Final guidance issued on overdraft protection programs.The federal bank and credit union regulatory agencies regulatory agency Independent government commission charged by the legislature with setting and enforcing standards for specific industries in the private sector. The concept was invented by the U.S. announced on February 18, 2005, final joint guidance to assist insured depository institutions Depository institution A financial institution that obtains its funds mainly through deposits from the public. This includes commercial banks, savings and loan associations, savings banks and credit unions. in the disclosure and administration of overdraft A check that is drawn on an account containing less money than the amount stated on the check. The term overdraft is also used in reference to the condition that exists when vouchers protection programs. Depository institutions may offer overdraft protection programs to transaction account customers as an alternative to traditional ways of covering overdrafts. In response to concerns about the marketing, disclosure, and implementation of these programs, the agencies published for comment proposed interagency in·ter·a·gen·cy adj. Involving or representing two or more agencies, especially government agencies. guidance on overdraft protection programs in June 2004. The final joint guidance responds to comments received by consumer and community groups, individual consumers, depository institutions, trade associations, vendors offering overdraft protection products, other industry representatives, and state agencies. The final joint guidance contains three primary sections: Safety and Soundness Considerations; Legal Risks; and Best Practices. The Safety and Soundness discussion seeks to ensure that financial institutions offering overdraft protection programs adopt adequate policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental to address credit, operational, and other associated risks. The Legal Risks discussion alerts institutions of the need to comply with all applicable federal and state laws, and advises institutions to have their overdraft protection programs reviewed by legal counsel to ensure overall compliance before implementation. Several federal consumer compliance laws are outlined in the guidance. The Best Practices section addresses the marketing and communications that accompany the offering of overdraft protection programs as well as the disclosure and operation of these programs. Some of these best practices include: avoiding the promotion of poor account management; providing a clear explanation of the discretionary nature of the overdraft protection program; clearly disclosing fees; explaining the effect of transaction clearing policies on the overdraft fees consumers may incur; and monitoring program usage. The agencies also advise insured depository institutions to distinguish overdraft protection services from "free" account features, to prominently distinguish balances from overdraft protection funds availability, and to alert consumers before a transaction triggers any fees. The guidance is being issued by the Federal Reserve Board, the Federal Deposit Insurance Corporation Federal Deposit Insurance Corporation (FDIC), an independent U.S. federal executive agency designed to promote public confidence in banks and to provide insurance coverage for bank deposits up to $100,000. , the National Credit Union Administration The National Credit Union Administration (NCUA) is responsible for chartering, insuring, supervising, and examining federal credit unions (FCUs) and for administering the National Credit Union Share Insurance Fund. , and the Office of the Comptroller of the Currency The Office of the Comptroller of the Currency (or OCC) was established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States. and was published in the Federal Register. The joint document is on the Board's web site at www.federalreserve.gov/boarddocs/press/bcreg/2005/ 20050218/attachment.pdf. |
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