We are looking at a service offering from our core, that when a customer is overdrawn with a negative balance, approaching our charge off timeframe, and if the customer is willing to make good on the amount, rather than going to charge off, the customer has the opportunity pay the funds back. The account balance is brought to $0 and remains open for the customer to use, and the outstanding negative balance is paid back through automatic draft from that existing account.

The main concerns we have is how/if Reg Z would apply. The overdrawn amount is due to our bounce protection overdrawing and then since we are not charging off, can we accept more than 4 deposits to make the amount whole? And would an agreement of some sort be necessary with the customer? If we don't have a written agreement, does that not come into play?

Reg Z will affect the repayment plan if it is payable by written agreement and either payable in more than 4 installments or subject to a finance charge. So you can avoid Reg Z disclosures in your repayment plan by either not having a written agreement, or by insuring that it is payable in 4 or less installments and not charged a finance charge.

How do you plan to do this with no agreement? If there is no agreement and also no underwriting, you would still have to charge these amounts off. You cannot turn a charge off into an asset without an agreement and some method to prove that you expect to be repaid. It has been that way for a long time.

https://www.federalreserve.gov/boarddocs/press/bcreg/2005/20050218/attachment.pdf

In some cases, an institution may allow a consumer to cover an overdraft through an extended repayment plan when the consumer is unable to bring the account to a positive balance within the required time frames. The existence of the repayment plan, however, would not extend the charge-off determination period beyond 60 days (or shorter period if applicable) as measured from the date of the overdraft. Any payments received after the account is charged off (up to the amount charged off against allowance) should be reported as a recovery.

Our core offers this under a Fresh Start and move the negative balance. They do not provide an agreement to go with this, so that is why I have many questions. Our charge off period is 60 days, but we have been advised this would be in place instead. We have asked to speak to a bank that is using it, as this seems not logical to me. But I wasn't sure if I was overthinking it. Thank you!

You are not overthinking it and the Fresh Start program does not avoid having to charge off the amount and take payments into recovery as far as I am aware unless things have changed in the last 8 years or so.

You should be looking at your core to see what G/L account is debited when you bring the account to $0. At my previous institution, it debited our charge off G/L account and then repayments were credited to that G/L to post as recoveries.

The fact that the account itself is still open and not in a "charge off" status does not mean that you don't reflect the amount as a charged off loss in the G/L and on your call report. Ask your accounting department and IT Department for more information about what happens during your fresh start process.