When offering overdraft protection, which element is required in the credit union's policy?

In the context of offering overdraft protection, it is crucial for a credit union to have a policy that includes a cap on the total dollar amount of all overdrafts the institution will honor. This requirement is essential because it helps to manage risk for both the credit union and its members. By establishing a maximum limit, the credit union ensures that it does not expose itself to excessive liability while allowing members to have a safety net for their checking accounts.

Setting a cap provides a clear structure that members can understand and rely on, fostering responsible lending practices. This restriction also helps to prevent scenarios where members could accumulate overwhelming overdraft fees and debt, which can lead to financial distress.

While other options like a specific maximum loan limit, unlimited overdraft limit, or waiving all fees might seem appealing, they do not align with prudent risk management and consumer protection principles. A defined cap ultimately promotes a balance between providing necessary access to funds and safeguarding the financial health of both the credit union and its members.