Reg O and Payment of Employee Overdrafts

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Question:

Regulation O prohibits banks from paying overdrafts on a executive officer or director unless they have a preauthorized transfer agreement. What does Regulation say about overdrafts to employees? Is this a management decision as to paying or returning employee overdrafts? What is considered best practice? Also, if an employee overdrafts an account but he has overdraft protection (through a bounce protection program), when do we consider him overdrawn? Would it be before overdraft protection kicks in or if he shows a negative balance after overdraft protection?

Answer:

Reg. O does not regulate employees that do not meet the definition of an insider or executive officer. However, you will want to check with your primary regulator and state banking codes to see if they have any guidance for employee overdrafts.

First published on BankersOnline.com 1/9/06