Ok, my understanding of the final rules on the opt-in requirement for charging a consumer a fee for paying overdrafts on ATM and one-time debit card transactions is that a consumer customer must agree (with and opt-in notice) to being charged the fee or the bank can not charge them at all. Can the bank prohibit the transaction from ever actually clearing the account and charge the customer an NSF fee? Can the bank just say that it will not honor nor charge any transaction that is of ATM or debit card (as defined in Reg E) and not have to obtain any opt-in notices. Since there will not be a choice hence no notice. Or, is the regulation mandating that we obtain a opt-in or opt-out from all our customers and have a program in place to facilitate the distinguishing of the two? Thanks

"Can the bank prohibit the transaction from ever actually clearing the account and charge the customer an NSF fee?"

How do you plan on doing that on ATM and POS transactions that are authorized through your card network?

Review paragraph 205.17(b)(4) of the revised regulation, GorgeS.

Ok John, does that mean we can charge the customer without getting an opt-in notice as long as it is the practice of the bank to decline such transactions? Our OD program does not filter into the customer's balance on the ATM machine nor on the POS machine. From what I am understanding it does occasionally happen that a transaction is approved via the card network and before it actually hits the bank the customer will come in an ask for the money (over the counter withdrawal) not letting us know that they have already spent it and in a couple of days the POS hits the account and we are obligated to pay it because we can not return it. In this instance is section 205.17(b)(4) saying that we can charge them without the opt in notice as long as it is our general practice to not allow those to be approved if the money is not in the account?

That is one way in which one could interpret that provision. I have asked a source at the Fed to comment on exactly that question and I will relay what I hear in this OTHER THREAD on the new rule.

Well, the way I take that is that as long as your bank has never practiced allowing the OD balance to be included in the overall balance the customer has, then we are good. We have never allowed a customers balance to reflect an overdraft balance so I am taking it that we are exempt......thanks for all your help!!

We don't charge a fee; if a customer draws on the ODL, we draw on their line and the "loan" accrues interest at x%. So, no fee technically. this being said, will we still need to deal with this program??

Here's the scoop, from my source at the Fed:

• The wording of the exception in .17(b)(4) is that the "requirements of § 205.17(b)(1) do not apply to an institution that has a policy and practice of declining ...."
• It is intended that such an institution would, however, still be bound by the prohibitions in § 205.17(b)(1) against assessing an overdraft fee or charge.
• Fed staff agrees that it needs to clarify how .17(b)(4) will work because the current wording can be misinterpreted, and will do so along with any other issues that need clarification.

So, while such institutions may not need to go to the effort of providing opt-in disclosures and forms or procedures with respect to applicable account products, they will have to, in my opinion --

• cease imposing any fee or charge they might currently be imposing for ATM or one-time POS debits that might create an overdraft notwithstanding their attempts to prevent them at time of authorization
• consider altering their posting priorities to ensure that ATM and debit card transactions post before other debit items on a given posting day
• review and update if necessary their account disclosures under Reg DD §230.4(b)(4) as they relate to types of transactions that may result in an overdraft fee.

Ohhhh! Shades of gray! I will keep watching this one. Typically we lean on the conservative side, when its relatively manageable, but this is not a "qick fix" issue. Can't wait to see what our friends have to say.

Thanks for looking into this John! I just finished reading the final rules, and decided the 205.17(b)(4) "exception" is really pretty worthless! The information you posted confirms it. Honestly, the only reason a bank would follow the requirements of 205.17(b)(1) is if they wanted to be able to charge OD fees on those transactions.... so making banks still follow the fee prohibition is truly the same thing as still making them follow the opt-in requirements!

I'm getting dizzy going in all these circles! Am I missing something?!

So, do we continue to list ATM and POS as transaction that MAY result in OD fee. It seems we should because they MAY opt in.

Yes.

Banks that offer two different accounts -- one for those who opt in and one for those who don't -- should review how they word their §230.4(b)(4) disclosures relating to overdraft fees.

Does anyone see the illogic in this? The Bank's can not return POS or ATM transactions so not only do we have to eat the OD we can't charge a fee for it. Our Bank does not tie any OD Protection to their available balance. Transactions are not authorized if they do not have the funds but there are still multible ways for the customer to OD that the Bank can not control. The consequence of this action could result in retailers force posting transactions all day long, basically getting an unsecured loan for the consumer without interest or fees. Un-imaginable! That is why I think the exception would have to apply. Is there any more clarification available?

The best clarification avaiable is in the FRB podcast; this result is exactly what was expected.

The bank may refuse to authorize the vast majority of one time debit card and ATM transactions that are presented against insufficient funds. The FRB acknowledges, however, that it is possible for the customer to slide one past on occasion because the bank is dealing with "imperfect information" due to offline situations, etc.

The assumption is that the industry will take the steps necessary to remedy its operational shortcomings now that it has a financial incentive to do so. It's the modern day equivalent of "Let them eat cake."

A more recent historical reference is when the banks were forced to make the first $100 of checks deposited available on a next day basis. There was a hue and cry and a gnashing of teeth. That proved to be a viable situation and so will this.

Rather than rant about the "injustice" of not being able to impose fees on card transaction overdrafts in accounts without an opt-in, bankers should start looking at what might be done about it.

Here are some ideas that banks should be looking at to mitigate the problem about which Debra (and many others) complain:

• Determine where stand-in authorization agreements may expose your institution to increased risk of having to pay ATM or POS transactions that overdraw accounts. Where possible and reasonable (remember, these agreements are there for the customers who don't overdraw, too), trim back the dollar limit for such authorizations.
• Identify and address operational problems that have caused the use of stand-in authorizations.
• Determine the feasibility of authorizing against real-time balances rather than positive balance files, and placing temporary holds based on those authorizations.
• Direct energies toward lobbying Visa and MasterCard for rules changes that would encourage prompter presentment of POS transactions, such as incontestible charge-backs of late presentments causing overdrafts, enforced fines on merchants making late presentments and others.
• Establish policies and procedures for terminating card access or closing accounts of consumers whose card transactions result in overdrafts more often than the policies permit. Such policies could allow an occasional slip that doesn't appear to threaten the ability of the consumer to return the account to a positive balance.

The numbers of cardholders who will expose your bank to unavoidable uncompensated overdrafts will be small. The loss of overdraft income isn't worth such angst in the overall scheme of things. Banks that have until now been depending on overdraft fees as a major contributor to the bottom line have bigger concerns than the few customers that will become briefly overdrawn without compensation because of this regulatory provision.

What is truly unfortunate, I think, is that the Fed did not make it clear in its publication of the final rule that the 205.17(b)(4) exception to the requirements of 205.17(b)(1) did not provide an exception to the prohibition against assessment of overdraft fees without an opt-in. We've been told that's the case in the Fed's audiocast and I was told that directly by Ky Tran-Trong, Counsel to the Fed's Consumer and Community Affairs division. I had expected to see a written clarification from the Fed by now. I'm disappointed it hasn't come.

My opinion is that the regulation would read no differently and there would be no illusory "exception" if the paragraph was simply deleted. Then, the interpretation would be: If you want to collect these fees, run the opt in program. If you do not want to collect these fees or this circumstance does not exist in your bank, then go back to whatever it was you were doing before.

Ok, my head is spinning with all of this information. Our bank is not on "real time." We do update our card balances several times a day however, on long weekends and holidays we run into the situation were a customer overdraws their account during this time and all the charges are posted on the first day we are open after the weekend, Holiday etc. We do not offer anytype of "Overdraft Protection" service. So, am I correct in thinking that we should still have our customers opt-in to the OD charges. The accounts maybe overdrawn because of this, but we have charged them for the NSF, and while the account has a negative balance the debit card is useless at POS and ATM's. Checks written on the account my come in after this as well and they are returned and charged an NSF fee then as well.

We have discussed adding to our policy that customer who haven't responded to the Notice have their Debit Cards disabled upon the first OD. Thus they will have to respond to the "Opt in or Opt out notice."

Am I following all this correctly??? Please correct me if I am mistaken.

HELP!!!!

You are correct in deducing that if a customer has not opted in by the 7/1/10 or 8/15/10 regulatory deadline you cannot impose a fee for an overdraft caused by an ATM or one-time debit card transaction. As for convincing customers to opt in to the OD charges, good luck.

Your tactic of holding card access hostage to an opt-in after the consumer has received a "freebie" is interesting, and may even be technically OK, but I'd be surprised if it doesn't receive some examiner attention. You might think about softening that "one strike" policy you're considering, and I suggest that you couch any communication with the customer when you cripple his card in terms of account management (allowing the account to go OD) rather than failure to opt in.

Do make sure that your decisions to pay or not pay a check or ACH item are not influenced by whether or not the consumer has opted in.

I think taking any action (disable the card) on the account based on a customer's non-response to an opt-in notice would be deemed to violate the regulation"

Commentary:

"However, a consumer who applies, and is otherwise eligible, for a full-service or other particular deposit account product may not be provided instead with the account with more limited features because the consumer has declined to opt in."

To make it a trio...yanking the card seems to be the universal fall back position. It is simply wrongheaded.

If a debit/ATM card is an account feature and a bank has never punished customers for overdrafts created by that device in the past, it's hypocrisy at its finest to start punishing them for it now.

It can be said that the regulation only prohibits discrimination in account terms for new accounts, it does not prohibit discrimination in modifying terms for existing accounts. Field examiners will have a heyday with that philosophy.

There are better ways to deal with this...

However, there is nothing preventing you from closing accounts (whether they opt-in or not) due to excessive overdrafts. I would suggest a well -defined policy that makes no difference between the two types of customer.

That's true today and it will still be true on August 16. It's only going to be a tough piece of writing for banks that promote overdrafts, but I'm not overly sympathetic.

John, I love you man, bro to bro, but it's not as hard as you would think. The only way you will not succeed is if you do not try.

The customer is not opting in to a charge. The customer is opting in to a service that gives them the option to overdraw their account if they need to purchase something with a debit card and they are short of funds. The customer has the choice.

Sure, there are those times where its offline or under the floor limit and we have a NSF transaction that we can't charge for. If that happens enough, we can ask the customer to bank elsewhere. One and done is a bit harsh, but we can have a uniform policy for all accounts.

I'll opt in because I do not think it will ever happen so it will not cost me anything anyway.

Yet, if it does happen it would be because I needed cash badly.
Then, how dumb would I feel for having said "No?"