Overdraft Notice Requirement

Question:

Our commercial officers want to selectively determine who should receive overdraft notices. Can someone direct me to a law or regulation that would provide guidance in this area? Is the bank required (other than by good business practice) to give notice to a customer who is overdrawn if the checks are paid and a fee charged or if the checks are returned and a fee charged?

Answer:

I am not aware of any law or regulation requiring the drawee bank to notify the drawer that NSF items have been presented against its account, whether they are paid or returned. However, if enough banks eliminate such notices, it will probably be the genesis of such a requirement.

The notice may be classified either as a courtesy or as a loss control measure. NSF notices are often the first indication to the customer that he or she made an error of some sort. The early notice allows the customer to deposit funds and avoid further fees and returned items. Often, however, it is also the first indication that the bank has paid unauthorized items, whether they are checks or EFT's. The customer's responses to such notices frequently allow the bank to contain its own losses.

Few banks would say that NSF items are not profitable. Sending the notice is part of the sometimes slim justification for the amount of the NSF fee.

In summary, if you send the notices selectively and a nonrecipient customer can prove he or she was damaged, I would rather be the customer's attorney than the bank's.

First published on BankersOnline.com 10/1/01