Our bank has an ad-hoc overdraft program where on a daily basis all NSF items are set to return unless the store manager changes the code to pay the item. The decision to pay or return is entirely up to the store manager, although a customer may request the item to be paid and our bank does have guidelines set on what to consider when making the decision.
Currently, our NSF and OD fees are the same. The bank is considering increasing the OD fee by $5 but leaving the NSF fee the same. The justification is that by paying the item for the customer, the customer is avoiding a fee that may be charged by the payee and the embarassment of a returned check.
Because the decision making is entirely up to the store manager and not the customer, would this possibly be considered a UDAAP issue by the customer or regulators? The fee would clearly be disclosed to the customer and a 30 day notice provided prior to implementing the fee. Our disclosure booklet states that “any decision to pay an overdraft is solely at our discretion and if we chose to pay one or more overdrafts we are not obligated to pay any future overdrafts”.
Does it make a difference that if a customer makes a deposit to cover the negative balance the next day, the items will be paid and the higher fee charged? Or at the manager’s discretion, items can be paid with a negative balance up to a signing authority limit?
I believe most banks charge the same fee for NSFs and overdrafts. With that being said, IMO, if you had an automated program that customer could opt in/out of I wouldn’t see as much concern as I do with the ad hoc program since the customer would be agreeing to/authorizing the payment of overdrafts and the assessment of a higher fee. And even though you will be disclosing the change in fee, this type of program may encourage managers to approve overdrafts to increase fee income when perhaps customers may not quite meet your guidelines, which could be a UDAAP problem.