Keeping the bounce within bounds: a review of what marketers need to know in light of the recent "final guidelines" from federal banking regulators.

• Author: Feddis, Nessa
• Position: Overdraft protection

Whether your bank promotes a formal "bounced check protection" program that advises consumers of a "discretionary limit" or adopts a more traditional approach of paying overdrafts on a discretionary basis without disclosing a limit, your institution needs to be aware of the recent guidelines on overdrafts produced by the banking regulatory agencies.

While much in the final guidelines mirrors common bank practices, there are some surprising elements. For example, the guidelines address concerns that consumers may not understand that they can overdraw their account using a debit card, even though the transaction was approved.

The guidelines also respond to concerns that consumers may be misled if the single balance provided at the ATM reflects the amount available for overdrafts--and not just the actual available balance.

Walt Albro, senior associate editor of ABA Bank Marketing magazine posed some questions about the guidelines to Nessa Feddis, who is senior federal counsel to ABA's Government Relations Division in Washington, D.C. The questions and her responses are reproduced on the following pages.

We understand that on Feb. 18 federal regulators issued "final guidance" concerning overdraft protection programs. Can you give the background concerning why they issued this guidance and what it means?

In recent years, many banks have begun to offer and advertise "overdraft protection programs." These programs differ from the traditional and long-honored bank practice of paying occasional overdrafts in that (1) the programs are marketed, and (2) a discretionary overdraft "limit" is disclosed to the consumer. In addition, vendors frequently sell or promote products to assist banks in providing the service.

While many of the programs are appropriately explained and implemented, regulators became concerned about some of the aggressive marketing that they believed was encouraging people to overdraw their accounts. Regulators also heard from critics who complained that some banks were promoting their overdraft protection programs as "payday loan" substitutes--and avoiding disclosure of any annual percentage rate (APR). The agencies were also concerned that the advertisements and other materials were misleading and that consumers were confused both about costs and the functioning of the program. For example, advertisements that touted "free" accounts along with the aggressive, "We will automatically pay your overdrafts!" (without noting the fees) raised eyebrows. Regulators also believed that many consumers were being surprised--even shocked--about fees for overdrafts caused by noncheck transactions, such as ATM and point-of-sale (POS) transactions.

To address these issues, the agencies published "Guidance on Overdraft Protection Programs." Though the focus of the document is on programs that are marketed or that disclose...