Topic: Overdraft Protection Programs
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A bank director overdrew their account by more than $1,000, which we discovered when processing overdrafts for the day at 8:00 a.m. We contacted the director, who made a deposit to cover the overdraft before 8:30 a.m. Our cutoff for processing overdrafts occurs at 9:00 a.m. Are we violating Regulation O in this situation?
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We do not believe that your bank violated Regulation O in this situation unless your bank advanced funds to cover the director’s overdraft before the 9:00 a.m. deadline. Regulation O prohibits banks from paying overdrafts of an executive officer or director unless the payment is made in accordance with: “(i) A written, preauthorized, interest-bearing extension…
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Are there any restrictions on exercising a right of setoff from a jointly owned deposit account where only one of the account owners owes the bank a debt? For example, if a customer is the sole owner of an overdrawn deposit account, can we exercise a right of setoff against another account the customer has at our bank that is jointly owned with their spouse, child, or anyone else?
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We recommend reviewing your account agreement for the jointly held account to determine whether it grants a right of setoff that allows your bank to use the account funds to pay the debt of any account owner. If so, we believe you can exercise a right of setoff against a joint account where only one…
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When exercising a right of setoff for an overdrawn deposit account, can we include overdraft fees in the amount recovered? Is this permissible if the only amounts we are recovering are for overdraft fees? Also, is there a statute of limitations on recovering overdrawn balances? For example, if an account with a negative balance was closed and charged off but the customer currently has funds in other accounts with our bank, can we use these funds to set off the amount that was charged off?
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Right of Setoff for Overdraft Fees We recommend reviewing the terms of your account agreement to determine whether you have a right of setoff that includes the collection of overdraft fees. In Illinois, the right of setoff can arise either contractually (when an agreement provides for a right of setoff) or under common law (when…
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Regarding the FDIC’s Supervisory Guidance on Multiple Re-Presentment NSF Fees, we have completed our lookback and are ready to begin issuing restitution to our customers. Do you have any samples of a notice of restitution to send to our customers? Also, we heard that the FDIC is recommending that banks provide counseling to repeat NSF offenders. Have you heard anything about this, and are there any financial literacy courses you recommend?
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Members of the IBA’s Compliance Division Advisory Committee have provided two sample notices (available in our Forms Library and linked to below) to be used in the context of providing overdraft-related restitution to customers. While neither notice specifically refers to multiple representment NSF fees, we believe they may be modified to suit your specific needs.…
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We would like to eliminate automatic transfer notices for transfers between linked accounts held at our financial institution. We currently mail a notice whenever there is an automatic transfer from an account to cover an overdraft in another account belonging to the same customer. Our customers have agreed to the transfers, and we charge a general transfer fee for each automatic transfer. We believe these transfers are exempted from coverage under Regulation E. If we show the transfer on the demand deposit account statement, are we required to send other notices?
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No, we are not aware of any laws or regulations requiring you to send notice when you make transfers between linked accounts to prevent overdrafts. The 2005 Joint Guidance on Overdraft Programs recommends that banks “[p]romptly notify” their customers each time “overdraft protection has been accessed, for example, by sending a notice to consumers the…
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Under Regulation E, if a consumer provides a notice of error more than sixty days after the periodic statement was sent, do we have to provide provisional credit for the alleged error, including interest? Also, are we required to refund overdraft fees related to a notice of error provided more than sixty days after the periodic statement was sent?
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No, you are not required to provide provisional credit (or interest) to a consumer who provides a notice of error more than sixty days after the date the periodic statement was sent. However, you may be required to refund overdraft fees related to errors occurring before the close of the sixty-day period. Under Regulation E,…
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Is it permissible in Illinois for banks to send overdraft notices to customers electronically? We assume that if this is possible, the customer would have to consent to receiving the electronic notices and the disclosures for any accounts that could become overdrawn should state that overdraft notices may be sent electronically.
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We are not aware of any Illinois laws or regulations that require overdraft notices to be sent by mail. Accordingly, we believe your bank may send electronic overdraft notices to your customers provided they have consented to receive electronic notifications in accordance with the federal E-Sign Act’s requirements. We also believe it would be prudent…
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If a customer is provided with an opt-in disclosure for our bank’s overdraft service at the time of account opening and does not opt in — then decides to opt in several months later — do we need to send a confirmation to the customer?
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Yes, Regulation E requires that a consumer be provided with confirmation of their consent to opt into a bank’s overdraft service, either in writing or, if the consumer agrees, electronically. Regulation E also provides that a consumer may opt into an institutions’ overdraft service “at any time.” For resources related to our guidance, please see:…
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We have a consumer account that has repeatedly been overdrawn. The customer does not seem interested in covering the overdraft. What notice must we provide to close this account? Our account disclosures do not specify a timeframe for closing an account.
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In general, we recommend providing at least thirty days’ notice before closing an account if neither your account disclosures nor account agreement specifies a timeframe to provide notice before closing an account. Given the risk of further overdrafts in this situation, your bank may wish to stem its losses by freezing the account until the…
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We hired a third-party collection company to collect our charged off checking accounts, including unpaid overdrafts and fees. If a collection company enters into a repayment plan with the customer that has more than four installments, are we required to provide Truth in Lending Act disclosures? We do not receive payments directly from the customer. Under our agreement with the collection company, we receive a percentage of the amounts recovered.
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Yes, we believe you are required to provide Truth in Lending Act (TILA) disclosures when customers enter into written repayment plans of more than four installments with your debt collector. As noted in the Joint Guidance on Overdraft Protection Programs, Regulation Z requires your bank to provide TILA disclosures when offering customers an overdraft repayment…