Compliance Blog

Posted by Anthony Demangone

Yesterday, the FDIC released proposed guidance on overdraft protection programs.  The proposed guidance is very troubling, even though it is limited to FDIC-related banks and thrifts.  In today's political environment, I worry that NCUA will follow suit.  The proposed guidance, if made final, will put a good deal of downward pressure on ODP fee income for FDIC institutions. 

The proposed guidance is Financial Institution Letter FIL-47-2010.  The FDIC is seeking comments to the proposal. Here's a summary of the guidance from the FDIC:

The FDIC expects the institutions it supervises to closely monitor and oversee any overdraft payment programs they offer to consumers. Such oversight should include appropriate measures to mitigate risks, incorporating the best practices outlined in the attached 2005 Joint Guidance on Overdraft Protection Programs, and effective management of third-party arrangements. Management should be especially vigilant with respect to product over-use that may harm consumers, rather than providing them the protection against occasional errors or funds shortfalls for which the programs were intended. The FDIC is seeking comment on these supervisory expectations. (Emphasis added.)

• Provide election or opt-out rights.  If opt-out rights exist, they must be clearly disclosed.
• Alert consumers before a transaction would trigger an ODP fee, giving them the chance to decline to proceed.
• Promptly notify consumer when an ODP service is used.  This could involve sending a notice to the affected consumer on the day the use an ODP service.
• Consideration of using daily fee limits on ODP services.
• Monitoring accounts for excessive ODP usage

As you can see, these best practices would not be easy to implement.  Should the FDIC guidance become final in its current form, it will be another blow to ODP fee income.  It would seem to me that there would be pressure for NCUA to follow suit.  Finally, should institutions not follow the guidance, it would be a great issue for the CFPB to champion as it comes out of the gate.

On a related note, Wells Fargo has to pay $203 million to California residents (NY Times) in compensation for the fact that it manipulated transactions to increase ODP fee income.  What was one of their sins?  Posting transactions from largest dollar amount to smallest.  You can access the court's decision form the link above.  Wells Fargo indicates it will appeal. 

***

Yesterday, the Federal Reserve issued an interim final rule to amend Regulation E in response to recent legislation that extends the effective date for certain provisions of a Regulation E rule concerning practices related to gift cards.  Here's how the Fed described the rule:

The Federal Reserve Board on Wednesday announced its approval of an interim final rule implementing recent legislation modifying the effective date of certain disclosure requirements applicable to gift cards under the Credit Card Accountability Responsibility and Disclosure Act of 2009. For gift certificates, store gift cards, and general-use prepaid cards produced prior to April 1, 2010, the legislation and interim final rule delay the August 22, 2010, effective date of these disclosures until January 31, 2011, provided that several conditions are met.

***

It is summer, so it isn't uncommon to host a backyard barbecue, or travel to one.  Here's a salad that my wife and I reverse engineered that has been a hit.  And yes, I said reverse engineer.  It is pretty darn close to the Misto salad at Faccia Luna - one of our favorite local haunts. 

• Chop up "hearts of romaine" lettuce.
• Chop up red onion, cucumber, and tomatoes.  (I like roma tomatoes, but that's just me.)
• Add fruit and nuts.  I personally like the cranberries and candied walnuts mix you can find in quite a few stores, but raisins and dates will work as well.
• Crumbled feta or goat cheese
• Salt and pepper to taste.
• Here's the kicker - use champagne vinaigrette for the dressing. 

Of course, you can tinker til your heart's content.  But this is usually how we make it at Casa Demangone.  It is easy to prepare, and quite tasty.

Have a great weekend, everyone!