Alert August 17, 2010

FDIC Issues Proposed Guidance on Overdraft Payment Programs

The FDIC issued proposed guidance on automated overdraft payment programs (the “Proposal”), which outlines additional expectations for the banks it supervises.  The Proposal would supplement the FRB’s overdraft rules under Regulation E, which are discussed in more detail in the June 1, 2010 and November 17, 2009 Consumer Financial Services Alerts.  Whereas the new Regulation E opt-in requirement addresses only paying overdrafts resulting from one-time debit card and ATM transactions, the Proposal provides that customers should have an opportunity to opt out of the payment of overdrafts resulting from non-electronic transactions (e.g., checks).  The Proposal also provides that banks should not process transactions in a manner designed to maximize the cost to customers.  In addition, the Proposal calls for banks to monitor accounts and take meaningful and effective action to limit customer use of overdraft coverage as a form of short-term, high-cost credit, including, for example, by giving customers who overdraw their accounts on more than six occasions where a fee is charged in a rolling 12-month period a reasonable opportunity to choose a less costly alternative and decide whether to continue with fee-based overdraft coverage.  Moreover, the Proposal states that the FDIC expects banks to institute appropriate daily limits on overdraft fees.  The Proposal notes that overdraft payment programs will be reviewed at FDIC examinations.  Comments on the Proposal are due no later than September 27, 2010.