Banking Spectrum - What's New?

The Federal Reserve's final amendments to Regulation E enable consumers to limit the costs of overdraft services assessed on their deposit accounts. The amendments require financial institutions to provide a clear disclosure of the fees and terms associated with its overdraft services and to provide customers with a choice regarding the payment of overdrafts for ATM and one-time debit card transactions. The institution must provide a notice that allows a customer to opt in, or affirmatively consent, to the institution's payment of overdrafts for these types of transactions.

These amendments took effect on January 19, 2010, and carry a mandatory compliance date of July 1, 2010.

Last month, the OTS illustrated the affect of noncompliance by taking action against Woodforest Bank, a thrift institution based in Refugio, Texas. To avoid a lengthy dispute, Woodforest Bank agreed to repay more than $12 million to current and former customers "who were misled about the cost of overdraft protection and charged excessive overdraft-protection fees." According to the OTS, Woodforest's business relied "upon an unreasonably high level of aggregate fees." Woodforest will also pay the federal Office of Thrift Supervision $400,000, the toughest penalty ever imposed by the regulator regarding overdraft fees.

"We believe that our overdraft protection programs now set a new industry standard for customer friendliness and consumer focus," James Dreibelbis, Woodforest's chief executive officer, said in a statement. OTS spokesman William Ruberry said Woodforest was incorrectly marketing overdraft protection as free, when it was really charging $34 per overdraft, plus additional daily fees if a customer failed to pay off the original penalties. Woodforest was also offering loans to repay overdraft fees, and the bank was requiring automatic account deductions to repay the loan. Such a requirement is against federal rules. Under the order, Woodforest has to limit fees and the number of transactions for which it can charge fees, overhaul marketing materials and clearly disclose rules, stop claiming that overdraft protection is good for people who have had financial trouble and give customers a chance to stop additional daily charges on overdrawn accounts.