[Vicki Kramer]

Good morning. Our bank is replacing its overdraft protection product. The new product will have new eligibility requirements and overdraft amounts and will be more automated. A few questions, please. 1) Are we in compliance if we send out a letter to the current OD program participants advising that we’re ending the current product, replacing it with the new one, and provide a new disclosure for the new program participants? 2) Is the normal 30-day advance notice required? 3) What if the customer does not qualify for the new product? Adverse Action Notice, etc. needed? 4) Any other considerations? Thanks in advance for your help!

Topic

[Brent V]

Answer provided by Susan Costonis:

Thanks for posting your questions regarding a new overdraft protection product. It’s difficult to address these issues without some additional information about the existing product. If your current program is an ad hoc program AND IF your regulator is the FDIC they provided detailed information about overdraft guidance; here’s a link to the 2014 Exam procedures; see comments about the “ad hoc” programs are on page V-14.5 : https://www.fdic.gov/resources/supervision-and-examinations/consumer-compliance-examination-manual/documents/5/v-14-1.pdf
I strongly recommend that you compare the proposed “new product” to these requirements if the FDIC is your regulator.

This is a link to the interagency Guidance on Overdraft Protection Programs that was released by all regulators: https://www.occ.gov/news-issuances/federal-register/2005/70fr9127.pdf
This is link to an overview: https://www.occ.gov/news-issuances/bulletins/2005/bulletin-2005-9.html

It’s critical that you contact YOUR primary regulator for guidance on the requirements to transition from the current ODP product to a new program. In response to the first question, sending a new disclosure is absolutely required. Have these customers ALL signed the A-9 Model consent form for Overdraft Services? Here is a link to the form: https://www.consumerfinance.gov/rules-policy/regulations/1005/a/#ImageA9

It’s difficult to comment on the 2nd question regarding the 30-day notice without knowing the terms of the EXISTING product and disclosure. Please review this with your regulator.

The qualifications for the new product weren’t included in your question. Please discuss this with your regulator. Here are a few thoughts about the situation. While Regulation B defines credit and consumer credit broadly enough to include credit union bounce protection and overdraft programs within its scope, the rule also contains a number of exceptions from various provisions for incidental credit including the requirement to provide adverse action notices. See, 12 C.F.R. 1002.3(c)(2)(vi). The term incidental credit is defined as an extension of credit that is not made pursuant to a credit card agreement, that is not subject to a finance charge, and that is not payable by agreement in more than four installments. See, 12 C.F.R. 1002.3(c)(1). Since most overdraft charges are not considered finance charges, it may not be necessary to provide an adverse action notice under Regulation B. See, 12 C.F.R. 1026.4(c)(3). That being said, if the financial institution denies an overdraft as part of an overdraft line of credit program, there may be an obligation to provide an adverse action notice if one would otherwise be required since fees related to overdraft lines of credit are typically considered finance charges.

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