Setting the record straight on excessive use
Lately, there has been a lot of confusion around consumers who ‘abuse’ the overdraft privilege program from our clients. Our clients have asked us what they should do for their consumers who use the overdraft privilege program on a regular basis and what are the recommended compliance and regulatory practices they should follow for these consumers.
The first thing that we tell our clients is that overdraft privilege is a discretionary service, which primarily means that our clients are not obligated to pay any item. With respect to both making the service available to consumers and taking it away from consumers, it is very important to be very consistent in applying your policy when managing your overdraft privilege program. We tell our clients if they are not consistent with their program then desperate or discriminatory treatment could result from this action.
It is very important to understand that only the FDIC has guidance around ‘excessive use’ of overdraft privilege programs. If you are not regulated by the FDIC, then there are no specific rules regarding what a financial institution needs to do in case of excessive use. FDIC regulated institutions need to notify a customer who overdraws their account on more than six occasions where a fee is charged in a rolling twelve-month period. One thing to understand is there are no requirements to close an account or take any other specific action to accounts that use overdraft privilege on a regular basis. Examiners or Auditors that push financial institutions to take action on these customers are really taking regulation into their own hands.
Strunk’s recommendation has always been to utilize the specifics that are outlined in our overdraft privilege service policy. The only reasons for revocation of overdraft privilege are the reasons outlined in the service policy, otherwise coming up with arbitrary reasons to revoke certain customers access could be challenged.