OVERDRAFT UPDATE: INTERAGENCY WEBINAR …...If you haven’t had a chance to view the interagency...
Transcript of OVERDRAFT UPDATE: INTERAGENCY WEBINAR …...If you haven’t had a chance to view the interagency...
BankersHub.com February, 2017 Newsletter Page - 1
OVERDRAFT UPDATE: INTERAGENCY WEBINAR BRIEFING
By Sterling Compliance LLC (originally published in Sterling Navigator, Dec 2016. All Rights Reserved
ABOUT THE AUTHOR(S)
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Newsletter Article
February, 2017
If you haven’t had a chance to view the interagency webinar on
overdraft services held on November 9th, consider this your CliffsNotes
version. The intention of this webinar was not to introduce new guidance
or pending legislation; the purpose was to discuss previously identified
practices and issues. And, if you were wondering whether the CFPB
was getting any closer to formal legislation regarding overdraft practices
that impact checking accounts, the answer is no. The CFPB specifically
stated, during the Q&A period, that the Bureau remains in the pre-
rulemaking period with respect to overdraft programs that cover
checking account products. While there was no new legislation or rules
discussed, representatives from each regulatory agency took turns
addressing overdraft practices as they relate to compliance
requirements and violations cited. The webinar was basically the study
guide to the test, presenting real world scenarios to understand how
other financial institutions have gotten into trouble when it comes to
overdrafts and how you can mitigate the risk of non-compliance or
deceptive practices in your institution.
A common deficiency cited was the disconnect between account
disclosures and actual practices when making overdraft fee
decisions. In one scenario presented, a bank used the available balance
to decide whether an overdraft had occurred and, as a result, that a fee
should be assessed. The bank’s disclosure only stated deposits not
yet available would be subtracted. However, the bank subtracted
deposited funds not yet available AND “must pay” items from the
available balance. In this case, two overdraft fees were assessed
because the bank had used the available balance and posting point in
time when making the overdraft fee decisions. The key take-away from
this scenario? Account disclosures provided to customers must
accurately describe your practices for assessing overdraft fees.
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Presenting your disclosures in a clear and transparent manner is one part of the equation. Understanding
how your overdraft program works and when fees may be assessed is crucial to determining whether your
program presents risk of consumer harm. The regulators presented these additional practices as presenting
consumer harm:
Ability and Right to Cure Overdrawn Balances: In the example presented, a customer overdraws
his account on Thursday. On Friday, the customer deposits a check, which if credited immediately,
would cure the amount of the overdrawn balance. However, the bank treated the check as received
the following business day (Monday) and makes funds available for withdrawal the following
business day (Tuesday). While the check is subject to the Regulation CC hold, the bank charged the
customer a daily continuous overdraft fee and per diem interest on the overdrawn balance.
Calendar Days versus Business Days: This is a great example of how there can be a disconnect
between disclosure and actual practices for overdraft fees and is primarily related to continuous-day
overdraft fees. If your disclosure states that your continuous overdraft fee will be charged on
business days, then your system specs should be charging overdraft fees on business days. The
issues arise when there are disclosure and system mismatches and, in circling back to the point
above, when a consumer can reasonably cure an overdrawn balance.
Fee-on-Fee Assessment: Keep in mind overdrafts could be caused by bank-assessed fees in the
classic sense and then by the interest on fees.
Overdrawn Balances Added to Existing Loans: In some cases, overdrawn balances have been
added to existing loans, therefore improperly inflating the amounts owed on consumers’ loans.
The regulators presented key risk management practices that you should employ.
Monitor and control risks that are presented by any third-party vendors you use in administering your
overdraft program.
Monitor systems and software changes that could require changes in disclosures and marketing
materials.
Implement appropriate complaint management systems. Consumer complaints are an important
early warning signal.
Pay attention to other red flags, such as very high opt-in rates.
Don’t forget about your small business accounts! The FRB specifically stated that overdrafts for
small business accounts are included in the scope of their overdraft testing process. This has been
one area where UDAAP has crept over to the commercial side.
While we have presented a briefing on the issues discussed during the webinar, you can continue to access
the archived recording for internal training purposes and to listen to the Q&A session. Remember, even if
you maintain an ad hoc overdraft program, you must still assess your process for the risk of unfair
or deceptive practices that may pose consumer harm. We will continue to keep you updated on the
CFPB’s progress in moving toward formal overdraft program rulemaking.
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