The FDIC has issued a statement on overdraft consumer protection that, even as comment on it is solicited, will put additional pressure on banks offering this service. The FDIC’s statement of its supervisory expectations applies only to those it governs (non-member banks), but it lays out a new federal standard likely to be cited as pressure is placed on other regulators to follow suit and the new Bureau of Consumer Financial Protection (CFPB) begins operation. The CFPB could well take up the FDIC’s expectations and codify them under the sweeping new powers granted to this agency under the Dodd-Frank Act. Much in the FDIC guidance goes beyond existing inter-agency and FRB regulation, especially with regard to limits on overdraft fees and a bank’s duty to offer frequent-overdraft customers lower-cost options. Significant enforcement actions could ensue from any failure to follow the FDIC guidance, with the agency indicating that certain practices could trigger sanction as unfair and deceptive acts or practices (UDAP). To meet the FDIC’s requirements, institutions will need not only to provide the requisite consumer outreach, but also to ensure that check-clearing systems process overdrafts in the order received and in compliance with other requirements.
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