Get Serious’ On Best Practices for Overdraft Programs, Legal Expert Tells C.U. and Banking Executives
Oliver Ireland, a partner in the Financial Services Practice Group of Morrison & Foerster, a Washington, DC law firm, tells bankers and credit union executives attending the annual Floyd Forum --in Austin, TX this year -- to protect themselves from accountholder complaints and consumer abuses by adopting and adhering to the federal Interagency Guidance on "Best Practices" for well-managed and compliant overdraft privilege (bounce protection, courtesy pay) programs. Ireland is former Associate General Counsel of the Board of Governors of the Federal Reserve System.
Austin, TX (PRWEB) May 26, 2005 -– Recently issued Interagency Guidance on
best practices for checking and ATM overdraft programs is “warranted and
worthwhile to curtail abusive programs that hurt accountholders,” says a leading
attorney on regulations affecting retail financial services.
Oliver
Ireland, a partner in the Financial Services Practice Group of Morrison &
Foerster, LLP, Washington, D.C., addressed separate sessions of banking and
credit union executives during the 2005 Floyd Forum Leadership in Austin earlier
this month. His message to both was emphatic: “Protect yourselves. Understand
regulatory issues affecting overdraft programs.” PHOTO URL: http://www.mofo.com/attorney/individual.asp?Ireland8708
Ireland’s
practice focuses primarily on retail financial services including electronic
commerce, compliance with Federal Reserve regulations, the Fair Credit Reporting
Act, E-SIGN, the U.S. Patriot Act, and telemarketing rules. His practice also
encompasses all types of payment transactions, including compliance with NACHA
rules and bank regulatory issues.
He defined Regs B, E, Z, DD and the
Fair Trade Commission Act and walked the audience through the finer points of
the Interagency Guidance on overdraft (courtesy pay, bounce protection)
programs, issued in February by the Federal Reserve Board, the Federal Deposit
Insurance Corporation, the National Credit Union Administration and the Office
of the Comptroller of the Currency. Guidance applies to most, but not all
financial institutions. “The Office of Thrift Supervision issued its own
guidelines, not as rigorous as the other agencies.
“An overdraft program
may be deemed credit covered by the general prohibition of Regulation B,” he
noted, and Reg B implements the Equal Credit Opportunity Act, which prohibits
creditors from discriminating.
Ireland previously served as Associate
General Counsel (AGC) of the Board of Governors of the Federal Reserve System;
as V.P and AGC of the Federal Reserve Bank of Chicago and as Attorney for the
Federal Reserve Bank of Boston. He was responsible for drafting or interpreting
numerous Fed regulations including the Gramm-Leach-Bliley privacy rules, rules
implementing the Expedited Funds Availability Act, rules on money laundering,
capital requirements, reserves and interest on deposits.
The speaker
outlined a veritable “alphabet soup” of federal laws, regulations and
organizations (FTC, TILA, ECOA, TISA, EFTA) applicable to the fast-growing
programs popular with financial institutions (FIs), which view the non-interest
income as a stabilizing factor in their revenue projections. “States laws may
also be applicable, including usury and criminal laws, and UDAP,” he
warned.
Ireland said authorities and consumer groups have multiple
concerns about poorly managed overdraft programs. Among them: “FIs may have
promoted the service so that consumers believe it is a line of credit. Marketing
practices may encourage consumers to overdraft their accounts—leading consumers
to believe overdrafts always will be paid, when FIs reserve the right not to pay
some overdrafts.”
Additionally, “Free account” statements may lead
consumers to believe the service has no fee. Some FIs may not clearly disclose
that the program may cover instances where the account may be overdrawn other
than by check, such as an ATM or point-of-sale transaction. Some FIs may include
overdraft protection amounts in a disclosure of the “account balance” without
identifying it as such.
Another concern is when “the FI knows that the
transaction will trigger an overdraft fee, such as at a proprietary ATM, and the
FI chooses not to alert the consumer prior to completion of the transaction of
the fee and allow the consumer to cancel the transaction,” he said.
High
on his list of admonitions to those institutions with defined and communicated
overdraft programs were:
• Alert consumers before a transaction triggers
fees.
• Prominently distinguish balances from overdraft funds
availability.
• Provide election or opt-out service to accountholders.
•
Promptly notify consumers of overdraft program usage each time.
• Consider
daily limits on the consumer’s costs.
• Monitor overdraft protection program
usage.
• Fairly report usage.
The attorney carefully covered the
nuances in the Truth in Lending and Truth in Savings (DD) acts that apply or
could apply to programs covering insufficient funds (NSF) items. He reminded the
audiences that Changes to Reg DD have not been published, but are forthcoming
from the Fed.
John M. Floyd & Associates (www.JMFA.com) of Baytown (Houston),
Texas, sponsored the week-long Floyd Forum, held at the Barton Creek Resort
& Spa in Austin in May. The performance improvement firm, founded in 1972,
is nationally known for its creation of the automated overdraft privilege
program. It has implemented nearly 1,000 variations of its JMFA OVERDRAFT
PRIVILEGESM program.
FOR MORE INFORMATION OR INTERVIEWS:
Steve
Swanston, EVP-Sales, John M. Floyd & Associates, Baytown, TX, 800-809-2307;
e-mail protected from spam bots; www.JMFA.com
Preston F. Kirk, APR, Kirk Public Relations,
Austin, TX, 830-693-4447; e-mail protected from spam bots.
Source : http://www.prweb.com/releases/2005/5/prweb244900.htm