CUNA Regulatory Comment Call

March 1, 2010

Proposed Clarifications to Overdraft Protection Rules Under Regulations E and DD

  • The Federal Reserve Board (Fed) has issued clarifications to the recent final rules amending Regulation E, the Electronic Fund Transfer Act, that prohibit credit unions and other financial institutions from charging overdraft fees for ATM and one-time debit transactions, unless the consumer consents, or “opts-in.” Compliance with these rules will be mandatory as of July 1, 2010, although fees may continue to be assessed without the consumer’s permission until August 15, 2010 for those accounts in existence as of July 1st. Click here for more information about these recent final rules.

  • The Fed has also issued clarifications to the recent final rules amending Regulation DD, the Truth in Savings Act (TISA), that changed the disclosure requirements for overdraft protection plans. The Regulation DD rules do not apply to credit unions but the National Credit Union Administration has issued substantially similar rules, as required under TISA. Compliance with the recent rules issued by both the Fed and NCUA was required as of January 1, 2010. Click here for more information about these rules.

  • Although credit unions and others have an opportunity to comment on these clarifications, the Fed has emphasized that they will not change the substantive provisions of these rules and that these comments should be limited to the proposed clarifications.

  • Here are the clarifications for the Regulation E rules:
    • The rules include an exception from the requirement to send a notice and obtain an opt-in before charging overdraft fees if the financial institution has a policy and practice of declining ATM and one-time debit transactions when the institution has a reasonable belief that the account has insufficient funds at the time the authorization is requested. The proposal clarifies that charging fees are still prohibited if the consumer does not opt-in and that this exception only provides relief from the notice and opt-in requirements.
    • The Fed recognizes that financial institutions may not be able to avoid paying certain ATM and one-time debit transactions that overdraw the account and that the institution will not be able to charge a fee if the consumer does not opt-in. However, the rules prohibit charging fees in these situations, and the proposal clarifies this prohibition.
    • If the consumer opts-in, the financial institution must send a written confirmation of the opt-in selection. The proposal will clarify the official staff commentary to Regulation E to indicate that fees may not be charged until the confirmation is sent to the consumer and that institutions will be in compliance with these provisions if they have adopted reasonable procedures designed to ensure that the written confirmation is sent before fees are assessed.
    • Some institutions impose different, or “tiered,” fees based on the outstanding negative balance at the end of the day. This would be when one fee is charged if the negative balance is below a certain amount, while a higher fee is charged if the negative balance is above this amount. The proposal will clarify the official staff commentary to indicate that this fee must be based on the amount based solely on the check, automated clearinghouse (ACH), or other transactions if the consumer has not opted-in to ATM and one-time debit transactions. For example, if a negative balance is attributable to both a debit and check transaction, then it would only be the amount of the check transaction that would determine which tier would apply.
    • Some institutions may apply daily or sustained overdraft fees in which an additional fee is charged if the overdrawn amount is not repaid within a certain amount of time. Although this is not permitted for ATM and one-time debit transactions, unless the consumer opts-in, these types of fees are permitted for check, ACH, and recurring debit transactions. The official staff commentary clarifies that fees may be charged in situations in which a negative balance results from both an overdraft in which an opt-in is required and an overdraft, such as a check or ACH transaction, in which the opt-in is not required. For example, if an account has a balance of $50 and there is then a $60 debit and a $40 check transaction, the institution may charge a fee for the check only and then charge a sustained fee if the negative balance at that time is attributable in part to the $40 check. For sustained fees, the date that the account goes into overdraft is determined solely by the date that the check, ACH, or other transaction is paid into overdraft for purposes of calculating the date when a sustained fee can later be charged, even if ATM and one-time debit transactions are posted on different dates. For example, if new fees are charged if the account remains negative after five days, then the five-day period begins on the date the check, ACH, or other transaction is posted, regardless of when the ATM or one-time debit transaction is posted.
    • The proposal revises the official staff commentary to clarify that credit secured by margin securities in brokerage accounts extended by registered broker-dealers is not considered an “overdraft service.”
    • The Fed intends to finalize these clarifications before the July 1, 2010 mandatory compliance date.

  • Here are the clarifications for the Regulation DD rules:
    • The proposal clarifies that the term “Total Overdraft Fees” must be used on the period statement when describing the total amount of fees imposed for paying overdrafts.
    • For balance information that is disclosed through an automated system, the rules require that it not include the amount available that the institution may provide to cover items, including amounts available under an overdraft program. The proposal clarifies that amounts available under a retail sweep account can, however, be included in the disclosed balance information.
    • The rules allow disclosure of an additional balance that is available through an overdraft program, line of credit, or transfer from another account, as long as it is prominently disclosed that this second balance includes this additional amount. The rules indicate that the second balance may not be disclosed if it is in connection with an overdraft service if the consumer has opted-out of the service. The proposal clarifies that this also includes when the consumer has not opted-in when the opt-in is required for the service. If the additional funds are not available for all types of transactions, then this must also be disclosed along with the additional balance. The proposal includes the example that it must be disclosed that the consumer may not access the overdraft balance through ATM and one-time debit transactions if the consumer has not opted-in to the program, even if the funds may be available through a line of credit or transfer from another account.
    • The clarification with regard to the use of the term “Total Overdraft Fees” will be effective 90 days after these clarifications are issued in final form. The other clarifications will be effective 30 days after they are issued in final form.

  • Comments are due to the Fed by March 31, 2010. Comments are due to CUNA by March 23, 2010.

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com and to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.com; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. You may also contact us if you would like a copy of the proposed clarifications or you may access them here:

Regulation E clarifications
Regulation DD clarifications

QUESTIONS TO CONSIDER REGARDING THE REGULATION E AND DD CLARIFICATIONS

  1. Do you agree with the clarifications? What other clarifications should have been included?











  2. The Fed has requested comment as to whether 90 days will be sufficient to comply with the requirement to use the term “Total Overdraft Fees” on periodic statements, especially for institutions that have been using a different term. Do you agree that 90 days is sufficient time? If not, what would be a sufficient time?











  3. Other comments?











Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Luke Martone • Senior Regulatory Counsel • (202) 508-6743 • lmartone@cuna.com