Question regarding opting in/out of overdrafts on everyday debit card purchases & ATM withdraws:

If a customer has signed up for our Overdraft Protection (transfer from one account to checking account to cover overdrafts) and they are enrolled in our overdraft program but opted out of overdrafts on everyday debit card purchases & ATM withdraws, should transactions with a debit card be approved if they are going to overdraw the account? The customer opted out, but they have signed up for Overdraft Protection to pull funds from another account to cover the overdraft. There is no fee charged for the service. Part of me says this is ok because they have the protection, but another part of me says its not because they did not opt-in.

I imagine the transaction looks at the balance, which includes the amount from the linked account, and that is why it is approving the transaction.

Am I overthinking things?

Opt in/out on the card has nothing to do with an OD protection plan. Read the first section of the model Reg E "what you need to know about OD" disclosure. It says:

We pay OD in two different ways:
1. standard OD practices
2. overdraft protection plans
This notice explains our standard overdraft practices.

So, it doesn't matter if the customer is enrolled into an overdraft protection service where funds are transferred to cover ODs. If the customer is opted out, then debit card/ATM transactions should decline at the time of the sale. Correct?

This is kind of what I thought, but this is not how our system is working.

If you don't offer an automated courtesy overdraft program, there is nothing for the customer to opt-in to and you are prohibited for charging your standard overdraft fee for one-time ATM debit card transactions. There is nothing in the regulation that stops you from allowing overdrafts and not charging for them.

We do offer a courtesy overdraft program. What is happening is, the customer has enrolled in the courtesy overdraft program and opted out of overdrafts on everyday debit card and ATM w/ds. They are also enrolled into our Overdraft Protection program, which is the transfer of funds from another account to cover overdrafts. When they use their debit card for a purchase and the funds are not available, it is approving the transaction, I'm assuming because they have the Overdraft Protection which will cover the transfer at end of day. There is no charge for this service.

Should it be approving these transactions if they have opted out? Even though they have the Overdraft Protection?

Sorry if I'm being confusing....

Thanks

It's a business decision whether you allow the customer to access the funds in the other account using their debit card or not. This type of overdraft protection is not covered by 1005.17 so you can do whatever you want as long as you do not charge an overdraft fee in the event an ATM/Debit card transaction slips through when there aren't enough funds in the other account to cover the overdraft.

This question lies with your core processor. Based on your description, it would be logical that the transaction would be declined. However, if your core provides memo balance of $x.xx plus the transfer amount of ODP (sometimes called memo available balance), then your card would logically be approved (assuming the card transaction is above $x.xx but below the transfer amount). I believe you need to get with them to see how they are communicating your available balance to your card processor.

For example if your customer's balance is $10.00 and the transaction is $15.00 but the ODP transfer is $100. Your core is sending to the card process an available balance of $110 not $10, thus the transaction is approved.

A way around this is to tell your core to only approve transactions based on memo balance (not including ODP) rather than memo available balance. Also see if your core has different options for ODP on card based transactions rather than ACH/inclearing checks.

Every core has different terminology so, it may be called different with yours.

Brian C & Stephen W - Thank you so much for your help!

Brian - we are not charging fees - I'm very happy about that.

Stephen - you are correct in the way we are providing the balance. I'm sure the balance in the draw account is being included in the balance of the checking account being used. Thus, the charges are being approved.

Thanks again for your help!

Ensure your customers are aware of what will and will not be paid when they've signed up for OD protection via transfer.

Also, take a look at Reg DD §1030.11(c) to make sure any balance info you provide to your customer on the ATM complies, and note that it is very unlikely that you can provide a balance screen showing anything other than the vanilla balance described in the first sentence of that paragraph to your customer using another bank's ATM in a shared network.