The Federal Deposit Insurance Corporation has posted on its Web site a Q&A clarifying its Final Overdraft Payment Supervisory Guidance (FIL 81-2010), addressed in an earlier legal alert. The Q&A confirms that the Guidance, which becomes effective July 1, 2011, is far less restrictive than most industry observers initially feared. Highlights of the Q&A include the following:

  • The Q&A unequivocally states that banks are not required to terminate or suspend a customer’s access to an automated overdraft payment program if the customer engages in chronic or excessive use. Rather, banks are merely “expected to monitor usage and engage in meaningful and effective follow-up to inform excessive users of available alternatives.”
  • The Q&A defines “meaningful and effective follow-up” as making “reasonable efforts” to inform the customer about overdraft alternatives and a “clear mechanism” to avail himself or herself of those alternatives. Importantly, this follow-up can be provided via telephone, in person, by mail, or through electronic notifications. Indeed, the Q&A explicitly advises that compliance can be achieved through mechanisms as simple as enhanced periodic statements, where disclosures required by the Truth in Savings Act are augmented by a prominent message encouraging excessive or chronic overdraft users to contact the bank at a phone number disclosed on the statement.
  • Banks are not required to provide new overdraft alternatives, although the FDIC notes that most banks currently offer products suitable for heavy overdraft users, including lines of credit, fixed-term small-dollar loans, and linked savings accounts.
  • Although the Q&A states that “specific” FDIC supervisory expectations do not apply to “ad hoc” overdraft payments, banks should not assume that ad hoc programs are free of regulatory risk because the very next Q&A warns that institutions should monitor and manage risks associated with ad hoc payments of overdrafts.
  • The Q&A virtually prohibits use of high-to-low item processing of debit items. It advises that “[t]ransactions should be processed in a neutral order” and that “[r]e-ordering transactions to clear the highest item first is not considered neutral because this approach will tend to increase the number of overdraft fees.” The discussion does not expressly address use of high-to-low processing within separate “buckets” of debit items.
  • Finally, the Q&A provides examples of reasonable daily limitations (no more than three fees) and de minimis overdrafts that should be fee-free (items of less than $10 or, alternatively, items producing overdraft balances of less than $10).  The Q&A does not specify what would constitute a reasonable dollar limit on daily fees (but it is probably somewhere near three times $35). While it suggests limiting fees to an amount that is “reasonable and proportional” to the underlying transaction, unlike the Federal Reserve Board penalty fee rule under the Credit CARD Act, it does not affirmatively state that fees may not exceed the dollar amount of the underlying transaction.

Ballard Spahr will host a webinar at noon ET on April 20 titled “Overdraft Fees – What the FDIC Is (and Is Not) Telling Us.” Access information for the webinar will be circulated soon.  The webinar will explain in greater detail the following:

  • What has the FDIC done and what can the industry expect from it? What about the Bureau of Consumer Financial Protection?
  • How did the FDIC relax its Guidance last week?
  • What questions did the FDIC leave unanswered?
  • Should national banks, federal thrifts, and state member banks care about FDIC Guidance?
  • What’s new in overdraft fee class actions?
  • What do banks need to do now?

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products; its experience with the full range of federal and state consumer credit laws throughout the country; and its skill in litigation avoidance, including pioneering work in pre-dispute arbitration programs. For more information, please contact group Chair Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Vice Chair Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; John L. Culhane, Jr., 215.864.8535 or culhane@ballardspahr.com; Keith R. Fisher, 202.661.2284 or fisherk@ballardspahr.com; Barbara S. Mishkin, 215.864.8528 or mishkinb@ballardspahr.com; or Mark J. Furletti, 215.864.8138 or furlettim@ballardspahr.com.

 


 

 

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