Is NSF Fee for Paid Items a Finance Charge?

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Question:

Our bank does not have an overdraft protection program, however, we do, as a courtesy to our customers, make pay or return decisions on a case-by-case basis. We charge a fee for NSF items that are paid and a fee for NSF items that we return, however, the fee we charge for NSF paid items is $5 more than the fee for NSF returned items. Because we charge a larger fee for NSF paid items, is this fee considered a finance charge under Reg. Z?

Answer:

As long as you don't have a written agreement to pay the overdrafts, these charges are not a finance charge under Reg Z. Some of the ODP programs out there now have incorporated language into the deposit contract that says that the bank will pay items as long as certain criteria are met. In those cases, if the bank charged a higher fee for paid items than for returned items, the difference would be a finance charge.

First published on BankersOnline.com 08/01/05