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Let’s talk about the agenda today. So at 10,000 foot, what are we doing? We’re going to look at the overdraft environment, the regulations that interact with overdrafts, the regulatory guidance, there’s a ton of it, and the best practices as relayed by the regulatory agencies and as dictated through the best practices. We’re also going to spend quite a bit of time looking at the areas where you need to make sure you’ve reviewed your programs because they’re the hotspot area. So we’ll spend a considerable amount of time there. Let’s big picture where we’re going to go with today’s program.
Page number one, Roman numeral I, letter A gives us this definition of an overdraft. And just so we’re all singing from the same sheet of music here, you want to read through that. What it’s going to mean is when somebody doesn’t have enough money to buy the stuff, but they do it anyway, there’s not enough money in their account, that’s an overdraft. If you’re going to pay the item, and you’re not required to pay the item, you can return the item, that’s a NSF, non-sufficient fund situation. All of those are going to be discussed and relevant to our conversation today. But that’s from the CFPB, their definition of an overdraft, we start there.
Overdraft programs, they’re really split up into two different buckets. You’re either a bank that has an Ad Hoc program where it’s maybe… Let’s say I’m an officer at the bank. And I get this report every day that’s got the customers that I work with and it’s the overdraft report. And I have to work this manually. And based on my experiences with the customer, the relationship, and a whole lot of other things, I work this report and go, yay, nay, as to whether or not to pay or return the items. That’s an Ad Hoc program for overdrafts.
And some of you listening, you’re like, “We’re 100% that.” Some of you listening are going to be 100% in the other bucket. You’re going to be the automated where it’s not a daily decision. It’s an automated decision-making program or software based on criteria that’s predetermined. It’s an automated system. And that’s the other bucket. I know what some of you are thinking, you’re going, “Well, we’re somewhat ad hoc, but we have some things that are automated.” And so you’re this in between, you’re a combination. So there’s actually a third bucket. Some of you will say, “Yeah, we’re ad hoc, but there’s a certain portion of it that’s not.” And that’s okay too.
Here’s the only reason I bring this up. There’s a misconception out there that if you’re only an ad hoc bank, that really you don’t have to pay attention to the overdraft space. And that’s not true. There’s some wording in some of the guidance documents that makes you believe that. But I can tell you in practice, that’s not how it’s interpreted by the examiners, nor is that how it’s applied. And if you’re an ad hoc bank, some of the stuff in this manual today, when we get to hotspots, you can still get sued for. They don’t care whether you’re ad hoc or automated.
So there’s this false sense of security with a bank that’s not automated with respect to how they handle overdrafts. Now that doesn’t mean that because you’re automated, you’re at a super higher risk either. It’s just, there’s a little bit more focus placed on you in a regulatory exam. Okay? There’s more of a target. You’re maybe the bullseye instead of one of the outer rings. That’s all it means. So we’re going to get that out of the way, because it’s going to come up a little bit later on and we want to make sure we all have kind of the same understanding of what ad hoc versus automated is.
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