The FDIC is issuing the attached final guidance, which reaffirms existing supervisory expectations with respect to overdraft payment programs generally, and provides specific guidance with respect to automated overdraft payment programs. The FDIC expects the institutions it supervises to closely monitor and oversee any overdraft payment programs they offer to consumers, including taking appropriate measures to mitigate risks, incorporating the best practices outlined in the attached 2005 Joint Guidance on Overdraft Protection Programs, and effectively managing of third-party arrangements. Management should be especially vigilant with respect to product over-use that may harm consumers, rather than providing them the protection against occasional errors or funds shortfalls for which the programs were intended.
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, including providing clear and meaningful disclosures and other communications about overdraft payment programs, fees, and other features and options, and demonstrating compliance with new opt-in requirements for automated teller machine (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 consider eliminating overdraft fees for transactions that overdraw an account by a de minimis amount; 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.
In order to allow sufficient time for institutions to review, consider and respond to the expectations in the final guidance, the FDIC expects that any additional efforts to mitigate risk would be in place by July 1, 2011.
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
Victoria Pawelski, Acting Section Chief, Compliance Policy at (202) 898-3571 or firstname.lastname@example.org; or Patricia I. Cashman, Senior Examination Specialist (Compliance), at (202) 898-6534 or email@example.com