The FDIC has published on its website answers to Frequently Asked Questions (FAQs) about the FDIC’s Overdraft Payment Supervisory Guidance issued in November 2010 (FIL-81-2010) (ODP Guidance). The FAQs were published on April 1 following the FDIC’s March 29 teleconference held to discuss the ODP Guidance. The FAQs clarify how an automated overdraft payment program differs from “ad hoc” overdraft payment practices, when customer use of an overdraft payment program is considered excessive or chronic, and what an institution must do to undertake meaningful and effective follow-up with the customer. The FAQs suggests considerations for determining an appropriate daily limit on overdraft fees and an appropriate de minimis overdraft amount, and provides guidance on establishing a reasonable and proportional overdraft fee. The FAQs also address whether an institution is required to provide new alternatives to automated overdraft payment programs or terminate or suspend a customer’s access to an automated overdraft payment program for chronic or excessive use. The ODP Guidance will be incorporated into the FDIC’s examination process. According to the FAQs, the FDIC expects institutions to have compliance and risk management action plans, policies and procedures that respond to the ODP guidance in place by July 1, 2011.
Nutter Notes: The ODP Guidance addresses risks posed by automated overdraft payment programs, and its recommendations about customer follow-up do not apply to ad hoc overdraft payments. The ODP Guidance recommends that FDIC-supervised institutions monitor automated overdraft payment programs for excessive or chronic customer use and, if a customer overdraws his or her account on more than six occasions where a fee is charged in a rolling 12-month period, undertake meaningful and effective follow-up action. According to the FAQs, an “occasion” occurs each time an overdraft transaction generates a fee. As a result, it is possible that more than one “occasion” can occur per day. If more than one overdraft fee is charged as a result of multiple transactions, each fee would constitute a separate occasion even if the fees are aggregated. Overdraft items paid where no fee is charged would not be included. “Meaningful and effective” follow-up, according to the FAQs, means that the institution has made reasonable efforts to provide the customer with information on alternatives to overdraft payment programs and a clear means for the customer to opt for those alternatives. The FAQs provide examples of how institutions may engage in such follow-up using either “enhanced periodic statements” (which would include a message that describes how the customer could contact the institution to discuss alternative options) or targeted outreach (which would involve contacting a customer whenever there is a cycle of repeated, excessive use).