John Doe is a director of the bank. he owns XYZ Inc. His accountant forgot to make a deposit and one of the XYZ Inc. accounts fell into an overdraft. Now, if this were any other account we may waive the OD fee based on other considerations. however, we are under the opinion that as XYZ Inc. is owned by Doe, we should charge the fees.

We are arguing about this one, so if you can help, that will be appreciate it.

Although I have not dealt with this situation exactly, I did experience a fellow employee who overdrew her account (a teller, not a director).

The bank had a "one time in a backward rolling 12-month-period" policy about refunding NSF fees. So for anybody (customer or employee), the bank would refund one fee per 12-month period, if it was customer error. There were circumstances when they made an exception for customers and refunded more (very seldomly). But I'd never seen them make exceptions to that policy with employees.

I would recommend reading this section as I believe it gives you the answer.

Section 215.4(e) of Regulation O prohibits a financial institution from paying an overdraft on an account owned by a director or executive officer of the financial institution. There are a couple of exceptions. First, if the director or executive officer has a written, pre-authorized agreement with the financial institution to transfer funds from a credit line or from another deposit account to cover overdrafts, or if the overdraft is inadvertent. An inadvertent overdraft is one for $1000 or less where the account is not overdrawn for more than five business days. The Fed has ruled informally that if a director or executive officer has more than three overdrafts in a rolling 12 month period they cease to be inadvertent. Also if a financial institution does pay an inadvertent overdraft it must charge its normal overdraft fee. The rules are pretty straight forward, but there are a few twists and turns. Every financial institution should understand the rules clearly and apply them strictly as a violation will not go unnoticed. Every deposit account of every director and every executive officer will be reviewed at every examination.

Related interest overdrafts are not covered by Reg O overdraft rules. The overdraft rules just deal directly with loans to the insider himself/herself.

Just remember that the overdraft was a extension of credit. If the director and XYZ, Inc. combined credit extension were over the prior boaord approval threshold, paying this overdraft without board approval would have been a Regulation O violation.

We were under the impression that it included the director and related interests. To be safe, we charged the fee.

KB, I thank you for your answer; I knew that to be the case, but this thread had me second guessing myself--

I have always liked being conservative on Reg O.

I'm with Kate on this, Sharon. You'll never get a Reg O "ding" if you include those related interests. You might get push-back from a board member, but if I were in such a position (a board member with my company's account overdrawn), I'd be too embarrassed to push the issue.