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Inactive Financial Institution Letters

Interagency Guidance On Overdraft Protection

June 7, 2004

TO: CHIEF EXECUTIVE OFFICER (also of interest to Compliance Officer)
SUBJECT: Financial Institution Regulatory Agencies Seek Comment on Interagency Guidance on Overdraft Protection
Summary: The FDIC and the other financial institution regulatory agencies are soliciting comment on guidance on certain overdraft protection programs. The attached guidance discusses these programs, outlines various federal regulations as they pertain to the programs, and lists a variety of industry best practices. Comments are due by August 6, 2004.

After consideration by the Federal Financial Institutions Examination Council, the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the National Credit Union Administration are seeking comment on the attached guidance on overdraft protection. Comments are due by August 6, 2004.

Overdrawn accounts and ad-hoc overdraft approvals have always been part of bank deposit programs. For many years, overdrafts have been managed by tying them to other deposit accounts, lines of credit or credit cards. Recently, however, programs have been developed to improve the automation of overdrawn accounts that previously had been handled on a discretionary, ad-hoc basis. These programs are frequently purchased from a vendor and are advertised to the consumer. While both the availability and customer acceptance of these overdraft protection services have increased, aspects of the marketing, disclosure and implementation of some of these programs have raised concerns with the agencies.

The guidance discusses:

  • the historical and traditional approaches to providing consumers with protection against account overdrafts, and contrasts those approaches with the more recent overdraft protection services now marketed to consumers;
  • existing and potential concerns of the regulatory agencies surrounding the offering and administration of such overdraft protection services;
  • safety and soundness considerations, such as whether institutions offering overdraft protection services have adopted adequate policies and procedures to address the credit, operational and other risks associated with these services;
  • key legal issues, including compliance with all federal and state laws; and
  • best practices found to be in use or recommended by the industry, including marketing and communications that accompany the offering of overdraft protection services, as well as the disclosure and operations of program features.

The agencies request comment on all aspects of the guidance, in particular as to whether the recommended charge-off time frame is appropriate and whether there are other considerations not addressed.

Written comments may be sent to Robert E. Feldman, Executive Secretary, Attention: Comments/Executive Secretary Section, Federal Deposit Insurance Corporation, 550 17th Street, NW, Washington, DC 20429. Comments also may be mailed electronically to Comments may be hand-delivered to the guard station at the rear of the 17th Street building (located on F Street) on business days between 7 a.m. and 5 p.m. Comments also may be faxed to (202) 898–3838.

For more information, please contact Patricia I. Cashman, Senior Policy Analyst, Division of Supervision and Consumer Protection, on (202) 898-6534; or Mark Mellon, Counsel in the Legal Division, on (202) 898-3884.

For your reference, FDIC Financial Institution Letters may be accessed on the FDIC’s Web site at To learn how to automatically receive FDIC Financial Institution Letters through e-mail, please visit

Michael J. Zamorski
Division of Supervision and Consumer Protection

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Distribution: FDIC-Supervised Banks (Commercial and Savings)

NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC’s Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (1-877-275-3342 or (703) 562-2200).

Last Updated 6/07/2004

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