FDIC Overdraft Payment Program Supervisory Guidance
Frequently Asked Questions

If you do not want Reliant Community Federal Credit Union to authorize and pay overdrafts on your everyday debit card transactions on any of your checking accounts, you do not need to do anything. To opt-out of overdraft coverage for your everyday debit card transactions, please contact us at 800-724-9282. A great feature of our Signature Line of Credit is the optional overdraft protection it provides for your checking account. Lines are available from $500 to $10,000 with a minimum transfer amount to checking of $50.

FDIC staff has developed the following Frequently Asked Questions (FAQs) and answers in response to questions from supervised institutions and third-party vendors about the FDIC’s Overdraft Payment Supervisory Guidance issued in November 2010 (FIL-81-2010) (Guidance).The responses represent the views and opinions of FDIC staff regarding incorporation of the Guidance into the examination process.

Questions and Answers
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Meaningful and Effective Follow-Up Illustrations

I. Defining Automated and Ad Hoc Programs

1. How does an “automated” overdraft payment program differ from “ad hoc” overdraft payment practices?

Automated overdraft payment programs typically rely on computerized decision-making, and use pre-established criteria to pay or return specific items.There is little to no case-by-case review and decision-making with respect to an individual customer or item.

By contrast, ad hoc practices typically involve the exercise of bank employee judgment in making a specific decision about whether to pay or return an item. This is done as an accommodation and based on the employee’s knowledge of a particular customer.

2. Do the specific supervisory expectations about customer contact apply to ad hoc overdraft payments?

No.The FDIC’s November 2010 Guidance is focused on assisting institutions in identifying, managing, and mitigating the particular risks posed by automated overdraft payment programs. Ad hoc overdraft payments have been authorized by banks for years as an accommodation based on specific considerations and knowledge of a particular customer, and they have generally not been the subject of the type of product over-use concerns that can be associated with automated overdraft programs. Consequently, the specific supervisory expectations set out in the Guidance regarding customer contact for excessive or chronic users of automated overdraft payment programs do not apply to ad hoc overdraft practices.

3. Should institutions monitor and manage risks associated with ad hoc payments of overdrafts?

Yes.While the Guidance’s specific supervisory expectations relate only to automated overdraft payment programs, institutions that authorize overdrafts on an ad hoc basis should manage potential reputational, compliance, and litigation risks regarding certain overdraft payment practices, such as check clearing practices designed to maximize overdraft fees.In addition, the Guidance provides updated information on the laws, regulations, and other guidance that apply to all types of overdraft payment practices and programs.

II.Excessive Use and Meaningful Follow-up

1. The Guidance states that FDIC-supervised institutions should monitor programs for excessive or chronic customer use, and if a customer overdraws his or her account on more than six occasions where a fee is charged in a rolling twelve-month period, undertake meaningful and effective follow-up action.What is an “occasion” where a fee is charged?

An “occasion” occurs each time an overdraft transaction generates a fee. For example, this would include a per-transaction overdraft fee or a daily fee for an outstanding overdraft status.As a result, potentially more than one “occasion” can occur per day. If three overdraft fees are charged as a result of three transactions (even if the fees are aggregated), that would constitute three occasions.If a fee itself triggers an overdraft, that event would count if a further overdraft fee is charged as a result.

By contrast, overdraft items paid where no fee is charged (for example, if a bank pays an item after a daily limit is met on overdraft items paid and the bank waives additional fees) would not be included.Thus, if four overdrafts occur in a day but the bank only charges three fees as a result of a per-day limit on fees charged, this would constitute three occasions.

2. What is meaningful and effective follow-up for chronic or excessive use and how can an institution demonstrate it has made meaningful efforts to reach chronic or excessive users of automated overdraft payment programs?

Meaningful and effective follow-up means that the institution has made reasonable efforts to provide the customer with information on alternatives to overdraft payment programs that may be better-suited to the individual’s need for short-term credit, as well as a clear mechanism for the customer to avail himself or herself of those alternatives. The key goal is to ensure that customers are able to make informed choices among available options to manage recurring needs for short-term credit.The FDIC will assess the institution’s level of effort to reach customers, the institution’s program for providing notice to customers of available alternatives, and the ease with which customers are able to select alternative products.

Institutions may employ a variety of techniques, based on individual customer profiles and general business practices, to contact excessive or chronic users of overdraft payment programs.For example, the institution’s overall approach could incorporate contacting a customer via telephone, in person, by mail, or through electronic notifications.Relevant factors include whether the institution:

Has a regular program to inform excessive or chronic users of overdraft usage and cumulative costs in a prominent or conspicuous fashion;
Highlights availability of alternatives to overdraft payment programs that may be lower-cost or more appropriate; and
Provides a clear and simple manner to contact the institution to discuss available alternatives.

The institution should be able to demonstrate that it monitors account usage, undertakes programs designed to address excessive or chronic use, and monitors its success in informing frequent users of overdraft payment programs of the high cumulative costs of the program and the availability of less-costly or otherwise more appropriate alternatives.

Two examples of ways in which an institution could demonstrate meaningful and effective follow-up regarding excessive or chronic users of overdraft programs are to provide enhanced periodic statements or employ a targeted outreach approach. Specific information discussing meaningful and effective follow-up when utilizing these approaches is described in the attached Illustrations. Institutions may employ other approaches for engaging in effective and meaningful follow-up with chronic or excessive users.

III.Fee Limits and Maximizing Fees

1. What is an example of an appropriate daily limit on overdraft fees?

Daily limits can help prevent a customer’s individual lapse in financial management from triggering a cascade of overdraft fees, and will be reviewed as one possible element of the institution’s overall approach for addressing chronic or excessive use of automated overdraft payment programs. For example, some institutions have implemented limits on the number of transactions that will be subject to a fee (e.g., no more than three per day) or on total allowable fees (e.g., a specific maximum dollar amount of allowable fees per day).

2. What is an example of an appropriate de minimis overdraft amount?

Institutions should consider the use of a de minimis threshold before an overdraft fee is charged in order to reduce reputational risk related to charging fees that are disproportionate to the item being cleared. For example, some institutions have implemented de minimis limits whereby they do not

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