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FDIC wants action on ODP charges

NATIONWIDE — The Federal Deposit Insurance Corporation wants banks it regulates to act by July to reduce the number of customer debit card overdrafts and to give habitual overdrafters less costly alternatives to automated overdraft programs.

Banks must step up efforts to identify customers who habitually overdraw their accounts and have excessive use of automated overdraft programs, the Federal Deposit Insurance Corporation says in a “final guidance” bulletin to FDIC-supervised institutions.

A recently released FDIC bulletin suggests banks offer the serial overdrafters less costly alternatives to the fees that accompany each overdraft. A typical customer fitting this profile is someone who overdraws his account on more than six occasions where a fee is charged in a rolling 12-month period, the agency said.

Until the Federal Reserve intervened, debit card users received what the banking industry calls an overdraft privilege, or ODP, when they used the cards beyond the amounts in their accounts. This helped them avoid having their purchases declined, but also carried a charge of about $30.

They got the protection whether they asked for it or not. Since mid summer, at the insistence of the Federal Reserve, customers must opt-in for the “privilege” of overdrawing and paying the fees.

The opt-in rules apply to ATM withdrawals and one-time debit card purchases, but do not affect a bank’s policies on hand-written checks.

Now, the FDIC wants banks to provide less expensive alternatives to debit card users who have opted-in to the overdraft privilege.

The final FDIC guidance is designed to help institutions in “identifying, managing and mitigating risks associated with overdraft payment programs, including risks that could result in serious financial harm to certain consumers,” the FDIC said.

“This guidance promotes common sense overdraft programs by setting out our expectations,” said FDIC chairman Sheila C. Bair.

“While many community banks already prudently manage their overdraft programs, some banks operate automated programs that lead to excessive use of these high-cost, short-term credit products,” she added.

“When banks spot a pattern of excessive use of an automated overdraft program, they should contact their customers about a more appropriate and lower-cost alternative that better suits their needs.”

The final guidance stems partly from a November 2008 FDIC study that growing use of automated overdraft programs and increases in consumer complaints related to overdraft programs. The FDIC received more than 900 written comments on the proposed guidance from financial institutions, their industry trade groups, individual consumers, consumer advocacy and public interest groups, and one member of Congress. The final guidance incorporates suggestions from commenters to refine and clarify expectations.

“The FDIC expects any additional efforts to mitigate risks to be in place by July 1, 2011,” the agency said.


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