Highlights:
The FDIC expects
financial institutions boards of directors and management to ensure that the
institution mitigates the risks associated with offering automated overdraft payment
programs and complies with all consumer protection laws and regulations. Institutions
are reminded to:
- Provide clear and meaningful disclosures and other communications about
overdraft payment programs, features and options; and
- Demonstrate compliance with new overdraft fee disclosure requirements and, upon
the effective date, new regulations that mandate providing a notice and
reasonable opportunity for customers to affirmatively choose fee-based overdraft
coverage of ATM withdrawals and one-time point-of-sale debit card transactions.
In addition, the FDIC expects financial institutions to:
- Promptly honor customers requests to decline coverage of overdrafts
(i.e., opt out) resulting from non-electronic transactions;
- Give consumers the opportunity to affirmatively choose the overdraft payment
product that overall best meets their needs;
- Monitor accounts and take meaningful and effective action to limit use by
customers as a form of short-term, high-cost credit, including, for example,
giving customers who overdraw their accounts on more than six occasions where a
fee is charged in a rolling twelve-month period a reasonable opportunity to
choose a less costly alternative and decide whether to continue with fee-based
overdraft coverage;
- Institute appropriate daily limits on overdraft fees; and
- Not process transactions in a manner designed to maximize the cost to
consumers.
Institutions using a third-party vendor for their overdraft payment programs must
exercise careful oversight, as discussed in the FDIC's 2008 Guidance for
Managing Third-Party Risk. The FDIC will take supervisory action where
overdraft payment programs pose unacceptable safety and soundness or compliance
management system risks or result in violations of laws or regulations, including
unfair or deceptive acts or practices and fair lending laws.
Positive CRA consideration will continue to be provided for responsible transaction
accounts, and affordable small-dollar loan programs or other lower cost credit
alternatives, particularly for low- and moderate-income consumers.
Distribution:
FDIC-Supervised Institutions
Suggested
Routing:
Chief Executive Officer
Compliance Officer
Chief Lending Officer
Related
Topics:
Joint Guidance on Overdraft Protection Programs
Federal Trade Commission Act Unfair or Deceptive Acts and Practices provisions and
Regulation AA
Guidance For Managing Third Party Risk
Truth in Lending Act and Regulation Z
Truth in Savings Act and Regulation DD
Electronic Fund Transfer Act and Regulation E
Equal Credit Opportunity Act
Community Reinvestment Act
Attachment:
Supplemental Information
Joint Guidance on Overdraft Protection Programs
Guidance For Managing Third-Party Risk
Contact:
Victoria Pawelski, Senior Policy Analyst, at (202) 898-3571 or vpawelski@fdic.gov; or Patricia I.
Cashman, Senior Examination Specialist, at (202) 898-6534 or pcashman@fdic.gov
Note:
FDIC financial institution letters (FILs) may be accessed from the FDIC's Web site
at http://www.fdic.gov/news/news/financial/2010/index.html
To receive FILs electronically, visit http://www.fdic.gov/about/subscriptions/fil.html
Paper copies of FDIC financial institution letters may be obtained via the FDIC's
Public Information Center (1-877-275-3342 or 703-562-2200).
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