WASHINGTON — Over strong opposition from community banks, the Federal Deposit Insurance Corp. has followed through on a new set of guidelines aimed at curbing abuse of automated overdraft programs.
The new guidance, which was first issued in an August proposal that the agency left largely unchanged, calls on FDIC-supervised institutions to aggressively monitor use of overdraft programs to address situations of overuse. Institutions should take proactive steps to inform customers who overdraw their account six or more times in a year that they have less costly alternatives.
According to American Banker, an affiliate of Credit Union Journal, the FDIC said it also expects institutions to cap daily overdraft use, and said banks should allow customers to opt out of overdraft transactions involving paper checks or automated clearing house transfers. Earlier rules from the Federal Reserve Board restrict overdraft programs for automated teller machines and point-of-sale transactions.
“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,” FDIC Chairman Sheila Bair said in a press release. “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.”
But the community bank sector panned the earlier proposal, and industry representatives said the guidance could do more harm than good. They argued that monitoring will prove too costly, and consumers may ultimately get put off if their bank intervenes with their choice to use overdraft.
