Independent Banker - April 2022 - 33

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transaction, then later assessing an
overdraft fee on the same transaction
if it purportedly subsequently settled
into a negative balance
The CFPB has published two
research reports on checking account
overdraft fees, suggesting that banks,
especially large ones, appear to be
using what they deem exploitative
junk fees rather than transparent,
upfront pricing to generate overdraft
fee revenue. While the reports focus
on large institutions, regulatory
practices and enforcement might well
spread across the industry.
Based on those reports and the
initiatives of the new director, Rohit
Chopra, the CFPB will enhance its
supervisory and enforcement scrutiny
of banks that are heavily dependent
on overdraft fees. As Chopra stated
in his Dec. 2021 Overdraft Press Call,
" We will be taking action to restore
meaningful competition to this
market. " He further committed to the
CFPB acting against large financial
institutions whose overdraft practices
violate the law, seeking to uncover
individuals who directed any illegal
conduct. He noted that the CFPB is
considering additional policy guidance
to outline unlawful practices.
Overhauling overdraft protocols
What steps should community
banks take to ensure prudent
oversight of overdraft programs
and identify potential regulatory
issues in their overdraft practices?
First and foremost, a bank must
follow regulatory rules. In addition,
its written procedures, account
disclosures and actual practices
should be consistent and accurate.
Several regulatory and industry
standards govern overdraft programs,
including Regulation Z-Truth in
Lending; Regulation DD-Truth in
Savings; Regulation E-Electronic
Whether conducted by
the bank itself or a third
party, solid Compliance
Management System
(CMS) oversight is key to
conforming to overdraft
guidelines. A bank should
determine:
f How are overdraft
programs, including
fees and how they are
imposed, considered in
the bank's compliance
risk assessment?
f What coverage do
overdraft practices
receive in routine
monitoring? In internal
compliance reviews? In
independent audits or
third-party reviews?
f Does the bank
periodically compare
the uniformity among
regulatory rules, written
procedures, account
disclosures and actual
practices?
f What exceptions
to policy occur for
overdrafts or insufficient
fund circumstances, how
are they justified and how
are they documented?
f Are all critical aspects of
the overdraft agreement
with an account holder
fully documented,
such as disclosures
of or response to
the opt-in to effect
" affirmative consent " ?
How your CMS
enables overdraft
compliance
Fund Transfers; and interagency
guidance issued by the federal
bank regulatory agencies, as well
as guidance issued by agencies
individually. Community banks must
continue to follow the requirements
to a T and retain a comprehensive
process to meet each requirement.
Examiners look at written
procedures, disclosures and evidence
of actual practices. " Community banks
are required to disclose fees and
when the fees will be imposed, " says
Rhonda R. Whitley, vice president
and regulatory counsel at ICBA. " The
prudent approach and best practice
to preclude issues with regulators and
consumers is to accurately, clearly and
completely disclose overdraft program
fees and how they will be imposed.
Then, follow the established process
without deviation. "
While the regulations dictate
specific technical requirements, banks
must also conform to the standards
of the Unfair, Deceptive, or Abusive
Acts or Practices Act (UDAAP). Any
inaccurate information, omitted
information or information that could
be misinterpreted in printed or oral
program descriptions, disclosures
or advertising might be cited
under UDAAP.
Considering expected regulatory
scrutiny and potential rulemaking,
what steps should community banks
take? " Community banks should
conduct an overhaul assessment of
their overdraft programs, including
disclosures, written procedures and
practices, " advises Whitley. " Now
is the time to ensure continued and
consistent adherence to existing
regulations and best practices. Doing
so could help prevent customer
confusion and mitigate negative
examination scrutiny. " 
Mary Thorson Wright is a writer in
Washington, D.C.
independentbanker.org Q 31
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Independent Banker - April 2022

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