Great. Now that Pussycat Dolls song is running through my head.

Be careful what you wish for 'cause you just might get it.
You just might get it.
You just might get it.

Thanks.
I think we should include that MP3 clip with EVERY OD policy, procedure and/or report that needs to be filed with the agency.

Just received this from a local Independent State Trade Association.

Since late November when the FDIC issued its proposed guidance on bank overdraft convenience products (ODP) for bank customers, IBAT and ICBA have continued dialogue with the FDIC to bring clarity and improvements to the guidance. Early yesterday, IBAT received a call from the FDIC outlining their plan of action relative to the guidance moving forward. This is what we know as of right now:

The FDIC will soon issue a letter to all state non-member banks that will further clarify that the guidance DOES NOT apply to ODP ad hoc programs. IBAT and ICBA have long advocated that ad hoc programs should not be the subject of this guidance.

Ad hoc is defined in the guidance as one where “a bank employee exercises discretion in a specific instance about whether to pay an item or not, as a customer accommodation and not on a predetermined or formulaic basis.” In other words, a bank officer routinely reviews and approves overdrafts for customers who have previously opted in to ODP convenience. When pressed about the routine practice of banks to establish (by automation) a specific dollar amount limit of overdrafts for customers on a daily basis, subject to officer review, FDIC has promised to determine whether this practice would constitute automated or ad hoc.

In addition, the FDIC has agreed to conduct a nationwide telephone briefing to answer questions in early April or late March. FDIC will also publish a frequently asked questions sheet. No word when that will be available.

There is further clarification coming out relative to the customer counseling requirement…FDIC is working on a much less onerous requirement. IBAT has suggested a procedure that provides banks some safe harbor in this area. Specifics are still being explored.

There will not be any change in the check payment order…except that as items are presented to the bank, they should be paid in order received. FDIC is clear that they want to eliminate the practice of some banks exercising discretion as to what items to process first if such results in more overdrafts (and fees).

As soon as we receive the letter from the FDIC, we will pass it along to you. Rest assured that IBAT will continue to work with the FDIC or explore other alternatives to ensure that our member banks may continue overdraft convenience programs with minimal disruptions to bank customers. Your IBAT Board meets this week to further study these accommodations and determine appropriate next steps.

Thank you for sharing this information.

They need to share that with the exam teams. That was not the message I heard from examiners last week.

Based on our experience with the FRB, I think it would be a mistake to think that the guidance will only apply to FDIC regulated banks. There are plenty of examples where agencies "borrow" guidance from one-another as it suits them.

Unless another agency endorses the FDIC guidance in writing, a call to the other agency's ombudsman should make short work of an individual examiner's attempt to spread the guidance to banks supervised by other agencies.

If the other agencies ever considered acting in unison with the FDIC, now they've had enough time to realize they would be a lot smarter just to write their own. Endorsing it now would be like rowing up to the Titanic as the stern rises out of the water and saying, "Permission to come aboard, Sir?"

An ABA missive published yesterday pretty well confirms Compliance Rules' information. The FDIC is going to put on a webinar at the end of March and issue some Q & A's. Does anyone think it odd that something labeled as "guidance" needs a lot of extra explanation?

They should be so humiliated...

Ahhh..., the wonderful results of hubris. Rather than being humiliated, I fear a retrenching to slug out a PR battle with FDIC supervised banks taking on all of the collateral damage.

They DO realize that the Credit Unions are salivating over this AND ramping up their OD programs???? Like the NCUA is really going to take them to task......

To start with, this is probably not nearly as big an issue for commercial banks but I am not so sure the other Agencies will turn a blind eye to the issue. They dont need the FDIC guidance to require change, they already have UDAAP. The different regulators are all going to be looking at the issue as they jocky for position with the new CFPB. Dont forget, the CFPB will ultimately "set the rules for everyone". For automated programs, look at the total that can be paid in fees under the program for one year and you will see that Princess Romeo has the reason for the comming pressure in her signiture line...

What exactly does this mean? A consumer would have to "opt-in" to an ad hoc program?

Dunno.

Someone (not the FDIC) apparently believes that "ad hoc" programs apparently only exist in circumstances where the bank also has an opt-in program where maximum overdraft amounts are not pre-set.

Although the red sentence starts with "In other words..." it certainly does not paraphrase the preceding sentence.

Thanks, Ken. That's why I questioned it.

I had never heard of an "opt-in" for ad hocs, but then again, that could just be down the road.

We shall see!

My boss said he just got out of a meeting with several other bankers at the ABA governmont relations summit with Sheila Bair. What he heard was that they expect a total cap of 6 total overdrafts a year on consumer accounts. Period. End of story. They said any more would be predatory lending.

Interesting that the guidance says after 6 a bank has to counsel.

This is only word of mouth that I'm passing along.

so after 6 return the items?

You'll see it in tomorrow's Top Stories and Compliance Briefing:

The FDIC just issued an FIL announcing a teleconference on the OD guidance for March 29 at 3 p.m. ET.

Return the items, close the account, report them to ChexSystems and then listen for the howls of protest.

Apparently. We'll see what their actual policy is on this during the teleconference.

Hopefully that's not the case.

Just curious, isn't this counter to their message of trying to reach the unbanked and wouldn't a payday lender (alternative option) be more predatory than a legitimate overdaft?

Absolutely it is. And here's the thing that gets me - it's the apparent loss of common sense in this whole situation.

On the one hand, I KNOW there were institutions, banks AND credit unions that were making obscene amounts of fee income (don't let anyone kid you that CU's weren't raking in $$$) by setting things up to "encourage" the use of the automatic Overdraft programs. Things like including the "courtesy" amount in the account balance on-line, VRU and at the ATM, paying largest to smallest, "keep the change" round-ups that could tip someone into an overdraft, contests with automatic entry each time you used your debit card, glamorizing the use of the debit card to pay for your gum, or sandwich, or beverage, and so on.

I SAW the amount of fee income some of these programs were generating and it was HUGE. Too huge. The same kind of huge as property value increases from 2003 to 2007. The same kind of UNSUSTAINABLE huge increase.

BTW - if a person experiences a huge unsustainable growth, do you know what that is called? .......
It's called CANCER.
And it poisons a business just as much as it poisons a body.

Okay - so you had this rampant excess wheeling along for the past 6 years or so, and now the party is over and it looks like it's time to pay the Piper.

And I DO believe that some controls were needed to stop this orgy-fest of fees. HOWEVER, comma, draconian measures that are designed to vehemently shove the pendulum in the opposite direction are NOT the answer.

6 overdrafts?
Ever?

What do you do with the customer who made a simple error and winds up bouncing 7 checks?
Kick them to the curb?
Enroll them in a punitive $30 monthly maintenance fee account?

Stupid NEVER fixes Greedy. It just doesn't work.

How about instead, if a customer has more than 6 overdrafts in a year, the bank requires the customer to SIGN an agreement where in the customer acknowledges that he or she has not handled their account in a satisfactory manner and UNDERSTANDS that he or she will be charged a fee anytime a check is presented for more money than what is in the account and then AGREES to pay the penalty charges regardless if the check is paid or returned as a condition of keeping the account.


Call it - The Ultimate Opt-In.





That scuffling sound is just me stepping off the soapbox and pushing it back into the corner. The cricket chirping can now commence. Night 'all

Many banks have successfully and responsibly offered overdraft payment programs that include reasonable caps and help keep customers out of trouble. Those models would have been reasonable for the FDIC to borrow for its guidance.

There is something seriously wrong when bank regulators take it upon themselves to play Nanny to consumers. It is anti-consumer, IMO, to provide such coddling, because it does not encourage consumers to take any personal responsibility for deciding what's best for themselves.

Bankers are not getting it...

Princess Romeo is on the right track.

We can make all the arguments about how draconian the new guidance is, and how the FDIC should not nanny consumers about taking personal responsibility all you want, but if we don't understand the actual results of the programs, and that that FI's can charge consumers 5 figures a year in OD fees while following the previous guidance, you are missing the boat completely. Can we really say that a consumer without a checking account who has an extra $10,000 in their pocket is worse off for not having the checking account?

If most banks were responsibly offering these programs, there would not be an issue here. You have to understand the consequences / actual results of the programs to understand or appreciate why this discussion is even taking place. When I read the ABA position papers that are written by the well paid consultants who designed these programs and sold them to greedy bankers, I believed it too, their points are right on, UNTIL you understand the actual results of the program. When the ABA makes its arguments without acknowledgement of how the programs actually affect consumers, it is MISLEADING. I am all for a free market, etc…but at some point we bring this on ourselves, and the government has to do something. Take a look at the ABA magazine, in some issues, every 5th page is a full page add from someone selling overdraft programs. What does that say about their positon on this issue?

Princess has probably seen the actual results of these programs and that is probably why she appropriately describes it as an "orgy-fest of fees". Here is a good analogy for you: Banks in this fight are a lot like cigarette companies were many years ago fighting to hold onto an unpopular product and resist new taxes and warning labels printed right on the package. Today many years later, smoking is not as popular as it used to be, there are warning labels printed in bold print right on the package, and taxes that pay for anti-smoking programs, and yet Tobacco is still going strong.

Perhaps each person posting to these threads should state if they have reviewed the paid and returned item fees for the top 100 users of their programs, before they jump in with an opinion on how horrible these new regulations are, make sure you really understand how bad the fees are. Look at the deposit activity for these consumers, what is their income source and level. I have and while I do believe that the 2010 FDIC guidance is a poor, I have reviewed the usage in these programs, and studied the opening statements of the guidance that frame up the spirit behind the guidance, and I can see why they are trying to do something.

Well, we have one of these overdraft programs and we participated in the FDIC study. The study tells us that 92.2% of our customers paid $0.00 in overdraft fees because they had no overdrafts. 2.3% had 1-4 ODs, 1.3 had 5-9 ODs, 1.4 had 10-19 ods and 2.7 had 20 or more ODs.

The income came from those folks with 20 or more ODs. We can return every one of their checks and make the same income. Because - yes 66.5% of those overdrafts were caused by checks - not electronic transactions.

It would appear that the majority of our customers will not be impacted by this overdraft guidance - however those folks with 10 or more will most likely be without an account. Would they have overdrawn their account anyway -probably. That high of a number of ODs indicates they do not know how to handle their account - not that we are encouraging them to od their account.

The ones who cannot cover their overdrafts promptly get cut off from our program. So, the 4.1% of our customer base who exceed the 6 per year will be charged double - once when we return the item unpaid and once from the merchant. If they do it often enough they will end up with a misdemeanor bad check charge. Very consumer friendly.

Walden, can we just talk about your profile picture instead?

Yes, most people dont use the product, and for them and the truly infrequent user, it is the best and cheapest product, and obviously people who cant pay are cut off, we are in business to make money. But, all of that carries no weight if you have some users whom you charge thousands of dollars for overdraft services, indicating that you the trusted FI know they dont know how to manager their account, and you "trusted FI" have not taught them or taken real action to help them.

I agree that it will be more expensive in the long run for the cusotmer to have checks returned. But think about the returned item process and all the ramifications, it is probably much more effective at changing their behavior. Additionally the "cost to the consumer" is not all concentrated at the trusted FI...

Maybe the ABA is approaching this the wrong way. Perhaps they should enlist law enforcement and the District Attorney's who will have to deal with a rise in bad checks, and the Chamber of Commerce who can represent the business that will have receive and chase these bad checks to help convince the governement that what these programs are actually good for the system as a whole...

I guess my point is that any "guidance" or laws they enforce will change the bank's behaviour. I doubt if it will change the customer's behaviour. It will be interesting to see if folks all of a sudden become more responsible in handling their transaction accounts when the banks stop paying overdrafts.

The whole concept of the 80/20 rule really comes into play here:

I think it was 20% of the banks/credit unions that were creating 80% of the problem.

20% of their customers/members were generating 80% of the fees.

Unfortunately, the regulatory agencies have no concept of the 80/20 rule, but they do know the concept of the "path of least resistance" and I fear they will bring the full force of this "guidance" on the 80% of the banks that were not the problem in the first place. Instead, they will be the convenient whipping boy to be used as a political prop that the regulators really care.

Why? Cause it's easier to rattle the cage of the law abiding than strike fear and repentance in the hearts of the greedy.

Having said that, I recall coming up with a suggestion to implement one of these programs that included a consumer eduction piece. The response I got from a some folks that were gung ho on the program?

"That would eat into the profits and besides, we don't want to DISCOURAGE customers from using this."

Head - meet desk - thunk!


And now, we have the prospect of examiners eviscerating banks who never stopped handling overdrafts the old fashioned way:



So I'm guessing that examiners aren't going to think that provides sufficient protection for consumers.

**Heavy sigh**

Princess Romeo - my head hurts...

For institutions that have decided not to charge for overdrafts of a de minimis amount such as if the account is overdrawn to a balance of ($10.00) to $0.00, do we have to disclose this to our customers? Making customers aware we will not fee them for de minimis amounts would open up floodgates for abuse.

Would we need to disclose not charging for overdrafts of a de minimis amount?