Academic journal article ABA Banking Journal

A Reg O Puzzler

Academic journal article ABA Banking Journal

A Reg O Puzzler

Article excerpt

Q: The chairman of our bank has an irrevocable family trust account with our bank. He is neither a trustee, nor a beneficiary of his family trust account. If that trust account becomes overdrawn in an amount over $1,000 and the item is paid, is it a violation of Regulation O?--M.M., Calif.

A: It appears that an overdraft to the trust is not an overdraft to the chairman for the following reasons that the regulation provides with respect to overdrafts, according to ABA's Paul Smith, senior counsel, Regulatory Affairs:

"Reg 0:12 CFR 215.4: General Prohibitions (e) Overdrafts.

(1) No member bank may pay an overdraft of an executive officer or director of the bank or executive officer or director of its affiliates (Fn 3) on an account at the bank, unless the payment of funds is made in accordance with:

(i) A written, preauthorized, interest-bearing extension of credit plan that specifies a method of repayment; or

(ii) A written, preauthorized transfer of funds from another account of the account holder at the bank.

(2) The prohibition in paragraph (e)(1) of this section does not apply to payment of inadvertent overdrafts on an account in an aggregate amount of $1,000 or less, provided:

(i) The account is not overdrawn for more than 5 business days; and

(ii) The member bank charges the executive officer or director the same fee charged any other customer of the bank in similar circumstances. …

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