosure?

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We are not aware of any rule or guidance that specifies how to disclose the fact that bank fees may cause continuous overdrafts which will incur separate overdraft fees.

If your disclosure is clear and not misleading, we believe it should be sufficient as it relates to the wording of the disclosure. In our view, the proposed language in your question could be viewed as less than clear by your customers and examiners (at a minimum, we would recommend spelling out the word “overdraft”).  Whatever disclosure language you decide on, this disclosure also should be included in your overdraft program opt-in consent form, in addition to your fee schedule.

We do recommend caution when imposing an overdraft fee for an overdraft that is caused solely by an earlier imposed overdraft fee. This practice would be somewhat analogous to the pyramiding of late fees on loan payments, which were prohibited by the former (but still enforceable) Regulation AA, and it is conceivable that such a practice might be characterized as a UDAAP violation at some point in the future.

For resources related to our guidance, please see:

  • FDIC Overdraft Payment Supervisory Guidance, pages 2–3 (“ . . . the FDIC expects its supervised institutions to take the following actions regarding automated overdraft payment programs: . . . Review their marketing, disclosure, and implementation of such programs to minimize potential consumer confusion and promote responsible use.”)

  • Joint Guidance on Overdraft Protection Programs (February 24, 2005) (“Clearly disclose that overdraft fees may be imposed on transactions such as ATM withdrawals, debit card transactions, preauthorized automatic debits, telephone-initiated transfers or other electronic transfers, if applicable, to avoid implying that check transactions are the only transactions covered.”)

  • Regulation E, 12 CFR 1005.17(d)(1) (An overdraft program consent form must include “the types of transactions for which a fee or charge for paying an overdraft may be imposed.”)

  • Regulation AA, 12 CFR 227.15(a) [note that Regulation AA has been repealed but remains enforceable under the Interagency Guidance Regarding Unfair or Deceptive Credit Practices] (“(a) In connection with collecting a debt arising out of an extension of credit to a consumer, it is an unfair act or practice for a bank to levy or collect any delinquency charge on a payment, when the only delinquency is attributable to late fees or delinquency charges assessed on earlier installments, and the payment is otherwise a full payment for the applicable period and is paid on its due date or within an applicable grace period.”)