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Subject: Overdraft Protection Programs
Date: April 6, 2005
To: Chief Executive Officers and Compliance Officers of All National Banks, Department and Division Heads, and All Examining Personnel
Description: Interagency Guidance
Recently, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the National Credit Union Administration (collectively, the agencies) jointly published in the Federal Register a notice entitled, "Joint Guidance on Overdraft Protection Programs." This final joint guidance reflects revisions and clarifications resulting from comments received on proposed guidance, which the agencies published on June 7, 2004 (69 FR 31858).
The joint guidance identifies concerns raised by institutions, financial supervisors, and the public about the marketing, disclosure, and implementation of overdraft protection programs. The guidance contains three primary sections: Safety and Soundness Considerations; Legal Risks; and Best Practices.
The safety and soundness discussion seeks to ensure that financial institutions offering overdraft protection programs adopt adequate policies and procedures to address credit, operational, and other associated risks.
The legal risks discussion alerts institutions of the need to comply with applicable laws, and advises institutions to have their overdraft protection programs reviewed by legal counsel to ensure compliance prior to implementation. Several federal consumer compliance laws are described in the guidance that can be relevant to these programs.
The best practices section addresses the marketing and communications with consumers about overdraft protection programs, as well as features and operations of the programs. Some of these best practices include: clearly disclosing fees; explaining the impact of transaction-clearing policies on the overdraft fees consumers may incur; disclosing the types of consumer banking transactions covered by the program; and monitoring program usage. The agencies also advise insured depository institutions to alert consumers before a transaction triggers any fees; to provide consumers the opportunity either to opt-in or opt-out of the program; and to promptly notify consumers of overdraft protection program usage each time it is used.
The best practices section also includes guidance that financial institutions should not :
National banks that do engage in these practices risk violating the Federal Trade Commission Act prohibition against unfair or deceptive acts or practices.
If you have questions about the joint guidance, please contact the Community and Consumer Law Division at (202) 874-5750 or the Credit Risk Division at (202) 874-5170.
Emory W. Rushton