Overdraft Programs: Balancing Risk Versus Reward

Financial Institutions

November 01, 2016
by Kristen Ferwerda, CRCM

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Kristen Ferwerda Kristen Ferwerda, CRCM
Senior Specialist, Compliance

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One thing that came out of the financial crisis that started in 2007 in the United States was the government concluding that consumers needed more protection from the financial industry.  President Obama proposed a new financial agency that would focus on consumers instead of on bank safety and soundness or monetary policy.  The Consumer Financial Protection Bureau (CFPB) was born in 2010 as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  One of the CFPB’s main focuses, since its inception, has been fees charged to consumers.  One type of fee that has always been on the CFPB’s radar is the overdraft fee.  Regulators are looking at overdraft programs as they pertain to specific regulations such as Regulation DD, Regulation E, and Unfair or Deceptive Acts or Practices (UDAP), and the expanded Unfair, Deceptive, or Abusive Acts or Practices (UDAAP).  It is crucial for banks to minimize their risks associated with overdraft products.

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