Overkill on Overdrafts
Ware, Viveca, Independent Banker
ICBA weighs in on new FDIC guidance on overdrafts
In early December, ICBA expressed its strong opposition to FDIC final guidance on overdraft programs released the day before Thanksgiving. In a letter to FDIC Chairman Sheila Bair, ICBA President and CEO Cam Fine wrote that the guidance will have unintended consequences for both consumers and the community banks that serve them and reflects few, if any, of ICBA's recommendations.
The FDIC guidance addresses automated overdraft programs offered by FDIC-supervised institutions. Despite ICBA's recommendations, the guidance does not explicitly exempt ad hoc overdraft payment programs. Instead, the guidance states that ad hoc overdraft programs are not the focus of the guidance.
The FDIC said it expects compliance to be in place by July 1.
The guidance includes several provisions that ICBA strongly opposes. Among the most onerous, the guidance requires institutions to monitor programs for excessive or chronic customer usage and to contact customers who have incurred six overdrafts in a rolling 12-month period. It also requires banks to institute daily fee limits, avoid clearing checks in a manner that will maximize overdrafts and provide for an annual review by their board of directors.
Further, banks are encouraged to allow customers to opt out of overdrafts related to checks and ACH transactions, similar to existing Regulation E requirements. The FDIC expects its supervised institutions to ...
* review marketing, disclosure and program implementation to minimize potential customer confusion and promote responsible use;
* train staff on program features and other alternatives;
* prominently distinguish account balances from any available overdraft coverage amounts as required by Regulation DD (Truth in Savings);
* review check-clearing procedures to avoid maximizing customer overdrafts and related fees through the clearing order (examples of appropriate procedures include clearing items in the order received or by check number);
* monitor and mitigate credit, legal, reputational, safety and soundness, and other risks as appropriate; and
* consider eliminating fees for de minimis overdraft amounts and instituting fees reasonable and proportional to the overdraft amount; using technology (text messaging, e-mail, telephone or cell phone) to alert customers regarding overdrafts; and provide financial literacy education and individual counseling on effective management of personal finances. …