Topic: Overdraft Protection Programs
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Can a health savings account (HSA) be linked to a savings account to make up for overdrafts?
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Based on our conversation with the IRS (through their business helpline, 800-829-4933), we do not believe that the IRS rules would prohibit a bank from linking HSAs to savings accounts for purposes of overdraft protection. Unlike an overdraft transaction that is covered by the bank, such transfers would not be considered loans to the HSA…
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Are there any laws in Illinois that regulate how we post checks for payment?
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You are correct that federal law does not require any particular check posting order, and Illinois law is equally permissive (provided that the bank complies with its own deposit agreements). However, as we discuss below, the FDIC has issued guidance that seems to discourage the use of high-to-low posting orders (without explicitly condemning the practice).…
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We are changing our method for the posting order of checks so that they are posted by check number order. Do we need to disclose this change to customers?
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We believe that it would be a best practice to disclose the order of posting all transactions, including checks, to consumer customers (this does not necessarily apply to commercial customers). Regulation DD does not require disclosure of the posting order of checks in advertising your overdraft program or in periodic statements. 12 CFR 1030.11. With…
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Under Illinois law, what is the order in which banks should pay checks?
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Section 4-303(b) of the Uniform Commercial Code (UCC) permits banks to pay checks in any order: “items may be accepted, paid, certified, or charged to the indicated account of its customer in any order.” 810 ILCS 5/4-303(b). The Illinois Appellate Court for the First District has held this to be true even if the order…
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The FDIC released guidance on overdraft protection programs (FIL 81-2010) stating that “the FDIC expects that any additional efforts to mitigate risk would be in place by July 1, 2011. Will it be a problem if we cannot comply with all of the suggested changes by that date?
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The truthful answer is that you just have to do your best to comply on time. It’s called guidance, but the FDIC expects all state-chartered non-member banks to follow the guidance. You do the best you can, and if you get dinged, you can make the argument that it’s merely guidance, which should not be…
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If we offer checking accounts that do not have overdraft protection, can we still require customers to opt-in to overdraft fees (due to the risk that some debit card force-pay transactions can still result in overdrafts)? Can we revise the Regulation E opt-in notice to reflect that the account will not have overdraft protection, except in those forced-pay transactions?
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After reviewing the Electronic Fund Transfer Act (EFTA) and Regulation E, which apply to overdraft programs dealing with electronic fund transfers (EFTs)), and discussing with attorneys at the OCC and the Federal Reserve Board, we do not believe it would be possible to draft an opt-in notice that would comply with Regulation E. Regulation E…
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I read somewhere that we now must separately disclose fees for paying overdrafts and fees for returning items on our periodic statements, and that we must have separate names for each fee. We label our fees as “overdraft paid/return check fee” on our periodic statements. We do not charge a different fee for each event. Do I now need to break this fee out into two line items and assess them separately?
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Under the amendments to the Official Staff Commentary to Regulation DD, which go into effect on July 1, 2006, you may not group together fees for paying overdrafts and fees for returning checks or other unpaid items on the periodic statement. This new interpretation applies irrespective of whether you advertise your overdraft protection program. In…
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I was given the impression at a recent seminar that increases in overdraft fees did not have to be disclosed to customers thirty days in advance. Is that true?
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You need to give customers 30 days advance notice under Regulation DD before you increase the amount of the overdraft fee that you charge. For example, if you are currently charging a $5.00 overdraft fee, you need to give your customers thirty days’ advance notice before you can increase the overdraft fee to $10.00. This…