Topic: Overdraft Protection Programs
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We have two checking accounts with the exact same ownership. One of the accounts is overdrawn and will soon be charged off. Can we set off the overdraft with funds deposited in the other account, or do we have to wait until we have charged off the overdrawn account? Our account agreements permit us to setoff deposited funds for debts owed to the bank.
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Yes, you may exercise your contractual right of setoff in the funds deposited in one account to pay the overdraft on another account held by the same owner, since the overdraft is a debt owed to your bank. It is not necessary to wait until the overdrawn account has been charged off. Several Illinois cases…
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A former deposit customer’s account was charged off and closed due to an unpaid overdraft. However, the former customer provided our bank’s information for a deposit of U.S. Department of Veterans Affairs (VA) education loan proceeds. Can we exercise our right of offset under our account agreements to cover our losses on the deposit account that was charged off?
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No, we do not recommend reopening the account for purposes of setting off the VA loan proceeds. Because the account is closed, we recommend returning the deposit for that reason. When the deposit account closed, your account agreement with the customer expired. Because your right of setoff stemmed from the account agreement, it is likely…
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We plan to start offering a bill pay service through a third party vendor. When paying a customer’s bill, the vendor will pay the bill directly (by check) and separately initiate an ACH debit against the customer’s account for the bill amount. If the customer’s account has insufficient funds, we will reject the ACH debit and charge the customer an insufficient funds (NSF) fee. We will not charge any other fees and will not pass on the vendor’s fees to the customer. In the event of a rejected ACH payment, the vendor will attempt to collect the unpaid amount from the customer and will freeze the customer’s other bill payments made through its service for three days. If the bill pay vendor cannot collect from the customer within sixty days, it will collect the unpaid amount directly from our bank, and we will assume the collection efforts. Would this arrangement be considered an overdraft program requiring the customer’s opt-in under Regulation E?
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No, we do not believe this arrangement would be considered an overdraft program, nor does Regulation E require a customer to opt-in before charging an overdraft fee for an ACH transaction. Regulation E defines “overdraft service” as “a service under which a financial institution assesses a fee or charge . . . for paying a…
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Can we refund mistakenly applied deposit account overdrafts fees directly into a customer’s account? Or do we need to mail the refund to the customer?
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We believe you may refund the fees directly into customer accounts. We are unaware of any rules or guidance that directly addresses the procedure for returning improperly assessed overdraft fees. However, when banks are required to provide restitution for understated annual percentage rates (APR) or finance charges, the FDIC permits such restitution “either by official…
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We have an ad hoc overdraft program, meaning that we may pay overdrafts on a discretionary basis, but not in every instance, and we charge an overdraft fee on those occasions. Is there federal or state guidance requiring us to mail written notices for each overdraft?
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We recommend following the 2005 Joint Agency Guidance, which recommends that you notify customers when your bank decides to pay an overdraft, particularly because your bank charges an overdraft fee on those occasions. While the Joint Agency Guidance does distinguish between discretionary or ad hoc overdraft programs and more formal “overdraft protection” or “bounce protection”…
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We are one of two charters under the same holding company. We are printing statement stuffers advertising our overdraft services, which are identical. The envelope and periodic statements both include our bank’s name. We don’t want to pay to print up separate flyers for each charter, which would be identical but for the bank names. Can we print these without any bank name so that both banks can use the statement stuffers?
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Yes, we believe it is permissible to use statement stuffers that do not identify your bank’s name. We are not aware of any specific law or regulation that would require a bank to state its name in a statement stuffer when the bank’s identity can be inferred from other materials in the same mailing. However,…
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We charge a daily fee for every day a consumer’s account remains overdrawn after five business days, as noted in our initial account disclosures. Are we required to mail an additional notice to the consumer when the fee is assessed to the account?
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Yes, we recommend providing notice each time you assess an overdraft fee. The 2005 Joint Guidance on Overdraft Protection Programs suggests as a best practice that banks “promptly notify consumers when overdraft protection has been accessed. . . .” The FDIC has incorporated that guidance into its Compliance Examination Manual, which requires examiners to review…
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When a customer with multiple deposit accounts overdraws Account # 1, we charge an insufficient funds fee and place a hold for the amount of the overdraft on Account # 2. If the customer writes a separate check that draws against Account # 2, and the amount of the check draws against the funds that we have on hold, we charge an unavailable funds fee. Our account agreements permit us to place the hold and charge the fees. We also provide notice to the customer when the funds are held and before we charge the unavailable funds fee. Are you aware of any guidance as to whether this practice is deceptive or otherwise a UDAAP violation?
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We believe this practice should pass a UDAAP analysis, and also that the unavailable funds fee should not be considered a second overdraft fee for the same overdraft, even though it is indirectly related to the initial overdraft, for which an overdraft fee already has been charged. The facts are that: (1) both the hold…
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We offer zero interest loans to customers to repay their overdrafts. If we extend the payment schedule from 6 to 18 months, will the extended repayment period subject us to scrutiny, possibly related to recent guidance on payday loans or the upcoming CFPB payday loan rules?
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No, we do not believe the longer loan terms will subject you to heightened scrutiny, particularly because you are providing the loans without charging interest. The FDIC Guidelines on Small-Dollar loans identify several characteristics of responsible and affordable small-dollar credit programs, including affordability and a payment structure that encourages principal reduction. Since these loans will…