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Overdrafts: Potential Pitfalls in Processing

The FDIC recently released guidance regarding an on-going issue with processing transactions that could potentially be categorized as an unfair or deceptive practice. Examiners noted that some institutions have changed their method of calculating overdraft fees; basing the fee determination on an available balance, rather than a ledger balance. The potential effect, due to debit card holds that may be placed on the account, could cause the account to have insufficient available funds to pay items presented (although a sufficient ledger balance is maintained). This may result in the account being charged overdraft fees for situations not properly disclosed to the customer and potentially charge the customer additional overdraft fees that may not be justified. To help mitigate risk related to overdraft practices and remain compliant, the following is suggested:

  • Provide easily identifiable and comprehensive disclosures related to potential fees in connection with the available balance method
  • Oversee transactions are authorized against positive available balances and do not incur fees when using the available balance method

Have questions? Contact KPM Manager Richard Dugas for additional information.

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