Readers to this Blog have been following our articles on the legal issues related to the processing order that financial institutions select when handling their customers’ debit Items and Entries. See for example, Planning For Item Processing Order Customer Complaints, dated January 31, 2011. A recent interesting development has occurred with the OCC’s publication of its proposed “Guidance on Deposit-Related Consumer Credit Products.” See, 76 FR 33409, dated June 8, 2011.
This OCC Guidance, applicable to national banks and federal savings associations (at least as of July 21, 2011), is directed to deposit related consumer credit products, including those not already subject to other similar federal guidance, now specifically including automated overdraft protection products and deposit advance products, regardless of the consumer’s payment medium (including paper check overdrafts). The OCC’s Guidance addresses numerous matters respecting such over-draft product offerings. But where its regulated financial institutions choose to make such products available to consumer account customers, the written terms must provide “clear disclosure about the order of processing transactions and the fact that order can affect the total amount of overdraft fees incurred by a consumer.”
This of course is at some variance with the state of the law as codified in the State’s adopted Uniform Commercial Code statutes. At least respecting paper checks, it was never a requirement to provide express notice of processing order. Neither does Regulation DD require an "order of payment" disclosure. But OTS guidance was to the contrary: "Savings associations should also clearly disclose rules for processing and clearing transactions." Many financial institutions typically elect not to disclose or commit in writing to any particular processing order, for good business reasons. However, such an approach may no longer be available to OCC regulated institutions who choose to offer an overdraft payment program, assuming the proposed Guidance is adopted. Comments are due to the OCC before July 8, 2011.