We have customers that are overdrawn excessively, it seems they just get deeper and deeper each month. We was wondering what other banks do with customers like this. A lot of them are just staying afloat from month to month so we wanted to do some sort of Fresh Start Account with them to help them start over maybe. Does anyone offer anything to help people that are constantly overdrawn besides close their account... We do not offer overdraft protection.

We do offer overdraft repayment plans where we take their overdrawn balance, divide it by 12, and they pay it back over that time frame with no interest. We then bring their account to a zero balance so they can get on the right foot, hopefully. It's helped us recover some overdrafts that would've been taken as loss without it, too!

As part of any bailout, I suggest you tell them that all future NSF items will be returned unpaid...

Do you make them sign some sort of agreement?

Don't forget that, if repayment is in more than 4 installments and the agreement is in writing, you have to comply with Reg Z even if you aren't charging interest.

And you have to charge the amount off to the ALLL regardless - unless you have underwritten the agreement using normal underwriting criteria - which is very doubtful and take any payments into recovery.

Do you have a regulatory cite (or letter) for requiring regular underwriting criteria? We are an FCU if it matters.

Thanks,

JB

Not sure how you can have "an approved loan from the credit union" without going through standard underwriting practices.

12 CFR 701.21(c)(3)Credit applications and overdrafts. Consistent with policies established by the board of directors, the credit committee or loan officer shall ensure that a credit application is kept on file for each borrower supporting the decision to make a loan or establish a line of credit. A credit union may advance money to a member to cover an account deficit without having a credit application from the borrower on file if the credit union has a written overdraft policy. The policy must: set a cap on the total dollar amount of all overdrafts the credit union will honor consistent with the credit union's ability to absorb losses; establish a time limit not to exceed forty-five calendar days for a member either to deposit funds or obtain an approved loan from the credit union to cover each overdraft; limit the dollar amount of overdrafts the credit union will honor per member; and establish the fee and interest rate, if any, the credit union will charge members for honoring overdrafts.

Is giving a website for more information on overdrafts even required? We have the sample language provided in the guidance. Maybe we can just remove the URL we point for more info.