WASHINGTON Bankers were jolted last month by an updated Office of the Comptroller of the Currency supervision handbook that suggested a major shift in how examiners view overdraft regulation.
The agency's Feb. 11 "Comptroller's Handbook" classified overdraft programs as an extension of credit and placed it under the same requirements as a payday loan or deposit-related credit product. Such a change would force banks to, among other things, apply underwriting standards and go beyond overdraft restrictions enacted in 2010.
But the OCC abruptly removed the handbook online after bankers objected and issued a new version of the handbook last week that eliminated any suggestion the agency was trying to treat overdraft programs under the exact same requirements as other deposit-related credit products. Still, the incident left bankers scratching their heads.
"This was highly, highly unusual. There was nothing in the OCC's transmittal of the booklet that indicated it was their intent to announce new supervisory expectations regarding overdraft services and we've never seen anything like that before," said Ginny O'Neill, a vice president and assistant chief regulatory counsel at the American Bankers Association. "We wrote to them and asked if that was their intent, suspecting it was more of an oversight. They were responsive and revised it within two weeks, which we appreciate."
At issue was how the Feb. 11 handbook treated overdraft programs. By viewing overdraft as deposit-related consumer credit under the same guidelines as other products, the agency was making it subject to new changes, including mandating that banks perform an ability-to-repay assessment, set limits on fees and get customers permission before offering such protection, bankers said.
Under 2010 rules, banks already must get customers' permission for most overdraft programs, but some types of credit, including checking and deposit advance products, are explicitly exempted. Some banks read the handbook as saying that there was now an opt-in requirement for all types of consumer deposit-related credit.
As a result, the OCC reissued its supervision manual on March 6, restructuring the handbook to break out overdraft programs separately and detail supervision requirements for each type of deposit product. In its press release last week, the agency clarified that it was not trying to make a policy change.
"When the previous version was removed from the OCC Web site, the agency revised the booklet, with technical edits throughout the document, to clarify and restate existing law, regulations, and policy, and to clarify what existing guidance applies to each Deposit-Related Credit product or service," said an OCC spokesperson. "The edits help prevent the misperception that the booklet establishes new policy."
It's unclear why the controversial section on deposit-related consumer credit was put in the Feb. 11 handbook in the first place whether it was simply an accidental oversight or if someone within the OCC has a different mindset for how overdraft should be viewed by examiners.
At this point, bankers deferred speculation and are just thankful that the OCC was quick to remove the section in question.
"The OCC noticed that its February 11th revision of its Comptroller's Handbook was inconsistent with current policy," said David Pommerehn, vice president and senior counsel at the Consumer Bankers Association. "Much to the credit of the agency, they removed the handbook immediately, revised it, and published a new version in line with current policy considerations around deposit related products and services. We applaud the OCC for its quick reaction to this issue."
The timing is uncanny considering the Consumer Financial Protection Bureau is slated to propose additional overdraft regulation later this year. Some observers have speculated that the CFPB could broaden current overdraft regulation to cover more transactions, including deposit-advance products, as well as require an ability-to-repay analysis.
In the meantime, the OCC emphasized that if it is seeking to change any rules, it will not do so through its handbook.
"Comptroller's Handbook booklets are used by OCC examiners to guide their examination of national bank and federal savings association activities," the OCC spokesperson said. "The booklets are intended to summarize existing policy, laws, and regulations, and they are not intended to establish new policy."