OVERDRAFT PROTECTION PROGRAMS

On June 7, 2004, the OCC, Board of Governors of he Federal Reserve System, FDIC, OTS and NCUA issued Interagency Guidance on Overdraft Protection Programs proposal for comment. The overdraft protection programs are also referred to as, bounced-check protection. The institutions planning to implement overdraft protection are also required to adhere to ECOA and Regulation B, The Equal Credit Opportunity Act.“…the Agencies provide guidance in three primary sections: Safety and Soundness Considerations, Legal Risks and Best Practices.”

Safety & Soundness Considerations
Banking institutions should implement policies and procedures addressing the increased credit risk due to higher delinquencies and losses as a result of the proposed overdraft protection programs.

Legal Risks
Institutions overdraft protection programs must be in compliance with all Federal and State laws and regulations. Banks should have their legal counsel review their overdraft programs for compliance prior to implementation.

Best Practices
Best practices are those that are currently observed in, or recommended by the industry. Recommended practices include marketing and communicating the overdraft program services, disclosure and operation of program features, explanations of the operation, costs, and limitations of overdraft protection services in order to promote appropriate customer use.

References:

• FDIC Federal Register Citations
• Truth in Savings
• GBA e-Bulletin

For additional information visit this link or Contact Nichols, Cauley & Associates by Email, phone, or online form with your questions.

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