February 14, 1994
Superintendent of Banking Interpretive Bulletin #9
TO THE CHIEF EXECUTIVE OFFICER OF THE STATE CHARTERED BANK ADDRESSED:
It has recently come to our attention that a few financial institutions in the state are assessing their customers a daily fee on an overdrawn account, in addition to the normal one-time overdraft charge. This daily fee, as high as $3, is being assessed for the time period that the deposit account remains overdrawn. While there is no problem with the initial overdraft charge, normally $12 or $15, being assessed, the imposition of the daily fee may constitute infractions of the Iowa Consumer Credit Code.
A financial institution's decision to pay an item that overdraws an account creates an extension of credit to that customer. If the item that creates the overdraft is primarily for a personal, family, or household purpose, then the extension of credit normally meets the definition of a consumer credit transaction, which has rate limitations and disclosure requirements.
In the cases brought to our attention, the daily fee has exceeded the 21 percent per annum and proper disclosures had not been provided. If your bank is presently assessing daily fees that exceed 21 percent APR and/or proper disclosures have not been given, you may be subject to the criminal and civil penalties and remedies established under the Iowa Consumer Credit Code, as well as Section 112 of the Truth in Lending Act. We ask that you immediately review your bank's charges in this area and take corrective action, if necessary.
Sincerely,
R. H. Buenneke
Superintendent of Banking
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