Your Next Move

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Community banks are facing a wide variety of regulation and compliance questions on agency actions, including those related to the Dodd-Frank Wall Street Reform and Consumer Protection Act. This month ICBA Independent Banker introduces a monthly department that allows industry experts to help answer your regulatory questions. Send us your questions at

The opinions that ICBA and other regulatory experts offer may not apply to every institution and are not meant as professional advice. Check with your bank's own legal or regulatory advisers before acting on any opinions or views published here.

Q In late November, the FDIC released regulatory guidance focused on automated overdraft payment programs. One provision recommends that banks allow customers to decline overdraft coverage (i.e., opt out) for paper checks and automated clearinghouse (ACH) transfers. To comply, will my bank need to institute a formal opt-out program?

Cary Whaley: According to the guidance, a formal program is not required for consumers who wish to opt out of overdraft coverage. However, banks must be able to provide clear customer disclosure of the overdraft protection for check and ACH transactions and honor a consumer's request to opt out. This approach is consistent with the 2005 Joint Guidance on Overdraft Protection Programs, which required banks that automatically provide overdraft coverage to permit consumers to opt out of the overdraft program and provide a clear consumer disclosure of this option. Policies and procedures should be in place by July 1.

Q Our regulators told our bank we must raise additional capital. One of our shareholders says he and some of his friends will be willing to invest. Are there any regulatory issues we need to be aware of with this investment?

Neil E. Grayson: These investors should be cautious of the bank regulators deeming them to be "acting in concert." In general, if an individual investor proposes to acquire 10 percent or more of the outstanding shares of any class of voting stock of a bank or bank holding company, the investor must obtain prior bank regulatory approval because he or she would be presumed to be acquiring control of the bank. In most cases, as long as the investor is not acquiring more than 24.9 percent, he or she would agree to passivity commitments and make a rebuttal of control filing. Historically if investors stay under 10 percent, they avoid having to file any regulatory applications for the investment.

If, however, two or more investors are deemed to be "acting in concert" and collectively these investors would exceed 10 percent, then each of the investors must seek regulatory approval for the investment. The regulators' focus on acting-in-concert issues has increased substantially recently as a result of the number of club deals by private equity investors. However, the rules apply to all investors, not only private equity firms. As a result, in many recent transactions each investor proposing to acquire more than 4.9 percent has been required to furnish information to the bank regulators about his or her relationships with other prospective investors and to agree to the passivity commitments that historically were required only of investors going over 10 percent. …