Topic: Overdraft Protection Programs
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We received a child support payment for a customer whose deposit account was closed and charged off due to overdrafts. Can we apply the child support payment to offset the unpaid overdraft fees?
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No, we do not believe that your bank may exercise a right of setoff in this situation. While your deposit account agreement likely provided for a right of setoff relative to funds your former customer had on deposit, that customer no longer has a deposit account or funds on deposit, precluding a right of setoff.…
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We erroneously overpaid interest on some of our checking accounts. We will be reversing the overpayments of interest. Are there any Illinois laws requiring notification before reversing the overpayments?
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No, we are not aware of any Illinois laws requiring disclosure in this situation. We recommend reviewing your account agreement with respect to any disclosure requirements related to interest calculation and payment errors and waiving any overdraft fees that occur due to the reversal of the interest payments.
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Under Regulation E, can we charge a business customer an overdraft fee when a debit transaction creates an overdraft on their account? Do business account customers have to opt in to an overdraft program?
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Yes, your bank may charge overdraft fees to business customers for debit card overdrafts, and they are not subject to the opt-in requirements in Regulation E. Regulation E, including its overdraft and opt-in provisions, does not apply to business accounts. We also are not aware of any other law or regulation that would impose restrictions…
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Can we charge off an overdrawn account immediately if we suspect fraud? A new customer opened an account by depositing a $400 check. The check was drawn on a closed account, so we returned the check. However, he had already withdrawn the full amount of the check from an ATM, causing his account to be overdrawn by $400, plus a small overdraft fee. Typically, we wait 60 days to charge off an overdrawn account, but we suspect that the customer was engaging in deposit fraud. Can we charge off his account right away?
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Yes, we believe that you may charge off the account right away. The Joint Agency Guidance on Overdraft Protection Programs states that “overdraft balances should generally be charged off when considered uncollectible, but no later than 60 days from the date first overdrawn.” In other words, the longest you can wait to charge off an…
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We currently offer ad hoc overdraft protection, but we want to establish a formal overdraft protection program for checking accounts, ACH transactions, and debit transactions. We have not yet established the exact parameters of our program, but we are planning to charge a fee for the service. What notice do we have to provide before rolling out the program? Can the notice be included in a periodic statement? Can we establish criteria that customers must meet in order to qualify for the program, such as that the customer does not have any delinquent loans? Or do we have to offer the program to all customers?
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Yes, your bank should provide advance notice and an opportunity to opt in to a new overdraft program. Regulation E requires financial institutions to complete a four-step process before charging a fee for paying an overdraft on an ATM or on a one-time debit card transaction. This process includes providing written notice of the overdraft…
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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,…
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We have an ad hoc overdraft program. In which order should we pay overdrawn checks: High-to-low or low-to-high?
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This question does not have an easy answer. Illinois law has long granted banks the freedom to post checks in any order they choose, without regard to the order in which they were received. However, as discussed below, the federal banking agencies have issued guidances that discourage the use of high-to-low posting orders (without explicitly…
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We have an ad hoc overdraft program. In which order should we pay overdrawn checks: High-to-low or low-to-high?
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This question does not have an easy answer. Illinois law has long granted banks the freedom to post checks in any order they choose, without regard to the order in which they were received. However, as discussed below, the federal banking agencies have issued guidances that discourage the use of high-to-low posting orders (without explicitly…