Overdraft Accommodation Programs

Issue

Retention of the ability to provide a variety of overdraft accommodation programs to customers who draw on accounts with insufficient funds.

Position Statement

ABA supports the ability of banks to provide both credit-based and discretionary overdraft protection services for customers within a rational regulatory scheme that incorporates efforts to inform and educate customers regarding appropriate use of such services and options related to overdraft. ABA opposes efforts to bring discretionary overdrafts services under the coverage of the Truth in Lending Act (TILA) and Regulation Z. ABA also opposes any legislation that would impose price controls on overdrafts or require disclosure of an annual percentage rate.

Explanation

Banks offer a variety of options to their customers related to overdrafts. Overdrafts may be paid on a discretionary basis (which may rely on an automated, formal program), or through a link to an overdraft line of credit, credit card, or savings account.  Banks that pay overdrafts on a discretionary basis do so to accommodate their customers.  Customers value the accommodation and benefit by avoiding additional merchant charges for returned checks and the inconvenience and embarrassment of making the payment good or having payment efforts rejected.  Overdraft fees are avoidable by keeping track of transactions, keeping a cushion, or linking to another account.

On July 11, 2007 and again on October 30, 2009, ABA testified against legislation that would cap the number of overdrafts and require disclosure of an APR.

On November 12, 2009, Federal Reserve Board announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.  These rules will become effective July 1, 2010 for new accounts and August 15, 2010 for existing accounts.  This opt-in requirement does not apply to check, ACH, or recurring debit card transactions.

ABA is working with its member banks, service providers, and regulators to ensure compliance by the rule's deadlines. There are technical challenges related to identifying covered transactions that must be met by core service providers who process these payments.  Banks also must institute a communication plan to inform its customers of the opt-in process and to manage their responses. 

An ABA Solutions page can be found at ADApT Your Overdraft Program 

Contact for further information: Nessa Feddis (202) 663-5433; Steve Kenneally (202) 663-5147.