Agencies Eye Guidelines For Overdraft Protection

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Federal regulators expressed concern last week about how overdraft protection is being marketed and proposed guidelines for credit unions and banks to follow. A directive issued by NCUA and the banking agencies advises that financial institutions should avoid marketing overdraft protection in ways that would encourage customers to overdraw their accounts.

Among the major concerns cited by the regulators is overdrafts at ATMs. They suggested that institutions warn ATM customers when they are about to overdraw their accounts and provide ways to cancel transactions.

The directive also said that institutions should include an alternative to overdraft protection in their marketing materials and must do a better job of explaining their overdraft policies, including the fees that may be incurred.

To address some of these concerns, the Federal Reserve has proposed amendments to its Reg DD, which implements the Truth-In-Savings Act and covers overdraft protection programs. The changes would ban misleading advertising and require additional, more uniform disclosures in customers statements about overdraft protection.

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