Phew! I thought I had missed it. Thanks for the quick response.

I have been asked if the review of the program required to be presented to the board could be presented to a Committee of Board Members such as Audit Committee. The Guidance states "boards of directors provide appropriate oversight of programs..." which to me means the entire board. Should it be to the full board?

The AC seems appropriate to me...in our bank, 8 of the 10 directors are on the AC. It would seem like a 3rd grade bully move for an examiner to pick on you for presenting it to the AC instead of the full board, but then again...

My bank currently processes debits by posting sequence first and then in ascending order (least to greatest) if multiple items with the same trancode post to the account. I feel our current process is neutral and not designed to maximize fee income. Any opinions on how the FDIC would view our transaction processing?

It's my understanding this guidance doesn't apply to commercial customers. Can anyone confirm that?

Commercial account application -- The FDIC staff clearly stated during the FDIC's end-of-March teleconference that it applies only to consumer accounts. The staff also said (it's not included in the 4/1 FAQ that the FDIC has invested a lot of training hours in its examiners to get them all on the same page with the FDIC Mother Ship in applying the guidance. I'll take a wait and see on that statement.

In most systems, the lower-numbered trancodes are assigned to what I lovingly call "must pay" transactions such as OTC cashed checks, certified check holds, ATM and debit card transactions, etc. The FDIC FAQ does allow for "other approaches when necessary based on sound business justification." I interpret that to allow for a payment hierarchy that takes "must pay" items first. As for paying checks in ascending dollar amount order, I cannot imagine an examiner having a problem with it, because it is exactly the antithesis of a "processing order to maximize customer overdraft and related fees."

Thanks. I just needed some reassurance. I don't know what I would do without BOL.

We are currently in the process (like all other FDIC primary regulated banks) of bringing our policies and procedures into compliance with this guidance. My question is, is anyone considering making these changes (daily limits on number of transactions subject to a fee, de minimus amounts, etc.) as internal procedures changes, but leaving the external disclosures to the customer as is? Is there anything in the guidance that prohibits this. Similar to funds availability, many banks have next day availability, but actually give access to the funds the same day. Just curious if this has been prohibited. We would apply the changes, but just not have to get into explaining these limits and de minimus amounts to the customer and then have the customer trying to figure out how to maximize this if/when they will overdraw their account.

Since you referenced funds availability, a cautionary note: the disclosure is supposed to reflect what your bank does most of the time. It's a violation to disclose next-day availability if you actually provide same-day. It's probably not as big a deal as putting an 11-day hold on an item without justification, but it's still a violation.

Regulation DD doesn't require that you disclose daily or other caps on OD fees; Regulation E does if you are providing a disclosure required by Section 205.17. A literal reading of Regulation DD §230.4(b)(4) and Comment 5 to that section, though, would require that disclosing the "conditions under which a fee may be imposed" would have to indicate that it would be imposed for an "overdraft of $XX or greater," if that's the case.

And don't underestimate your depositors' intelligence. Once a cap or de minimis situation appears on a statement (and the depositor sees it), it won't take long before it will be figured out.

I guess in a perfect world, I would like to implement these changes/improvements to the OD program, but reserve the right to charge the OD fee. I can just see my new accounts employees trying the explain the new disclosures and then be accused of "promoting" the program.

If we are ad-hoc and look at every item, are there limits on the amount of NSF fees that we can charge?

We have been hearing that examiners are "urging" banks to follow the guidance on de-minimis amounts and maximum daily fees. This seems to go against the guidance but the definition of ad-hoc makes it hard to refute.

Ad hoc- irregular and infrequent occasions - If we charge the same account every day, that is not irregular or infrequent.

we are doing away with the automated program and going to strictly ad hoc (officers are looking at the NSF report every morning and making individual decisions). Are there any potential potholes we could fall into between this and encouraging customers to use alternative methods of OD protection such as linking their checking to a savings or MMDA?

"Are there any potential potholes we could fall into"

The first pothole I see is a fair lending issue if each officer is using their own criteria to make the decisions. The extension of an overdraft is credit under Regulation B.

Set up basic procedures of what needs to be looked at when making decisions. During the call in March, one of the FDIC presenters indicated that even if you have a person making the decision every time, if that person always pays up to a certain dollar amount without consideration of the customers' individual circumstances (history, balances, etc are examples), your program could still be deemed automated. He actually called them hybrid programs. Example, an account officer always pays (and charges) a customer into OD up to 100.00 without looking at OD history, pending deposits, etc. FDIC may rule it a hybrid program that needs to comply with the guidance.

Yeah, we're working on that today...trying to figure out how to put parameters on the ad hoc system without it becoming formulaic enough to count as a program.


Thanks for your comments, too, Dani.

Thats a big hole...

It seems that you could just write into your guideline a "pay all" threshold if you also took a peek at some other traditional criteria. The key would probably be to design the criteria so that at least some trans require further evaluatin, or some transactions actually get returned.

If you don't want to be "required" to comply with the guidance, be very wary of any type of guideline where pay (& charge) is the default decision. This is where the program could be deemed a hybrid automated program and the FDIC could make you comply with all parts of the guidance. See my previous comment a few posts back.

Now that's a slippery slope because no one that I know provides Adverse Action Notices to customers whose checks are bounced.

I think that everyone will be required to set limits on daily fees and set a de-minimus amount. If you run automated or hybrid versions, the guidance applies to you. If you run ad-hoc, you will need to prove that there are no predetermined parameters used in the decision and that the occurrences are irregular or infrequent.

That being said, we all know who is overdrawn and pays a large portion of our fee income. We know it (and like it), the customer knows it and the FDIC knows it. IMO, the FDIC will expect us to limit what we charge the customer no matter what system you use. The guidance does not say it but that is what will be enforced by on site examiners and the verbiage in the guidance is vague enough that we cannot prove otherwise.

If I am wrong please let me know!

AANs for denying an overdraft. Quiet! They might hear you!

I remember hearing somewhere that an OD was considered incidental credit and did not require an AAN if there are less than 4 installments.

http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1430603

It's your experience with regulators who speak with forked tounges that makes you doubtful.

Heard an anecdote last week about an examiner who told the banker that the "outreach" was required for banks with automated programs. When she pointed him to the Q & A that set out statement messages as an alternative it was clearly new information to him. Nevertheless, he insisted they would not be acceptable in lieu of outreach based on a "secret" internal memoranda they had received.

He also noted that if a bank set a daily cap on per item fees, but could not prove that the cap reduced their revenues they would be subject to criticism. Maybe, but it would not be criticism for failing to follow the guidance.

Bair will soon be gone. This is her pet project. Maybe they will realize they have looked stupid enough for long enough and just drop it.

Maybe, but by then, everyone would have changed the way they are doing things...do you foresee it changing back to the way it 'was', if dropped?

Do you think the Guidance applies to sole proprietors with a business account?

Amy, As I read it, if it is truly a business account, none of this should apply. If it is a business account that is set up as an individual consumer account, then it would be viewed as just another consumer checking account and all of the guidance would apply.

WD

No, I don't think it does. A sole proprietor's account is not a consumer account.