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Clarification Sought on Reg O Overdraft Provision

Answered by: 
Jim Bedsole
John Burnett

Question: 
I am trying to get a clarification on Reg O regarding overdrafts. Reg O states in <a href="http://www.bankersonline.com/regs/215/215-4.html">Section 215.4</a> that the prohibition in paragraph (e)(1) does not apply to payment of inadvertent overdrafts on an account in an aggregate amount of $1,000 or less, provided the account is not overdrawn more than five business days and the executive officer or director is charged the same fee charged any other customer of the bank in similar circumstances. Our policy says it is a violation of Federal Regulations for any account on which an executive officer or director is a signer to be overdrawn. If the overdraft was inadvertent, the amount was $1,000 or less, the account was not overdrawn over the five days, and the person was charged the same fee that any other customer would be charged, is it a violation ot the Reg to pay the overdraft?
Answer: 

Answer by Jim Bedsole: If all four of the elements you listed are present, it is not a violation of Reg O to pay the overdraft. If any of the four elements is not present, it would be a violation. The trickiest one to know at the time you make the decision to pay it is that it will not go on in overdraft for more than five days.

Answer: 

Answer by John Burnett: Your policy should distinguish between overdrafts in accounts owned by the director/exec. officer and overdrafts in accounts of their related interests, on which they might sign.

Reg. O prohibits overdrafts (subject to the $1,000/5-day exception) in the accounts of the director/exec. officer. But it does not prohibit ODs in accounts of related interests.

So, if your Chairman's auto dealership's account goes negative, the OD prohibition doesn't apply (but it's an extension of credit subject to other Reg. O issues).

First published on BankersOnline.com 06/7/04

First published on 06/07/2004

Filed under: 
Compliance
Filed under compliance as: 
Auto
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Overdrafts

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