Academic journal article ABA Banking Journal

New Directives and Regulations Drive Overdraft Protection. Will Your Bank's Program Pass Muster?

Academic journal article ABA Banking Journal

New Directives and Regulations Drive Overdraft Protection. Will Your Bank's Program Pass Muster?

Article excerpt

Since the Joint Guidance on Overdraft Protection Programs was finalized earlier this year, we've encouraged financial institutions to initiate programs that meet or exceed its regulatory guidelines and directives. We also encourage those that outsource their overdraft payment service through a third-party provider, to make sure their provider has the resources and regulatory expertise to ensure their program is compliant.

In May, 2005, the Board of Governors of the Federal Reserve System published their Amendments to Regulation DD that govern the handling of overdrawn accounts and--more specifically--overdraft services. Consequently, many of the overdraft payment policies and procedures that formerly were suggested or recommended under the Joint Guidance are now required and will be monitored and enforced. The new Amendments to Regulation DD provide detailed requirements for overdraft payment services, most notably in the areas of advertising, marketing, and consumer disclosures.

For financial institutions that have an overdraft payment service in place, we strongly recommend you have your own counsel and data processing representatives reevaluate your service. Although Regulation DD will not go into effect until July 1, 2006, it's not too early to conduct a thorough evaluation and initiate changes as necessary. For financial institutions considering a new service or help with their current program, there is no better time to select a reputable outside provider whose overdraft payment service program adequately addresses changes and new requirements under both the Joint Guidance and the Amendments to Regulation DD.

We've been surprised that some overdraft service providers appear to be somewhat complacent in terms of their response to the new regulatory environment. …

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