[Federal Register Volume 70, Number 99 (Tuesday, May 24, 2005)]
[Rules and Regulations]
[Pages 29582-29596]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-10348]
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FEDERAL RESERVE SYSTEM
12 CFR Part 230
[Regulation DD; Docket No. R-1197]
Truth in Savings
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board is amending Regulation DD, which implements the
Truth in Savings Act, and the staff commentary to the regulation, to
address concerns about the uniformity and adequacy of information
provided to consumers when they overdraw their deposit accounts. The
amendments, in part, address certain types of services--sometimes
referred to as ``bounced-check protection'' or--courtesy overdraft
protection''--which are offered by many depository institutions to pay
consumers' checks, and which allow other overdrafts when there are
insufficient funds in the account. These services are typically
automated services provided to transaction account consumers as an
alternative to a traditional overdraft line of credit. Among other
things, the final rule creates a new section to the regulation that
requires institutions that promote the payment of overdrafts in an
advertisement to disclose on periodic statements, total fees imposed
for paying overdrafts and total fees imposed for returning items unpaid
on periodic statements, both for the statement period and the calendar
year to date, and to include certain other disclosures in
advertisements of overdraft services.
DATES: The rule is effective July 1, 2006.
FOR FURTHER INFORMATION CONTACT: Elizabeth A. Eurgubian, Attorney, or
Ky Tran-Trong or Krista P. DeLargy, Senior Attorneys, Division of
Consumer and Community Affairs, Board of Governors of the Federal
Reserve System, at (202) 452-3667 or 452-2412; for users of
Telecommunications Device for the Deaf (``TDD'') only, contact (202)
263-4869.
SUPPLEMENTARY INFORMATION:
I. The Truth in Savings Act
The Truth in Savings Act (TISA), 12 U.S.C. 4301 et seq., is
implemented by the Board's Regulation DD (12 CFR part 230). The purpose
of the act and regulation is to assist consumers in comparing deposit
accounts offered by depository institutions, principally through the
disclosure of fees, the annual percentage yield (APY), the interest
rate, and other account terms. An official staff commentary interprets
the requirements of Regulation DD (12 CFR part 230 (Supp. I)). Credit
unions are governed by a substantially similar regulation issued by the
National Credit Union Administration.
Under TISA and Regulation DD, disclosures must be given upon a
consumer's request and before an account is opened. Institutions are
not required to provide periodic statements, but if they do, the act
requires that fees, yields, and other information be provided on the
statements. Notice must be given to accountholders before an adverse
change in account terms occurs and prior to the renewal of certificates
of deposit (time accounts).
TISA and Regulation DD contain rules for advertising deposit
accounts. Under TISA, there is a prohibition against advertisements,
announcements, or solicitations that are inaccurate or misleading, or
that misrepresent the deposit contract. Institutions also are
prohibited from describing an account as free (or using words of
similar meaning) if a regular service or transaction fee is imposed, if
a minimum balance must be maintained, or if a fee is imposed when a
customer exceeds a specified number of transactions. In addition, the
act and regulation impose substantive restrictions on institutions'
practices regarding the payment of interest on accounts and the
calculation of account balances.
II. Concerns About Overdraft Services
Historically, depository institutions have used their discretion on
an ad hoc basis to pay overdrafts for consumers on transaction
accounts, usually imposing a fee. Over the years, some institutions
automated the process for considering whether to honor overdrafts to
reduce the costs of reviewing individual items, but generally
institutions did not inform customers of their internal policies for
determining whether an item would be paid or returned. More recently,
third-party vendors have developed and sold overdraft programs to
institutions, particularly to smaller institutions. These programs
generally build upon or add to the institution's existing internal
reporting systems to enable the institution to automate its payment of
overdrafts.\1\ What generally distinguishes the vendor programs from
institutions' in-house automated processes is the addition of marketing
plans that appear designed to promote the generation of fee income by
disclosing to account-holders the dollar amount that the consumer
typically will be allowed to overdraw their accounts. Some institutions
also encourage consumers to use the service to meet short-term
borrowing needs.
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\1\ The Board's proposal referred to ``bounced-check
protection'' services. These services also are sometimes referred to
as ``courtesy overdraft protection.'' Because some institutions''
overdraft services apply to non-check transactions, for clarity the
services are referred to generically as ``overdraft services.''
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Paying consumers' occasional or inadvertent overdrafts is a long-
established customer service provided by depository institutions. The
Board recognized this longstanding practice when it initially adopted
Regulation Z in 1969, to implement the Truth in Lending Act (TILA); the
regulation provided that these transactions are generally exempt from
coverage under Regulation Z where there is no written agreement between
the consumer and institution to pay an overdraft and impose a fee. See
Sec. 226.4(c)(3). The exemption from Regulation Z was designed to
facilitate depository institutions' ability to accommodate consumers on
an ad-hoc basis.
[[Page 29583]]
Although overdraft services vary among institutions, many
institutions provide the coverage automatically for consumers who meet
the institution's criteria (e.g., the account has been open for a
certain number of days, and the consumer makes deposits regularly).
Consumers are not required to apply for the coverage and the
institution performs no credit underwriting. Many institutions clearly
inform consumers that payment of an overdraft is discretionary on the
part of the institution; deposit account agreements typically disclaim
any legal obligation to pay any overdraft. Some institutions extend the
overdraft service to non-check transactions, for example, withdrawal
requests made at automated teller machines (``ATMs''), purchases made
using a debit card, pre-authorized automatic debits from a consumer's
account, telephone-initiated funds transfers, or on-line banking
transactions. A flat fee is charged each time the service is triggered
and an overdraft item is paid; often the fee for paying an overdraft is
the same amount that the institution would charge when a check drawn on
insufficient funds is returned unpaid. In some cases, a daily fee may
be imposed for each day the account remains overdrawn.
In November 2002, the Board solicited comment and information from
the public about institutions' current overdraft services, to assist
the Board in determining the need for guidance to depository
institutions under Regulation Z (Truth in Lending) and other laws. 67
FR 72618 (December 6, 2002). In response to the Board's request for
comment, consumer advocates, state agency representatives, and others
stated that certain overdraft services should be subject to the TILA
and Regulation Z. They noted that in addition to warning consumers
about the high cost of the services, TILA disclosures would apprise
consumers about the true nature of these services as a credit
transaction. Industry commenters opposed coverage under Regulation Z,
stating that institutions currently provide adequate disclosures
pursuant to TISA and Regulation DD, and that coverage under Regulation
Z would be burdensome.
The Board's study of overdraft services identified a number of
other concerns about some programs. One major concern relates to the
adequacy of information provided to consumers whose accounts are
eligible for the service. For example, some institutions do not clearly
inform consumers that ATM withdrawals, debit card transactions, or
other electronic transfers may routinely be authorized under these
overdraft services and that fees will be imposed in such cases.
Other concerns center on institutions' marketing practices.
Although the service may be designed to protect consumers against
occasional inadvertent overdrafts, some institutions' promotional
materials make the service appear to be a line of credit, apparently to
promote a consumer's repeated use of the service. Many institutions
inform consumers of the availability of the overdraft service, and also
of the maximum aggregate dollar amount of overdrafts the institution
will pay. Some marketing plans encourage consumers to use the service
to meet short-term credit needs, and not just as protection against
inadvertent overdrafts. Some institutions have encouraged consumers
specifically to use an overdraft as an advance on their next paycheck.
Notwithstanding the marketing promises, however, qualifying language
disclaims any legal obligation by the institution to pay any overdraft.
In some cases, deposit accounts that are promoted as being ``free''
also promote overdraft services that involve substantial fees.
III. Concerns About Uniform Disclosure of Overdraft Fees
The Board also has concerns about the uniformity and adequacy of
cost disclosures provided to consumers regarding overdraft and
returned-item fees under Regulation DD. Many institutions already
provide timely information to consumers about particular overdrafts and
the fees imposed by sending a notice at the time an overdraft occurs.
Institutions' practices and disclosures are not uniform, however, and
some consumers may not receive adequate information on a timely basis.
Fees for paying overdrafts and for returning items unpaid are
typically flat fees unrelated to the amount of the item. These amounts
may be significant when there are multiple overdrafts even though the
items may represent relatively small dollar amounts. Even when
consumers are aware that an account is or may become overdrawn, they do
not necessarily know the number of overdraft items that will result or
the total fees that will be imposed, both of which are determined by
the order in which items drawn on the account are presented and the
institution's policies concerning the order in which items are paid.
Consumers may not be aware of the total fees imposed until the next
periodic statement, and when the periodic statement is provided, it may
intersperse fees for overdrafts and fees for returned items among other
transactions rather than provide a total. As a result, the overall cost
associated with overdrawing the account may not be clearly presented to
consumers.
IV. The Board's Proposed Revisions to Regulation DD
In May 2004, the Board proposed revisions to Regulation DD and the
staff commentary to address concerns about the uniformity and adequacy
of institutions' disclosure of overdraft fees generally, and to address
concerns about advertised overdraft services in particular. 69 FR 31760
(June 7, 2004). Specifically, the Board proposed to revise Regulation
DD to expand the prohibition against misleading advertisements to cover
communications with current consumers about existing accounts; the
staff commentary provided examples of advertisements that would
ordinarily be misleading. The proposed revisions also required
additional fee and other disclosures about overdraft services,
including disclosures on periodic statements of the total dollar
amounts for all overdraft fees and for all returned-item fees, for the
statement period and for the calendar year to date; however, the Board
solicited comment on whether the periodic statement requirement to
disclose calendar year-to-date totals should be limited to institutions
that market overdraft services. Further, the Board proposed to require
institutions that market automated overdraft services that are not
covered by TILA to include certain disclosures about the service in
their advertisements, including the fee for the payment of each
overdraft item and the circumstances under which the institution would
not pay an overdraft.
Overview of Public Comments
Approximately 300 comments were received; the majority of comments
were received from depository institutions or their trade associations.
About 100 of these comment letters were received from consumer
advocates and individual consumers, including about 60 nearly identical
form letters sent by consumers through the same Internet site.
Almost all the comments from consumers and consumer advocates
oppose the proposed amendments to Regulation DD, and instead urge the
Board to cover certain overdraft services under Regulation Z. Few of
these comment letters contained substantive suggestions on the proposed
revisions to Regulation DD. One Member of Congress submitted a letter
also
[[Page 29584]]
requesting the Board to cover certain overdraft services under
Regulation Z.
Industry commenters were uniform in agreeing that overdraft
protection is a deposit service that should be covered under Regulation
DD rather than Regulation Z. Industry representatives that commented
generally oppose covering overdraft services under Regulation Z.
Industry representatives stated that disclosing an annual percentage
rate (APR) for overdraft services would impose substantial compliance
burdens without leaving consumers better-informed about the cost of
credit or better able to compare the costs of different credit
products.
Although generally agreeing that coverage of overdraft services was
more appropriate under Regulation DD, virtually all industry commenters
have concerns about specific aspects of the proposal. The most frequent
objection to the proposal concerns the requirements for disclosing
aggregate totals for overdraft fees and returned item fees on periodic
statements. In particular, most industry commenters cite the costs of
implementing the new disclosures and assert that consumers are already
provided sufficient information about these fees. Industry commenters
also asked for clarification about the types of overdraft services that
would be covered under the rule, focusing on the Board's use of the
term ``automated overdraft service'' to describe the overdraft service
that would be subject to the additional advertising disclosures.
Finally, many industry commenters oppose the requirement to disclose in
advertisements the circumstances under which an overdraft would not be
paid, because it could suggest an agreement to pay overdrafts in other
circumstances contrary to the ``discretionary'' nature of the product.
Additional comments are discussed in the section-by-section analysis.
V. The Final Rule
Pursuant to the Board's authority under Section 269(a) of TISA (12
U.S.C. 4308(a)), the Board is adopting final revisions to Regulation DD
and the staff commentary generally as proposed. Some clarifications and
modifications to the proposal have been made to respond to commenters'
concerns; in particular, the requirement to disclose aggregate
overdraft and returned item fees on periodic statements has been
limited to institutions that promote the payment of overdrafts in an
advertisement. The final rule consolidates the guidance for
institutions that promote the payment of overdrafts in a new Sec.
205.11 of the regulation to facilitate compliance. To give institutions
sufficient time to implement the necessary system changes to comply
with the regulation, compliance with the final rule will not become
mandatory until July 1, 2006.
Summary of Revisions to the Regulation
The following is a summary of the final revisions to the regulation
and the staff commentary. These revisions are discussed in detail below
in the section-by-section analysis.
Disclosures Concerning Overdraft Fees
Periodic Statements
Institutions that promote the payment of overdrafts in an
advertisement must separately disclose on their periodic statements,
the total amount of fees or charges imposed on the deposit account for
paying overdrafts and the total amount of fees charged for returning
items unpaid. These disclosures must be provided for the statement
period and for the calendar year to date for any account to which the
advertisement applies. The final rule is narrower than the proposal,
which would have applied to all institutions, regardless of whether
they market the payment of overdrafts. Thus, institutions that do not
promote the payment of overdrafts would not be required to provide the
new periodic statement disclosures under the final rule.
To facilitate compliance, the staff commentary provides
specific examples of when an institution is promoting the payment of
overdrafts in an advertisement. For example, stating the overdraft
limit for an account on a periodic statement or stating an account
balance that includes available overdraft funds on an ATM receipt would
be considered an advertisement triggering the required disclosures.
An institution that does not otherwise promote the payment
of overdrafts would not trigger the requirement to provide aggregate
fee disclosures on periodic statements solely by:
(1) Communicating information about the payment of overdrafts in
response to a consumer-initiated inquiry about overdrafts or deposit
accounts generally. Providing information about the payment of
overdrafts in response to a balance inquiry made through an automated
system, such as a telephone response machine, an ATM, or an
institution's Internet site, is not a response to a consumer-initiated
inquiry for purposes of this provision, and would trigger the periodic
statement disclosure requirements;
(2) Providing educational materials that do not specifically
describe the institution's overdraft service;
(3) Promoting in an advertisement a traditional line of credit that
is subject to the Board's Regulation Z (Truth in Lending);
(4) Engaging in an in-person discussion with a consumer;
(5) Making a disclosure required by Federal or other applicable
law;
(6) Including information on a periodic statement or providing a
notice informing a consumer about a specific overdrawn item or the
amount the account is overdrawn;
(7) Including in a deposit account agreement a discussion of the
institution's right to pay overdrafts; or
(8) Notifying a consumer that completing a requested transaction,
such as an ATM withdrawal, may trigger an overdraft fee, or providing a
general notice that items overdrawing an account may trigger an
overdraft fee.
Account-Opening Disclosures
Institutions must specify in TISA's account-opening
disclosures the categories of transactions for which an overdraft fee
may be imposed. An exhaustive list of transactions is not required; it
is sufficient to state that the fee is imposed for overdrafts created
by checks, in-person withdrawals, ATM withdrawals, or by other
electronic means, as applicable. This requirement applies to all
institutions, including institutions that do not promote the payment of
overdrafts in an advertisement.
Advertising Rules
To avoid confusion with traditional lines of credit,
institutions that promote the payment of overdrafts are required to
include certain disclosures in their advertisements about the service:
the applicable fees or charges, the categories of transactions covered,
the time period consumers have to repay or cover any overdraft, and the
circumstances under which the institution would not pay an overdraft.
Stating the available overdraft limit or the amount of funds available
on a periodic statement would be considered an advertisement triggering
the required disclosures.
[cir] The final rule provides safe harbors from the advertising
requirements similar to those described above for the periodic
statement disclosure requirements. Thus, for example, the advertising
disclosure requirements would not apply to institutions when they
provide educational materials, respond to a consumer-initiated inquiry
about overdrafts or deposit accounts, or notify a consumer about a
specific overdraft in their account.
[cir] Advertising disclosures are not required on ATM receipts, due
to space
[[Page 29585]]
limitations. Similarly, advertising disclosures are not required for
advertisements using broadcast media, billboards, or telephone response
systems. This parallels an exemption in Regulation DD which applies to
other types of advertising disclosures. Limited advertising disclosures
are required on ATM screens, telephone response machines and indoor
signs.
Prohibiting Misleading Advertisements
TISA's prohibition against advertisements, announcements,
or solicitations that are misleading or that misrepresent the deposit
contract is extended to communications with consumers about the terms
of their existing accounts.
Examples of Misleading Advertisements
The staff commentary is revised to provide five examples
of advertisements that would ordinarily be deemed misleading:
(1) Representing an overdraft service as a ``line of credit;''
(2) Representing that the institution will honor all checks or
transactions, when the institution retains discretion at any time not
to honor any transaction;
(3) Representing that consumers with an overdrawn account are
allowed to maintain a negative balance when the terms of the account's
overdraft service require consumers to promptly return the deposit
account to a positive balance;
(4) Describing an overdraft service solely as protection against
bounced checks, when the institution also permits overdrafts for a fee
in connection with ATM withdrawals and other electronic fund transfers
that permit consumers to overdraw their account; and
(5) Describing an account as ``free'' or ``no cost'' in an
advertisement that also promotes a service for which there is a fee
(including an overdraft service), unless the advertisement clearly and
conspicuously indicates there is a cost associated with the service.
Possible Coverage Under the Truth in Lending Act
The amendments to Regulation DD recognize that an overdraft service
is provided as a feature and term of a deposit account, and that the
fees associated with the service are assessed against the deposit
account. As noted above, consumer advocates and some others who
commented on the proposed revisions to Regulation DD believe that
certain overdraft services should be covered by Regulation Z. These
commenters state that overdraft services compete with traditional
credit products--open-end lines of credit, credit cards, and short-term
closed-end loans--all of which are covered under TILA and Regulation Z
and provide consumers with the cost of credit expressed as a dollar
finance charge and an APR. They believe that TILA disclosures would
enhance consumers' understanding of the cost of overdraft services and
their ability to compare costs of competing financial services.
At its October 2004 meeting, the Board's Consumer Advisory Council
also discussed this issue, including ways to distinguish between an
institution's infrequent, ad hoc accommodation of a customer, and an
overdraft service that operates more like a line of credit. Some
Council members believed that overdraft services that are the
functional equivalent of a traditional overdraft line of credit should
be subject to Regulation Z, but that institutions' historical practice
of paying occasional overdrafts on an ad hoc basis should not be
covered by Regulation Z.
The Board's adoption of final rules under Regulation DD does not
preclude a future determination that TILA disclosures would also
benefit consumers. The Board expressly stated in its proposal that
further consideration of the need for coverage under Regulation Z may
be appropriate in the future.
VI. Section-by-Section Analysis
Section 230.2 Definitions
2(b) Advertisement
TISA prohibits institutions from making any advertisement,
announcement, or solicitation relating to a deposit account that is
inaccurate or misleading or that misrepresents its deposit contract. 12
U.S.C. 4302(e). Regulation DD currently defines ``advertisement'' to
include ``a commercial message appearing in any medium, that promotes
directly or indirectly the availability of, or a deposit in, an
account.'' See Sec. 230.2(b). Under the existing staff commentary,
institutions' communications with consumers about existing accounts are
not considered ``advertisements'' under Regulation DD. See comment
2(b)-2.iii.
The Board proposed to revise the definition of ``advertisement'' to
include an institution's communications with existing customers for
purposes of TISA's prohibition against advertisements that are
misleading or inaccurate or that misrepresent the deposit contract. The
Board also proposed to expand the definition to cover communications
with existing customers that promote the institutions' overdraft
services, which would trigger additional disclosures about the costs
and terms of the service.
The final rule adopts the revised definition of ``advertisement''
as proposed under Sec. 230.2(b)(1). Section 230.2(b)(2) of the final
rule provides that for purposes of the prohibition on misleading
advertisements in Sec. 230.8(a) and the new disclosure requirements in
Sec. 230.11, the definition of ``advertisement'' includes the terms
of, or a deposit in, a new or existing account. The staff commentary
has been modified to address commenters' concerns about the need to
clarify the scope of the revised definition.
Most commenters who addressed this aspect of the proposal did not
oppose applying the prohibition on misleading or inaccurate
advertisements to communications about existing accounts. Many
commenters believe, however, that modifications are necessary to
clarify the scope of the proposed definition. In particular, several
commenters expressed concern that, without clarification, the
definition would be interpreted to apply to routine communications,
such as notices commonly sent to inform accountholders that their
account has become overdrawn. Other commenters asked the Board to
provide additional guidance on types of communications that would
constitute promoting an overdraft service and thus satisfy the
definition of ``advertisement.''
Comment 2(b)-2 currently provides examples of messages that are not
considered advertisements. The Board proposed to re-designate comment
2(b)-2 as comment 2(b)-3. The re-designation is not necessary in the
final rule. In response to commenters' concerns, comment 2(b)-2 has
been revised to provide additional examples of messages that are not
advertisements. Paragraph 2(b)-2.iii is revised for conformity with the
final rule. Paragraph 2(b)-2.iv. clarifies that an institution is not
promoting a deposit or service solely by providing information about a
particular transaction in an account, such as in a notice or a periodic
statement advising a consumer about a specific overdrawn item.
Paragraph 2(b)-2.v. provides that an institution is not promoting a
deposit or service solely by providing legally required disclosures.
Similar guidance had been included in proposed comment 2(b)-2. The
guidance in the final rule has been revised by deleting the specific
reference to disclosures provided at account-opening, on periodic
statements, and on electronic terminal receipts, to address commenters'
concerns that other required disclosures should also be
[[Page 29586]]
excluded from the definition of ``advertisement.'' If an institution
combines promotional material with the required disclosures, however,
this additional information would be considered an advertisement. An
institution that includes promotional materials about its overdraft
service with required disclosures generally would be required to
provide the new disclosures in Sec. 230.11 (discussed below).
Paragraph 2(b)-2.vi. clarifies that an account agreement is not an
advertisement.
The revised definition of advertisement does not affect rules for
triggering additional disclosures when an advertisement states an APY
or bonus. The previous definition of ``advertisement'' continues to
apply for this purpose and has been redesignated as Sec. 230.2(b)(1).
Modifications have been made only for stylistic consistency; no
substantive change is intended.
Section 230.4 Account Disclosures
4(b) Content of Account Disclosures
4(b)(4) Fees
Under TISA and Regulation DD, before an account is opened,
institutions must provide a schedule describing all fees that may be
charged in connection with the account. The schedule must also disclose
the amount of the fee and the conditions under which the fee will be
imposed. 12 U.S.C. 4303; Sec. 230.4(b)(4). When terms required to be
disclosed in the schedule change and adversely affect accountholders,
notice of the change must be provided 30 days in advance. 12 U.S.C.
4305; Sec. 230.5(a).
Currently, the guidance for describing fees is quite general, and
provides that ``naming and describing the fee will typically satisfy
these requirements.'' See comment 4(b)(4)-3. The Board proposed comment
4(b)(4)-5 to require institutions to state in their account-opening
disclosures the types of transactions for which an overdraft fee may be
imposed. As proposed, describing the fee solely as a ``fee for
overdrafts'' or fee for ``overdraft items'' would not provide
sufficient notice to consumers as to whether the fee applies to
overdrafts by check only, or whether it also applies to overdrafts by
other means, such as by ATM withdrawal or other electronic
transactions. The revisions are being adopted substantially as
proposed, with some modifications to address commenters' concerns, and
would apply to all institutions, regardless of whether they promote the
payment of overdrafts.
A few commenters that support the proposed comment affirm that they
already provide such disclosures. Most commenters do not oppose the
proposed change, but encourage the Board to clarify that an exhaustive
list of transactions for which an overdraft fee may be imposed, is not
required. These commenters express concern that requiring disclosure of
an exhaustive list of transactions could necessitate a change-in-terms
notice as new technologies are implemented. For example, several
commenters believe that an institution solely disclosing that overdraft
fees may be imposed for transfers initiated using the Internet might
have to provide a change-in-terms notice if telephone transfers are
subsequently allowed. These commenters assert that an illustrative list
of transactions would sufficiently notify the consumer that overdraft
fees will apply in multiple circumstances, while allowing institutions
to avoid the need to provide a change-in-terms notice if, subsequently,
overdrafts are permitted through another channel. A few commenters
asked the Board to provide model language to ease compliance.
To address commenters' concerns, comment 4(b)(4)-5 has been revised
to clarify that an exhaustive list of transactions is not required. As
revised, the comment provides that institutions may specify categories
of transactions for which an overdraft fee may be imposed. The final
comment also includes model language. Institutions may satisfy the
requirements by stating that the fee applies to overdrafts ``created by
check, in-person withdrawal, ATM withdrawal, or other electronic
means,'' as applicable. The model language is sufficiently broad to
cover most situations in which overdrafts can occur, but institutions
are free to add additional categories. For example, an institution
using the model language would not be required to change its
disclosures when implementing a system for making electronic transfers
by telephone. But if an institution only discloses that overdraft fees
are imposed in connection with the payment of checks, new disclosures
would be required if the institution subsequently imposes the fees for
overdrafts created by ATM withdrawals or other electronic means.
Institutions are not required to provide new account-opening
disclosures or change-in-terms notices to consumers who previously
received overdraft fee disclosures under existing guidance currently in
the staff commentary. However, to the extent that an institution's
prior disclosures suggested the overdraft service only covers checks,
institutions should consider informing their customers that the service
is broader and applies to overdrafts by in-person withdrawals, ATM
withdrawals, and by other electronic means, as applicable.
Section 230.6 Periodic Statement Disclosures
6(a) General Rule
6(a)(3) Fees Imposed
The Board proposed to revise Regulation DD, by adding Sec.
230.6(a)(3)(ii), to require all institutions to disclose separately,
the total dollar amount of overdraft fees and the total dollar amount
of returned-item fees, for the statement period and the calendar year
to date. As further discussed below, this provision has been moved to
new Sec. 230.11(a), and the requirements are limited to institutions
that promote the payment of overdrafts in an advertisement. Proposed
comment 6(a)(3)-2 has been adopted, with some modifications, to clarify
that fees for paying overdrafts and fees for returning items unpaid may
not be grouped together as fees for insufficient funds.
Section 230.8 Advertising
As discussed above, the Board is revising Regulation DD to apply
the prohibition in Sec. 230.8(a) on misleading advertisements to
communications with consumers about the terms of their existing
accounts. The Board also proposed to revise the staff commentary to
provide examples of advertisements that would ordinarily be misleading.
In addition, to reduce consumer confusion about how overdraft services
differ from a traditional line of credit, the proposed rule required
institutions that promote automated overdraft services to include
certain disclosures in their advertisements about the service. In the
final rule, the prohibition on guidance regarding misleading and
inaccurate advertisements in Sec. 230.8(a) is being revised. The
proposed examples in the commentary of advertisements that would
ordinarily be misleading are being adopted largely as proposed under
Sec. 230.8(a), with some modifications for clarity. The additional
disclosure requirements for advertisements that promote the payment of
overdrafts in proposed Sec. 230.8(f) are contained in new Sec.
230.11(b), discussed below.
8(a) Misleading or Inaccurate Advertisements
In the final rule, Sec. 230.8(a) has been reorganized, as
proposed. To provide guidance on the types of advertisements that may
violate the rule, the Board proposed to add comment 8(a)-10. The
proposed comment provided five examples of advertisements that would
[[Page 29587]]
ordinarily be misleading, inaccurate, or misrepresent the deposit
contract. The examples of misleading advertisements in proposed comment
8(a)-10 are adopted as proposed, with some revisions for clarity.
The first example is an advertisement that represents an overdraft
service as a ``line of credit'' unless the service is subject to the
Board's Regulation Z. The second example is an advertisement that
misleads consumers by representing that the institution will honor all
checks or authorize all transactions that overdraw an account, with or
without a specified dollar limit, when the institution retains
discretion at any time not to honor checks or authorize transactions.
A third example states that an advertisement could mislead
consumers by representing that consumers with overdrawn accounts are
allowed to maintain a negative balance when the terms of the account's
overdraft service require consumers to promptly return the deposit
account to a positive balance. The fourth example provides that
promotional materials describing a service solely as protection against
bounced checks could mislead consumers if the service also applies to
ATM withdrawals, and other debit card transactions, and electronic fund
transfers.
The fifth example of misleading advertisements relates to the
advertisement of free accounts. Under Regulation DD, an institution may
not describe an account as ``free'' (or use a similar term) if any
maintenance or activity fee may be imposed on the account. As the Board
noted in the proposal, fees for overdraft services are not considered
maintenance or activity fees, because the fees do not relate to the use
of the consumer's own funds in the account. Thus, institutions may
impose overdraft fees in connection with ``free'' accounts. The example
addresses concerns about institutions that advertise overdraft services
(or other services) as a feature of their free checking accounts in a
manner that could mislead consumers to believe that the service is
without cost. Accordingly, an advertisement would be deemed misleading
if the account is described as ``free'' and the advertisement also
promotes account-related services for which there is a fee, unless the
advertisement clearly and conspicuously indicates there is a cost
associated with the advertised service.
Most commenters agree that the misleading advertising practices
identified by the Board should be prohibited, and support the proposed
examples. One consumer group, however, believes that the proposed
examples are not sufficient because they do not prohibit institutions
from encouraging consumers to use the service for intentional
overdrafts. The final rule does not contain such an example. Although
advertisements that encourage intentional overdrafts may under some
circumstances mislead consumers about the terms of the service, such a
determination must be made on a case-by-case basis.
A few industry commenters objected to the scope of the fifth
example which pertains to advertisements that promote ``free'' accounts
as well as services for which a fee is charged. These commenters
believe the example should be limited to advertisements promoting
overdraft services in connection with free accounts. Although comment
8(a)-10.v. addresses concerns that consumers may be misled into
thinking that overdraft protection is without cost when the service is
advertised as a feature of free checking accounts, the same possibility
of misleading consumers exists when other account-related services are
advertised in connection with free accounts. Thus, the scope of the
final comment is not limited to the promotion of overdraft services.
TISA's limitation on advertising an account as free is currently
implemented in Sec. 230.8(a). This provision has been redesignated as
Sec. 230.8(a)(2), without any substantive change.
8(f) Additional Disclosures in Connection With Overdraft Services
Proposed Sec. 230.8(f) would have required advertisements
promoting an automated overdraft service to include certain fee and
other information about the service. This requirement is in Sec.
230.11(b) in the final rule. Section 230.8(f) of the final rule
contains a cross-reference to the new advertising disclosures in Sec.
230.11(b).
Section 230.11 Additional Disclosure Requirements for Institutions
Advertising the Payment of Overdrafts
New Sec. 230.11 consolidates the disclosure requirements
previously set forth in Sec. Sec. 230.6(a)(3) and 230.8(f) of the
proposed rule. Section 230.11(a) contains the disclosure requirements
for periodic statements. The final rule is narrower than the proposal
and only applies to institutions that promote the payment of overdrafts
in advertisements. Section 230.11(a) requires these institutions to
separately disclose the total fees for paying overdrafts and the total
fees for returning items unpaid on periodic statements. The disclosures
must be made for the statement period and for the calendar year to date
for each account to which the advertisement applies. Section 230.11(b)
requires institutions that promote the payment of overdrafts in
advertisements to provide certain additional disclosures about the
nature of the overdraft service. The Board believes that consolidating
these rules in a new section will help facilitate compliance with the
regulation for institutions that choose to promote the payment of
overdrafts.
11(a) Periodic Statement Disclosures of Fees for Overdrafts and for
Returned Items Unpaid
To assist consumers in better understanding the costs associated
with overdrawing their accounts, the Board proposed to revise the
requirements for providing cost disclosures on periodic statements.
Although periodic statements are not required by TISA, an institution
that provides such statements must disclose any fees or charges imposed
on the account during the statement period. Under Regulation DD, fees
must be itemized on a periodic statement by type, for example, by
separately listing the monthly service charge, ATM fees, and returned
check fees. When multiple fees of the same type are charged in a single
period, comment 6(a)(3)-2 in the current staff commentary states that
institutions have the option of showing each fee as a separate charge
or, alternatively, aggregating all fees of the same type and disclosing
a single dollar amount for that category. The Board proposed to add
Sec. 230.6(a)(3)(ii) to require all institutions to disclose
separately the total dollar amount of overdraft fees and the total
dollar amount of returned-item fees on an aggregate basis for the
statement period and for the calendar year to date. As discussed above,
under Sec. 230.11(a)(1) of the final rule, only institutions that
promote the payment of overdrafts in an advertisement are required to
provide the aggregate fee disclosures on periodic statements.
Institutions must provide the disclosures for all accounts to which the
institution's advertisement applies.
Section 230.11(a)(2) describes certain communications that
institutions may make concerning the payment of overdrafts that would
not trigger the new periodic statement disclosures. Sections
230.11(a)(3) through (5) provide guidance on how an institution can
comply with the rule after it commences advertising the payment of
overdrafts, and after an institution acquires accounts through a merger
or acquisition. Additional comments have
[[Page 29588]]
been added for clarity in response to concerns raised by commenters.
Consumer representatives that commented believe that consumers need
better information about the cost of using certain overdraft services,
but they assert that disclosing aggregate fees for the statement cycle
and year to date would be insufficient to provide consumers with the
information necessary to compare the cost of overdraft services with
the costs of alternative forms of short-term credit such as payday
loans, tax refund anticipation loans, and traditional overdraft lines
of credit. They recommend that instead of adopting the proposed
revisions to Regulation DD, the Board should cover certain overdraft
services under Regulation Z so that periodic statements would provide
consumers with an APR.
Where the institution has not agreed in writing to pay overdrafts,
a charge assessed against a deposit account for paying an overdraft has
not been considered a finance charge and disclosures under Regulation Z
are not required. This exception was established in Regulation Z from
its inception in 1969. As noted above, the Board's adoption of final
rules under Regulation DD does not preclude a future determination that
TILA disclosures would also benefit consumers.
Industry commenters generally oppose the proposed requirement to
disclose aggregate totals for overdraft fees and returned-item fees
because they believe it would be costly and would provide little
benefit to consumers. Several commenters disagree with the view that
consumers do not receive sufficient information about the costs
associated with overdrawing their account, observing that consumers
receive a schedule of fees at account-opening, notice of fees imposed
upon each overdraft, and an itemization of fees on periodic statements.
Many of these commenters also assert that the itemization of fees on
periodic statements provides a sufficient basis for consumers to
determine an aggregate total for fees imposed during the statement
cycle and calendar year to date. Most industry commenters stated that
the typical industry practice of providing a notice after each
overdraft is a more effective and timely means of alerting consumers
about the cost of overdrafts. Some financial institutions oppose
additional disclosures about overdraft fees on periodic statements
because, in their view, it would detract from information on the
periodic statement about other types of fees, such as ATM withdrawal
fees. A few industry commenters question how an institution can provide
year-to-date totals that would be reset to zero each January when a
statement period is not tied to a calendar month.
Most industry commenters express concern about the cost of
implementing changes to the way fees are disclosed on periodic
statements, which would involve changes to data collection and
reporting systems, as well as training and compliance management costs.
They note that most institutions' systems do not currently aggregate
fee data across different statement cycles, which would be necessary to
disclose year-to-date totals. Some commenters also note that systems
changes would be needed for some institutions to distinguish between
fees imposed for paying overdrafts and fees for handling items that are
returned unpaid. Six financial institutions provided cost estimates. At
the low end, one institution that stated it uses a third-party vendor
for data processing estimated the cost at $20,000, while two other
institutions that outsource data processing estimated the cost to be
about $300,000. Two institutions (including one with $1.5 billion in
assets) provided cost estimates between $50,000 and $125,000. Bank of
America, noting that it operates the largest banking network in the
United States, estimated that expenses for the initial systems
modifications for paper statements would exceed $1 million.
The Board specifically asked for comment on whether the requirement
to disclose cumulative year-to-date fee totals on periodic statements
should be limited to institutions that market overdraft services.
Industry commenters were divided. Several banks that do not promote
overdraft services supported limiting the rule; these were generally
larger institutions that stated the proposed revisions should focus on
institutions whose marketing practices have raised the most concerns.
These commenters urged the Board to exempt institutions that do not
market overdraft services from being required to disclose aggregate
fees for the statement period and year to date. But more industry
commenters stated that the rule, if adopted, should apply to all
institutions and not just institutions that market overdraft services.
Some of these commenters believe a rule based on ``marketing'' would be
too vague; others assert that if the cost disclosure is useful, it
would be just as beneficial to consumers regardless of whether the
service is marketed. One commenter also noted that institutions'
contracts with third-party vendors may limit the cost of system changes
from being imposed directly on individual depository institutions if
the changes must be made by all institutions.
TISA was enacted, in part, for the purpose of requiring clear and
uniform disclosures regarding deposit account terms and the fees
assessable against these accounts. Such disclosures allow consumers to
make informed judgments about the use of their accounts, including the
consideration of other available options. In proposing that
institutions disclose the aggregate amount of fees imposed for
overdrafts and returned items, the Board sought to ensure that
consumers are more clearly presented with the overall cost of
overdrawing their accounts, particularly in light of the fact that
institutions' payment of overdrafts has become more routine due to the
use of automated systems, and that many institutions encourage
consumers to use their overdraft service. Currently, institutions may
itemize each fee on the periodic statement, including overdraft and
returned-item fees; the itemized charges may be interspersed among
other transactions in the account. A periodic statement that itemizes
each transaction and fee during the statement cycle, without isolating
the total cost of overdrawing the account, does not present a clear
picture of the total cost associated with overdrawing the account.
Fees for paying overdrafts and for returned items are typically
flat fees unrelated to the amount of the transaction. These amounts may
be significant when there are multiple overdrafts, although the items
may represent relatively small dollar amounts. Even when consumers are
aware that their account is or may become overdrawn, they do not
necessarily know the number of overdraft items that will be paid or
returned, or the total fees that will be imposed, both of which are
determined by the order in which items are presented and the
institution's policies regarding the order in which items are paid.
Thus, consumers may not be aware of the total amount of fees being
imposed and the amount by which the account is overdrawn until the next
periodic statement is received. The Board believes disclosure of the
aggregate costs may better enable consumers to consider their approach
to account management and determine whether the account's terms and
features are suited to their needs or whether other types of accounts
or services would be more appropriate.
The Board is also mindful, however, of the compliance costs
associated with the proposed rule. Limiting the rule to
[[Page 29589]]
institutions that advertise the payment of overdrafts avoids imposing
compliance burdens on institutions that pay overdrafts infrequently,
such as institutions that only pay overdrafts on an ad hoc basis.
Requiring institutions to provide aggregate fee disclosures if they
promote the payment of overdrafts would provide better cost information
for consumers who are encouraged to overdraw their accounts and who are
most likely to benefit from the aggregate fee disclosures.
There may be consumers who use overdraft services frequently even
though their institution does not market the service; however, a rule
based on individual consumer behavior is more difficult to administer.
Accordingly, under Sec. 230.11(a)(1), the requirement for disclosing
aggregate fees for paying overdrafts and for returning items unpaid is
limited to institutions that promote the payment of overdrafts in an
advertisement. The total dollar amount for paying overdrafts includes
all fees or charges imposed by an institution for paying overdrafts or
other items when there are insufficient funds and the account becomes
overdrawn. The final rule also clarifies that the required disclosures
must be provided for the statement period and for the calendar year to
date, for any account to which the advertisement applies. Institutions
that do not promote the payment of overdrafts and have merely automated
their traditional practice of paying overdrafts on an ad hoc basis are
not covered by Sec. 230.11(a)(1). These institutions may continue to
itemize fees on periodic statements but whether they itemize fees or
group them together by type, institutions must distinguish between fees
for paying overdrafts and fees for returning unpaid items. Institutions
that do not promote the payment of overdrafts may also group like fees
together and provide a total for the statement period on a voluntary
basis, consistent with the current rules.
The definition of ``advertisement'' is broad and includes ``a
commercial message appearing in any medium, that promotes directly or
indirectly the availability'' the terms of a deposit account. Thus, the
rules for overdraft services would cover any type of promotion,
regardless of the advertisement's content, format or the marketing
channel used. For example, messages posted on a depository
institution's Internet site would be covered, as would promotional e-
mail messages and messages printed on an institution's periodic
statement. Oral messages communicated in a telephone solicitation would
also be covered. See comment 11(a)(1)-1(i).
To ease compliance, the final rule specifies certain types of
communications and practices that would not trigger the requirement for
disclosing aggregate fees on periodic statements. See Sec.
205.11(a)(2). The safe harbors seek to provide additional certainty to
institutions in determining whether compliance with the rule is
required in particular circumstances. For example, the safe harbors
clarify that an institution is not promoting the payment of overdrafts
when providing information about the status of the account or a
particular transaction, such as when notifying a consumer that the
account has become overdrawn or when including the amount the account
is overdrawn on a periodic statement. Similarly, an institution is not
deemed to be promoting the payment of overdrafts when it provides
notice to a consumer, such as at an ATM, that completing a requested
transaction may trigger a fee for overdrawing the account, or when it
provides a general notice that items overdrawing an account may trigger
a fee.
An institution also is not promoting overdraft services by
providing legally required disclosures, by discussing in a deposit
account agreement the institution's right to pay overdrafts, or by
providing educational materials that do not specifically describe the
institution's overdraft service (such as the brochure on ``bounce
protection'' published by the Federal financial regulatory agencies).
The rules for overdraft services also would not apply to advertisements
for overdraft lines of credit covered by TILA and Regulation Z.
The safe harbors also provide relief in circumstances where
institutions would have practical difficulties in complying with the
rule. In particular, there are safe harbors for consumer-initiated and
face-or-face discussions to relieve institutions of the burden of
monitoring individual conversations and responses; this also enables
institutions to respond to consumers' direct questions about their
accounts without concern that the discussion might trigger additional
disclosure requirements. The final rule clarifies that institutions are
within the safe harbor when responding (whether by telephone,
electronically, or otherwise) to consumer-initiated inquiries about
deposit accounts and overdrafts. The revised final rule also explains
the limits of this safe harbor; the safe harbor for consumer-initiated
inquiries does not apply to institutions' automated systems that are
programmed to provide information about the institution's overdraft
service, such as an ATM machine, a telephone response machine, or the
institution's Internet site. In these cases, the consumer initiates the
contact, but the institution has control over the pre-programmed
message that provides information about available overdraft limits, and
thus, the same compliance issues as individual inquiries are not
presented.
Section 230.11(a)(3) addresses the timing of the aggregate fee
disclosures after an institution begins promoting the payment of
overdrafts. An institution must make the disclosures under Sec.
230.11(a)(1) for accounts to which the advertisement applies, starting
with the first statement period that begins after the institution
advertises the payment of overdrafts. For example, if a consumer's
statement period typically closes on the 15th of each month, an
institution that promotes the payment of overdrafts with respect to the
consumer's account on July 1, 2006 must provide the aggregate fee
disclosures on subsequent periodic statements for that consumer
beginning with the statement reflecting the period from July 16, 2006,
through August 15, 2006. In calculating and disclosing total fees for
the year-to-date, institutions have the option of including fees
imposed since the beginning of the calendar year, or starting with the
first full statement period that begins after the institution
advertises the payment of overdrafts with respect to the consumer's
account.
Comment 11(a)(3)-1 explains that only institutions that continue to
advertise the payment of overdrafts on or after the mandatory
compliance date of July 1, 2006 will be required to provide aggregate
fee periodic statement disclosures for their consumers. Under Sec.
230.11(a)(4) of the final rule, an institution is no longer required to
provide the disclosures under Sec. 230.11(a)(1) two years after the
institution last promotes its overdraft service with respect to that
account, when the likely effect of the advertisement on consumers' use
is presumably dissipated.
Where an institution acquires deposit accounts, for example, by
merging with or acquiring another institution, under Sec. 230.11(a)(5)
the acquiring institution must thereafter provide the aggregate fee
disclosures required by Sec. 230.11(a)(1) only if the acquiring
institution promotes the payment of overdrafts with respect to the
acquired accounts. If disclosures are required for the acquired
accounts, the acquiring institution may, but is not required, to
include fees imposed prior to the acquisition in the aggregate totals.
Comment 11(a)(5)-1 explains that if the acquiring institution does not
advertise the payment of overdrafts, or its advertisements do not
[[Page 29590]]
apply to the acquired accounts, the institution need not provide the
aggregate fee disclosures for the acquired accounts even if the
depository institution that previously held the accounts advertised the
payment of overdrafts for those accounts.
In response to commenters' requests for clarification, additional
guidance has been added to the staff commentary. Comment 11(a)(1)-1
provides examples of circumstances in which an institution would
trigger the periodic statement requirements. For example, an
institution promotes the payment of overdrafts by stating an overdraft
limit or includes the amount of funds available for overdrafts on a
periodic statement. See comment 11(a)-1(ii). Similarly, an institution
promotes the payment of overdrafts if it states an overdraft limit or
includes the dollar amount of the overdraft limit in an account balance
disclosed on an ATM receipt or by a telephone response system. See
comment 11(a)-1(iii). Comment 11(a)(1)-3 provides that an institution
does not promote the payment of overdrafts, however, if it promotes a
service providing for the transfer of funds from another deposit
account of the consumer to avoid creating an overdraft.
Comment 11(a)(1)-2 explains that the aggregate fee disclosures must
be provided on periodic statement for all accounts to which an
advertisement promoting the payment of overdrafts applies. Accordingly,
if an institution specifies the types of accounts for which the
overdraft service applies, the institution is not required to provide
the disclosures for other types of accounts offered by the institution.
An institution is required to provide the new aggregate fee disclosures
for all of its accounts, however, if the institution generally promotes
the payment of overdrafts without specifying the accounts to which the
advertisement applies.
Comment 11(a)(1)-4 clarifies that the total dollar amount disclosed
for fees charged to the account for paying overdrafts includes per-item
fees as well as interest charges, daily or other periodic fees, and
fees charged for maintaining an account in overdraft status. It also
includes fees charged when there are insufficient funds because
previously deposited funds are subject to a hold or are uncollected.
The disclosure would not include, however, fees for transferring funds
from another account to avoid an overdraft, or fees charged in
connection with a line of credit where the institution agrees in
writing to pay items that overdraw the account and the service is
subject to the Board's Regulation Z.
Comment 11(a)(1)-5 clarifies that in disclosing fees for returning
items unpaid, an institution should not include fees imposed when the
account holder deposits items that are returned.
In some cases, an institution may provide a statement for the
current period reflecting that fees imposed during a previous period
were waived and credited to the account. In response to commenters'
request for clarification, comment 11(a)(1)-6 provides that such
adjustments should not affect the total disclosed for fees imposed
during the current statement period. The comment also notes, however,
that institutions may, but are not required to, reflect the adjustment
in the fee total for the calendar year to date.
In response to commenters' suggestions, comment 11(a)(1)-7 provides
guidance on how depository institutions may disclose the year-to-date
fee totals when the institution's statement cycle does not coincide
with the calendar month. In such cases, the institution may disclose a
year-to-date total by aggregating fees for 12 monthly cycles, starting
with the cycle that begins during January. Alternatively, the
institution may provide a year-to-date total based on the calendar
year.
Comment 11(a)(1)-8 provides that institutions that promote the
payment of overdrafts may continue to itemize overdraft and returned
item fees on periodic statements as an additional voluntary disclosure
in addition to the disclosures required by Sec. 230.11(a)(1).
11(b) Advertising Disclosures for Overdraft Services
TISA and Regulation DD require additional information to be
provided if an advertisement for a deposit account refers to a specific
rate of interest, yield, or rate of earnings. 12 U.S.C. 4302; Sec.
230.8(c). Advertisements for bonuses on deposit accounts also trigger
additional information. Sec. 230.8(d). TISA authorizes the Board to
exempt ``broadcast and electronic media and outdoor advertising from
stating some additional information, if the Board finds the disclosures
to be unnecessarily burdensome.'' 12 U.S.C. 4302(b). These limited
disclosure rules are implemented in Sec. 230.8(e)(1). The exemptions
for broadcast and electronic media do not extend to advertisements
posted on the Internet or sent by e-mail.
A principal concern about institutions' promotion of the payment of
overdrafts is that consumers may be led to believe that the service
represents a traditional line of credit. Some advertisements of
overdraft services focus on the dollar amount of the overdraft limit,
which may mislead some consumers to believe that a line of credit for
that amount will be provided. Other advertisements create the
impression that the payment of overdrafts can be relied upon to obtain
short-term extensions of credit from time to time (up to a given
amount) at minimal cost. These promotions may mislead or confuse
consumers regarding the nature, costs, terms, and limitations of the
service. This problem may be magnified somewhat because marketed
overdraft services are relatively new.
Additional disclosures in advertising could reduce the potential
that some consumers would be misled, and enable consumers to compare
the terms offered by different financial institutions. Accordingly, the
Board proposed to add Sec. 230.8(f) to require that the following
disclosures be included in advertisements for ``automated'' overdraft
services not subject to Regulation Z: (1) The fee for overdrawing an
account; (2) the types of transactions covered; (3) the amount of time
consumers have to repay or cover any overdraft; and (4) the
circumstances under which the institution would not pay an overdraft.
The proposed disclosures would have been required for print media and
marketing on Internet sites; but because of the practical limitations
of time or space, there was an exemption for advertisements using
broadcast media, outdoor billboards, and telephone response machines,
which would mirror the exemptions in Regulation DD for other types of
advertising disclosures. The Board also proposed to add comments 8(f)-1
through 8(f)-3, to provide guidance in applying the new disclosure
requirements. The final rule adopts these provisions largely as
proposed in Sec. 230.11(b) and the accompanying commentary.
Several industry commenters asked the Board to clarify which
``automated'' overdraft services would be subject to the advertising
disclosures, noting that all institutions automate their processing of
overdrafts to some extent. These commenters generally urge the Board to
draw a clear line to aid in compliance. The final rule omits the
reference to ``automated'' overdraft services to eliminate unnecessary
confusion. The rule was intended to apply to all overdraft services
that are advertised by depository institutions. Institutions that have
a policy of paying overdrafts only on an ad hoc basis generally do not
advertise the service and are expected to be unaffected by the new
advertising disclosure requirements.
Most commenters did not disagree with the idea that some additional
[[Page 29591]]
information about marketed overdraft services might be helpful to
consumers. But several industry commenters have concerns about the
scope of the proposed disclosures, or have questions about how the
disclosures would be implemented. A few industry commenters express the
view that additional disclosures in advertisements would be burdensome
and would, therefore, discourage banks from advertising overdraft
services; others suggest that the additional disclosures would provide
too much information and could confuse consumers. One trade association
stated that disclosing specific costs and terms in advertisements might
have the unintended effect of encouraging additional use of the
service.
On balance, the Board continues to believe that additional
disclosures about the terms of overdraft services would benefit
consumers, particularly since institutions often add the overdraft
feature without consumers' specific request. The final rule thus adopts
the new advertising disclosure requirements under Sec. 230.11(b)(1)
and the staff commentary largely as proposed, with some modifications
and clarifications.
Consistent with the rule for periodic statement disclosures, Sec.
230.11(b)(2)(i) through (xi) specifies circumstances where an
institution would not be required to provide the additional advertising
disclosures in Sec. 230.11(b)(1). For example, an institution need not
provide the disclosures if the advertisement is for a service where the
payment of overdrafts is agreed upon in writing and subject to
Regulation Z. See Sec. 230.11(b)(2)(i). The advertising disclosures
also are not applicable when an institution informs consumers about a
specific overdrawn item, when it provides disclosures required by law,
or when an institution provides educational materials that do not
specifically describe the institution's overdraft service. See Sec.
230.11(b)(2)(vii), (viii), (xi). The advertising disclosures also do
not apply to in-person discussions with a consumer, or when
institutions are responding to consumer-initiated inquiries about
deposit accounts or overdrafts. See Sec. 230.11(b)(2)(ii), (vi).
The final rule also recognizes that in some circumstances, there
may be practical limitations on the ability to provide meaningful
advertising disclosures. No disclosures would be required for broadcast
or outdoor media, consistent with the current advertising rules in
Regulation DD, or on ATM receipts, due to space limitations. See
Sec. Sec. 230.11(b)(2)(iii)-(v). The safe harbor for advertisements
using broadcast or electronic media applies to radio and television,
but does not extend to advertisements posted on an Internet site, ATM
screens, or on telephone response machines, or advertisements sent by
e-mail. See comment 11(b)-3. Nevertheless, the advertising disclosures
required for ATM screens and telephone response machines are limited to
information about fees and the time period for repaying overdrafts. See
Sec. 230.11(b)(3).
An institution that advertises the payment of overdrafts on an
indoor lobby sign is only required to state that fees may apply and
that consumers should contact an employee for information about
applicable fees and terms. (An ATM screen would not be considered an
indoor sign for purposes of this exemption.) See Sec. 230.11(b)(4). An
indoor sign may also direct consumers to additional sources of
information, such as the institution's Internet site. While
institutions advertising the payment of overdrafts using broadcast or
outdoor media, ATMs, telephone response machines or lobby signs may
qualify for complete or partial exemptions from the advertising
disclosures in Sec. 230.11(b)(1), they would nevertheless continue to
be required to provide aggregate fee disclosures on periodic statements
under Sec. 230.11(a)(1) for the statement period and the calendar year
to date.
The staff commentary contains additional guidance to clarify the
obligations of institutions that promote the payment of overdrafts in
advertisements. Comment 11(b)-2 clarifies that disclosures are not
required if the advertised service provides for the transfer of funds
from another consumer account to avoid creating an overdraft. Comment
11(b)-4 describes the types of fees that must be disclosed in an
advertisement.
Comment 11(b)-5 provides guidance on disclosing the types of
transactions covered by an advertised overdraft service. This guidance
was previously in proposed comment 8(f)-1. The guidance is consistent
with the disclosures required at account opening. See comment 4(b)(4)-
5. Institutions are not required to provide an exhaustive list of
transactions. Disclosing that a fee may be imposed for covering
overdrafts ``created by check, in-person withdrawal, ATM withdrawal, or
other electronic means,'' as applicable, would satisfy the rule.
Comment 11(b)-6 provides guidance on disclosing the time period for
repayment, which is intended to warn consumers that, unlike a line of
credit, they are expected to cover the overdraft in a relatively short
period. Some industry commenters noted that an institution's deposit
agreement may require immediate repayment even though, in practice, the
institution allows consumers to cover the overdraft with their next
regular deposit. Other industry commenters assert the disclosure might
encourage consumers to defer repayment of the overdraft. In response to
the comments, comment 11(b)-6 clarifies that if a depository
institution reserves the right to require a consumer to pay an
overdraft immediately or on demand instead of affording consumers a
specific time period to bring their account to a positive balance, it
may disclose that fact to satisfy the rule.
Comment 11(b)-7 provides guidance on how institutions may describe
the circumstances under which an institution will not pay an overdraft.
This guidance previously was in proposed comment 8(f)-2. Some industry
commenters stated that such a disclosure could imply an agreement or
promise to pay overdrafts in all other circumstances, which would be
contrary to the ``discretionary'' nature of the overdraft service. Many
commenters suggested a more generic disclosure noting that payment of
any overdraft is discretionary. The final commentary provision has been
revised to address the commenters' concerns and provides model
language. An institution must describe the circumstances under which it
will not pay an overdraft, but it is sufficient to state, as
applicable: ``Whether your overdrafts will be paid is discretionary and
we reserve the right not to pay. For example, we typically do not pay
overdrafts if your account is not in good standing, or you are not
making regular deposits, or you have too many overdrafts.''
Comment 11(b)-8 clarifies the relationship between the general
guidance in comment 8(a)-10.v. (the rules for advertisements that
promote free accounts as well as an account-related service for which a
fee is charged) and the requirements of Sec. 230.11(b)(1) when the
account-related service being advertised is an overdraft service. This
guidance previously was in proposed comment 8(f)-3. When the advertised
service is an overdraft service, institutions must disclose the fee or
fees for the payment of each overdraft, not merely that a cost is
associated with the overdraft service, as well as other required
information.
VII. Regulatory Flexibility Analysis
The Board has prepared a final regulatory flexibility analysis as
required by the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).
[[Page 29592]]
1. Statement of the need for and objectives of the proposal. TISA
was enacted, in part, for the purpose of requiring clear and uniform
disclosures regarding deposit account terms and fees assessable against
these accounts. Such disclosures allow consumers to make meaningful
comparisons between different accounts and also allow consumers to make
informed judgments about the use of their accounts. 12 U.S.C. 4301.
TISA requires the Board to prescribe regulations to carry out the
purpose and provisions of the statute. 12 U.S.C. 4308(a)(1). The Board
is adopting revisions to Regulation DD to address the uniformity and
adequacy of institutions' disclosure of fees associated with overdraft
services generally, and to address concerns about advertised overdraft
services in particular. As stated more fully above, the existing
regulation is amended to require depository institutions offering
certain overdraft services to provide more complete information
regarding those services. The Board believes that the revisions to
Regulation DD discussed above are within the Congress' broad grant of
authority to the Board to adopt provisions that carry out the purposes
of the statute.
2. Summary of issues raised by comments in response to the initial
regulatory flexibility analysis. One commenter questioned the statement
in the proposal that no Federal rules duplicate, overlap, or conflict
with the proposed revisions to Regulation DD because there are other
laws that depository institutions must consider when administering an
overdraft protection program. Although other laws and regulations may
apply to depository institutions' payment of overdrafts, the final
revisions to Regulation DD do not duplicate or conflict with the
requirements imposed by these other laws. The Board has also considered
the interagency guidance on overdraft protection programs issued in
February 2005, and has determined that issuance of the final revisions
to Regulation DD is consistent with the interagency guidance.
3. Description of small entities affected by the proposal.
Approximately 14,242 depository institutions in the United States that
must comply with the Truth in Savings Act have assets of $150 million
or less and thus are considered small entities for purposes of the
Regulatory Flexibility Act, based on 2004 call report data.
Approximately 5,765 are institutions that must comply with the Board's
Regulation DD; approximately 8,477 are credit unions that must comply
with National Credit Union Administration's Truth in Savings
regulations, which must be substantially similar to the Board's
Regulation DD.
The Board believes that almost all small depository institutions
that offer accounts where overdraft or returned-item fees are imposed
currently send periodic statements on those accounts, although the
number of small depository institutions that promote their overdraft
services is unknown. For those institutions that promote the payment of
overdrafts in an advertisement, periodic statement disclosures will
need to be revised to display aggregate overdraft and aggregate
returned-item fees for the statement period and year to date. All small
depository institutions will have to review, and perhaps revise
account-opening disclosures and marketing materials.
4. Recordkeeping, reporting, and compliance requirements. The
revisions to Regulation DD require all financial institutions to
provide more complete information to consumers regarding overdraft
services. Account-opening disclosures and marketing materials would
describe more completely how fees may be triggered. As discussed in
more detail above, institutions that promote their overdraft service in
an advertisement must separately disclose on periodic statements the
total dollar amount of fees and charges imposed on the account for
paying overdrafts and the total dollar amount for returning items
unpaid. These disclosures must be provided for the statement period and
for the calendar year to date for each account to which the
advertisement applies. Certain advertising practices are prohibited,
and additional disclosures on advertisements of overdraft services are
required.
5. Steps taken to minimize the economic impact on small entities.
The Board solicited comment on how the burden of disclosures on
institutions could be minimized. In response to comments received, the
final rule limits the requirement to disclose aggregate totals for
overdraft and returned-item fees for the statement period and the
calendar year to date to institutions that promote the payment of
overdrafts in an advertisement, and thereby encourage the routine use
of the service. The final rule also specifies certain practices that
would not trigger the new overdraft disclosures. The safe harbors
provide additional certainty to institutions in determining whether
compliance with the rule is required in particular circumstances.
Consistent with the rule requiring periodic statement disclosures, the
final rule also provides safe harbors to specify circumstances when an
institution would not be required to provide additional advertising
disclosures.
Under the final rule, institutions are permitted to provide an
illustrative list of categories by which overdrafts may be created, to
generally eliminate the need to provide a change-in-terms notice each
time a new channel for creating overdrafts is added. The final rule
also provides additional guidance regarding the types of fees that
should be included in the total dollar amount of fees and charges
imposed on the account for paying overdrafts and in the total dollar
amount for returning items unpaid.
VIII. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the rule under the
authority delegated to the Board by the Office of Management and
Budget. The Federal Reserve may not conduct or sponsor, and an
organization is not required to respond to, this information collection
unless it displays a currently valid OMB control number. The OMB
control number is 7100-0271.
The collection of information that is revised by this rulemaking is
found in 12 CFR part 230 and in Appendix B. This collection is
mandatory (15 U.S.C. 4301 et seq.) to evidence compliance with the
requirements of Regulation DD and the Truth in Savings Act (TISA).
Institutions are required to retain records for twenty-four months. The
respondents/recordkeepers are for-profit depository institutions,
including small businesses. This regulation applies to all types of
depository institutions, not just Federal Reserve-regulated
institutions. Under Paperwork Reduction Act regulations, however, the
Federal Reserve accounts for the burden of the paperwork associated
with the regulation only for Federal Reserve-regulated institutions.
Other agencies account for the paperwork burden on their depository
institutions under this regulation.
The revisions provide that depository institutions offering certain
overdraft payment services would be required to provide more complete
information regarding those services. Account-opening disclosures and
other marketing materials describe more completely how fees may be
triggered. Institutions that promote the payment of overdrafts must
separately disclose on periodic statements the total dollar amount of
fees and charges imposed on the account for paying overdrafts and the
total dollar amount of fees charged to the account for returning items
[[Page 29593]]
unpaid. These disclosures must be provided for the statement period and
for the calendar year to date for each account to which an
advertisement applies. Certain advertising practices are prohibited,
and additional disclosures in advertisements for the payment of
overdrafts are required. Although the final rule adds these
requirements, it is expected that these revisions would not
significantly increase the ongoing paperwork burden of depository
institutions. However, respondents would face a one-time burden to
reprogram and update their systems to include these new notice
requirements. The Federal Reserve estimates that it will take the
respondents, on average, 8 hours (one business day) to make these
system changes; therefore, the Federal Reserve estimates that the total
annual burden for revising the periodic disclosure and the account-
opening disclosure to be 10,072 hours. Respondents would also face a
one-time burden to revise and update their advertising materials. The
estimated time to update these materials is approximately 40 hours (one
business week); therefore, the Federal Reserve estimates that the total
annual burden for this requirement to be 50,360 hours.
With respect to Federal Reserve-regulated institutions, it is
estimated that there are 1,259 respondent/recordkeepers. The current
annual burden is estimated to be 187,365 hours. The proposed annual
burden is estimated to be 247,979, an increase of 60,432 hours.
All depository institutions, of which there are approximately
18,554, potentially are affected by this collection of information, and
thus are respondents for purposes of the PRA. The above estimates
represent an average across all respondents and reflect variations
between institutions based on their size, complexity, and practices.
The other federal agencies are responsible for estimating and reporting
to OMB the total paperwork burden for the institutions for which they
have administrative enforcement authority. They may, but are not
required to, use the Federal Reserve's burden estimates. The total
estimated annual burden for all financial institutions, including
Federal Reserve regulated institutions, subject to Regulation DD would
be approximately 3,755,261 hours, using the same burden methodology as
above.
Because the records are maintained at depository institutions and
the notices are not provided to the Federal Reserve, no issue of
confidentiality arises under the Freedom of Information Act.
The Federal Reserve has a continuing interest in the public's
opinions of our collections of information. At any time, comments
regarding the burden estimate, or any other aspect of this collection
of information, including suggestions for reducing the burden, may be
sent to: the Office of Management and Budget, Paperwork Reduction
Project (7100-0271), Washington, DC 20503, with copies of such comments
sent to Michelle Long, Federal Reserve Board Clearance Officer,
Division of Research and Statistics, Mail Stop 41, Board of Governors
of the Federal Reserve System, Washington, DC 20551.
List of Subjects in 12 CFR Part 230
Advertising, Banks, Banking, Consumer protection, Reporting and
recordkeeping requirements, Truth in savings.
0
For the reasons set forth in the preamble, the Board amends Regulation
DD, 12 CFR part 230, as set forth below:
PART 230--TRUTH IN SAVINGS (REGULATION DD)
0
1. The authority citation for part 230 continues to read as follows:
Authority: 12 U.S.C. 4301 et seq.
0
2. Section 230.2 is amended by revising paragraph (b) to read as
follows:
Sec. 230.2 Definitions.
* * * * *
(b) Advertisement means a commercial message, appearing in any
medium, that promotes directly or indirectly:
(1) The availability or terms of, or a deposit in, a new account;
and
(2) For purposes of Sec. 230.8(a) and Sec. 230.11 of this part,
the terms of, or a deposit in, a new or existing account.
* * * * *
0
3. Section 230.6 is amended by republishing paragraph (a) and revising
paragraph (a)(3) to read as follows:
Sec. 230.6 Periodic statement disclosures.
(a) General rule. If a depository institution mails or delivers a
periodic statement, the statement shall include the following
disclosures:
* * * * *
(3) Fees imposed. Fees required to be disclosed under Sec.
230.4(b)(4) of this part that were debited to the account during the
statement period. The fees shall be itemized by type and dollar
amounts. Except as provided in Sec. 230.11(a)(1) of this part, when
fees of the same type are imposed more than once in a statement period,
a depository institution may itemize each fee separately or group the
fees together and disclose a total dollar amount for all fees of that
type.
* * * * *
0
4. Section 230.8 is amended by revising paragraph (a), and adding a new
paragraph (f) to read as follows:
Sec. 230.8 Advertising.
(a) Misleading or inaccurate advertisements. An advertisement shall
not:
(1) Be misleading or inaccurate or misrepresent a depository
institution's deposit contract; or
(2) Refer to or describe an account as ``free'' or ``no cost'' (or
contain a similar term) if any maintenance or activity fee may be
imposed on the account. The word ``profit'' shall not be used in
referring to interest paid on an account.
* * * * *
(f) Additional disclosures in connection with the payment of
overdrafts. Institutions that promote the payment of overdrafts in an
advertisement shall include in the advertisement the disclosures
required by Sec. 230.11(b) of this part.
0
5. Section 230.11 is added to read as follows:
Sec. 230.11 Additional disclosure requirements for institutions
advertising the payment of overdrafts.
(a) Periodic statement disclosures.
(1) Disclosure of Total Fees. (i) Except as provided in paragraph
(a)(2) of this section, if a depository institution promotes the
payment of overdrafts in an advertisement, the institution must
separately disclose on each periodic statement:
(A) The total dollar amount for all fees or charges imposed on the
account for paying checks or other items when there are insufficient
funds and the account becomes overdrawn; and
(B) The total dollar amount for all fees imposed on the account for
returning items unpaid.
(ii) The disclosures required by this paragraph must be provided
for the statement period and for the calendar year to date, for any
account to which the advertisement applies.
(2) Communications not triggering disclosure of total fees. The
following communications by a depository institution do not trigger the
disclosures required by paragraph (a)(1) of this section:
(i) Promoting in an advertisement a service for paying overdrafts
where the institution's payment of overdrafts will be agreed upon in
writing and subject to the Board's Regulation Z (12 CFR part 226);
(ii) Communicating (whether by telephone, electronically, or
otherwise)
[[Page 29594]]
about the payment of overdrafts in response to a consumer-initiated
inquiry about deposit accounts or overdrafts. Providing information
about the payment of overdrafts in response to a balance inquiry made
through an automated system, such as a telephone response machine, an
automated teller machine (ATM), or an institution's Internet site, is
not a response to a consumer-initiated inquiry for purposes of this
paragraph;
(iii) Engaging in an in-person discussion with a consumer;
(iv) Making disclosures that are required by Federal or other
applicable law;
(v) Providing a notice or including information on a periodic
statement informing a consumer about a specific overdrawn item or the
amount the account is overdrawn;
(vi) Including in a deposit account agreement a discussion of the
institution's right to pay overdrafts;
(vii) Providing a notice to a consumer, such as at an ATM, that
completing a requested transaction may trigger a fee for overdrawing an
account, or providing a general notice that items overdrawing an
account may trigger a fee; or
(viii) Providing informational or educational materials concerning
the payment of overdrafts if the materials do not specifically describe
the institution's overdraft service.
(3) Time period covered by disclosures. An institution must make
the disclosures required by paragraph (a)(1) of this section for the
first statement period that begins after an institution advertises the
payment of overdrafts. An institution may disclose total fees imposed
for the calendar year by aggregating fees imposed since the beginning
of the calendar year, or since the beginning of the first statement
period that year for which such disclosures are required.
(4) Termination of promotions. Paragraph (a)(1) of this section
shall cease to apply with respect to a deposit account two years after
the date of an institution's last advertisement promoting the payment
of overdrafts applicable to that account.
(5) Acquired accounts. An institution that acquires an account must
thereafter provide the disclosures required by paragraph (a)(1) of this
section for the first statement period that begins after the
institution promotes the payment of overdrafts in an advertisement that
applies to the acquired account. If disclosures under paragraph (a)(1)
of this section are required for the acquired account, the institution
may, but is not required to, include fees imposed prior to acquisition
of the account.
(b) Advertising disclosures for overdraft services.
(1) Disclosures. Except as provided in paragraphs (b)(2),(b)(3),
and (b)(4) of this section, any advertisement promoting the payment of
overdrafts shall disclose in a clear and conspicuous manner:
(i) The fee or fees for the payment of each overdraft;
(ii) The categories of transactions for which a fee for paying an
overdraft may be imposed;
(iii) The time period by which the consumer must repay or cover any
overdraft; and
(iv) The circumstances under which the institution will not pay an
overdraft.
(2) Communications about the payment of overdrafts not subject to
additional advertising disclosures. Paragraph (b)(1) of this section
does not apply to:
(i) An advertisement promoting a service where the institution's
payment of overdrafts will be agreed upon in writing and subject to the
Board's Regulation Z (12 CFR part 226);
(ii) A communication by an institution about the payment of
overdrafts in response to a consumer-initiated inquiry about deposit
accounts or overdrafts. Providing information about the payment of
overdrafts in response to a balance inquiry made through an automated
system, such as a telephone response machine, ATM, or an institution's
Internet site, is not a response to a consumer-initiated inquiry for
purposes of this paragraph;
(iii) An advertisement made through broadcast or electronic media,
such as television or radio;
(iv) An advertisement made on outdoor media, such as billboards;
(v) An ATM receipt;
(vi) An in-person discussion with a consumer;
(vii) Disclosures required by federal or other applicable law;
(viii) Information included on a periodic statement or a notice
informing a consumer about a specific overdrawn item or the amount the
account is overdrawn;
(ix) A term in a deposit account agreement discussing the
institution's right to pay overdrafts;
(x) A notice provided to a consumer, such as at an ATM, that
completing a requested transaction may trigger a fee for overdrawing an
account, or a general notice that items overdrawing an account may
trigger a fee; or
(xi) Informational or educational materials concerning the payment
of overdrafts if the materials do not specifically describe the
institution's overdraft service.
(3) Exception for ATM screens and telephone response machines. The
disclosures described in paragraphs (b)(1)(ii) and (b)(1)(iv) of this
section are not required in connection with any advertisement made on
an ATM screen or using a telephone response machine.
(4) Exception for indoor signs. Paragraph (b)(1) of this section
does not apply to advertisements for the payment of overdrafts on
indoor signs as described by Sec. 230.8(e)(2) of this part, provided
that the sign contains a clear and conspicuous statement that fees may
apply and that consumers should contact an employee for further
information about applicable fees and terms. For purposes of this
paragraph (b)(4), an indoor sign does not include an ATM screen.
* * * * *
0
6. In Supplement I to part 230:
0
a. Under Sec. 230.2 Definitions, under (b) Advertisement, the
introductory sentence to paragraph 2. is republished, paragraph 2.iii.
is revised, and new paragraphs 2.iv. through 2.vi. are added.
0
b. Under Sec. 230.4 Account disclosures, under (b)(4) Fees, a new
paragraph 5. is added.
0
c. Under Sec. 230.6 Periodic statement disclosures, under (a)(3) Fees
imposed, paragraph 2. is revised.
0
d. Under Sec. 230.8 Advertising, under (a) Misleading or inaccurate
advertisements, a new paragraph 10. is added.
0
e. A new Sec. 230.11 Additional disclosure requirements for
institutions advertising the payment of overdrafts, is added to the end
of Supplement I.
Supplement I To Part 230--Official Staff Interpretations
* * * * *
Section 230.2 Definitions
* * * * *
(b) Advertisement
* * * * *
2. Other messages. Examples of messages that are not
advertisements are--
* * * * *
iii. For purposes of Sec. 230.8(b) of this part through Sec.
230.8(e) of this part, information given to consumers about existing
accounts, such as current rates recorded on a voice-response machine
or notices for automatically renewable time account sent before
renewal
iv. Information about a particular transaction in an existing
account
v. Disclosures required by federal or other applicable law
vi. A deposit account agreement
* * * * *
Section 230.4 Account Disclosures
* * * * *
(b) Content of account disclosures
* * * * *
[[Page 29595]]
(b)(4) Fees
* * * * *
5. Fees for overdrawing an account. Under Sec. 230.4(b)(4) of
this part, institutions must disclose the conditions under which a
fee may be imposed. In satisfying this requirement institutions must
specify the categories of transactions for which an overdraft fee
may be imposed. An exhaustive list of transactions is not required.
It is sufficient for an institution to state that the fee applies to
overdrafts ``created by check, in-person withdrawal, ATM withdrawal,
or other electronic means,'' as applicable. Disclosing a fee ``for
overdraft items'' would not be sufficient.
* * * * *
Section 230.6 Periodic statement disclosures
(a) General rule
* * * * *
(a)(3) Fees imposed
* * * * *
2. Itemizing fees by type. In itemizing fees imposed more than
once in the period, institutions may group fees if they are the same
type. (See Sec. 230.11(a)(1) of this part regarding certain fees
that are required to be grouped when an institution promotes the
payment of overdrafts.) When fees of the same type are grouped
together, the description must make clear that the dollar figure
represents more than a single fee, for example, ``total fees for
checks written this period.'' Examples of fees that may not be
grouped together are--
i. Monthly maintenance and excess-activity fees
ii. ``transfer'' fees, if different dollar amounts are imposed''
such as $.50 for deposits and $1.00 for withdrawals
iii. fees for electronic fund transfers and fees for other
services, such as balance-inquiry or maintenance fees
iv. fees for paying overdrafts and fees for returning checks or
other items unpaid
* * * * *
Section 230.8 Advertising
(a) Misleading or inaccurate advertisements
* * * * *
10. Examples. Examples of advertisements that would ordinarily
be misleading, inaccurate, or misrepresent the deposit contract are:
i. Representing an overdraft service as a ``line of credit,''
unless the service is subject to the Board's Regulation Z, 12 CFR
part 226.
ii. Representing that the institution will honor all checks or
authorize payment of all transactions that overdraw an account, with
or without a specified dollar limit, when the institution retains
discretion at any time not to honor checks or authorize
transactions.
iii. Representing that consumers with an overdrawn account are
allowed to maintain a negative balance when the terms of the
account's overdraft service require consumers promptly to return the
deposit account to a positive balance.
iv. Describing an institution's overdraft service solely as
protection against bounced checks when the institution also permits
overdrafts for a fee for overdrawing their accounts by other means,
such as ATM withdrawals, debit card transactions, or other
electronic fund transfers.
v. Advertising an account-related service for which the
institution charges a fee in an advertisement that also uses the
word ``free'' or ``no cost'' (or a similar term) to describe the
account, unless the advertisement clearly and conspicuously
indicates that there is a cost associated with the service. If the
fee is a maintenance or activity fee under Sec. 230.8(a)(2) of this
part, however, an advertisement may not describe the account as
``free'' or ``no cost'' (or contain a similar term) even if the fee
is disclosed in the advertisement.
* * * * *
Section 230.11 Additional disclosure requirements for institutions
advertising the payment of overdrafts
(a) Periodic statement disclosures.
(a)(1) Disclosure of total fees.
1. Examples of institutions advertising the payment of
overdrafts. An institution would trigger the periodic statement
disclosures if it:
i. Promotes the institution's policy or practice of paying some
overdrafts (unless the service would be subject to the Board's
Regulation Z (12 CFR part 226)), in advertisements using broadcast
media, brochures, telephone solicitations or electronic mail, or on
Internet sites, ATM screens or receipts, billboards, or indoor
signs. (But see Sec. 230.11(a)(2) of this part regarding
communications about the payment of overdrafts that would not
trigger periodic statement disclosures);
ii. Includes a message on a periodic statement informing the
consumer of an overdraft limit or the amount of funds available for
overdrafts. For example, an institution that includes a message on a
periodic statement informing the consumer of a $500 overdraft limit
or that the consumer has $300 remaining on the overdraft limit, is
promoting an overdraft service;
iii. Discloses an overdraft limit or includes the dollar amount
of an overdraft limit in a balance disclosed by any means, including
on an ATM receipt or on an automated system, such as a telephone
response machine, ATM screen, or the institution's Internet site.
2. Applicability of periodic statement disclosures. The periodic
statement disclosures apply to all accounts for which the
institution has advertised the payment of overdrafts. For example,
if an advertisement promoting the payment of overdrafts specifies
the types of accounts to which the advertisement applies, the
institution would not be required to provide the periodic statement
disclosures for other types of accounts offered by the institution
for which the advertisement does not apply. If an advertisement does
not specify the types of accounts to which it applies, the
advertisement would be considered to apply to all of an
institution's deposit accounts.
3. Transfer services. The overdraft services covered by Sec.
230.11(a)(1) of this part do not include a service providing for the
transfer of funds from another deposit account of the consumer to
permit the payment of items without creating an overdraft, even if a
fee is charged for the transfer.
4. Fees for paying overdrafts. An institution that advertises
the payment of overdrafts must disclose on periodic statements a
total dollar amount for all fees charged to the account for paying
overdrafts. The institution must disclose separate totals for the
statement period and for the calendar year to date. The total dollar
amount includes per-item fees as well as interest charges, daily or
other periodic fees, or fees charged for maintaining an account in
overdraft status, whether the overdraft is by check or by other
means. It also includes fees charged when there are insufficient
funds because previously deposited funds are subject to a hold or
are uncollected. It does not include fees for transferring funds
from another account to avoid an overdraft, or fees charged when the
institution has previously agreed in writing to pay items that
overdraw the account and the service is subject to the Board's
Regulation Z, 12 CFR part 226.
5. Fees for returning items unpaid. An institution that
advertises the payment of overdrafts must disclose a total dollar
amount for all fees charged to the account for dishonoring or
returning checks or other items drawn on the account. The
institution must disclose separate totals for the statement period
and for the calendar year to date. Fees imposed when deposited items
are returned are not included.
6. Waived fees. In some cases, an institution may provide a
statement for the current period reflecting that fees imposed during
a previous period were waived and credited to the account.
Institutions may, but are not required to, reflect the adjustment in
the total for the calendar year to date. Such adjustments should not
affect the total disclosed for fees imposed during the current
statement period.
7. Totals for the calendar year to date. Some institutions'
statement periods do not coincide with the calendar month. In such
cases, the institution may disclose a calendar year-to-date total by
aggregating fees for 12 monthly cycles, starting with the period
that begins during January and finishing with the period that begins
during December. For example, if statement periods begin on the 10th
day of each month, the statement covering December 10, 2006 through
January 9, 2007 may disclose the year-to-date total for fees imposed
from January 10, 2006 through January 9, 2007. Alternatively, the
institution could provide a statement for the cycle ending January
9, 2007 showing the year-to-date total for fees imposed January 1,
2006 through December 31, 2006.
8. Itemization of fees. An institution may itemize each fee in
addition to providing the disclosures required by Sec. 230.11(a)(1)
of this part.
(a)(3) Time period covered by disclosures
1. Periodic statement disclosures. The disclosures under Sec.
230.11(a)(1) of this part must be included on periodic statements
provided by an institution reflecting the first statement period
that begins after the institution advertises the payment of
overdrafts. For example, if a consumer's statement period typically
closes on the 15th
[[Page 29596]]
of each month, an institution that promotes the payment of
overdrafts on July 1, 2006 must provide the disclosures required by
Sec. 230.11(a)(1) of this part on subsequent periodic statements
for that consumer beginning with the statement reflecting the period
from July 16, 2006 through August 15, 2006. Only depository
institutions that promote the payment of overdrafts in an
advertisement on or after July 1, 2006 must provide disclosures on
periodic statements under Sec. 230.11(a)(1) of this part.
(a)(5) Acquired accounts
1. Examples. As provided in Sec. 230.11(a)(5) of this part, an
institution that acquires deposit accounts through merger or
acquisition must provide the disclosures required by paragraph
(a)(1) of this section for the first statement period that begins
after the institution promotes the payment of overdrafts in an
advertisement that applies to the acquired account. If the acquiring
institution does not advertise the payment of overdrafts, or the
advertisement does not apply to the acquired accounts, the
institution need not provide the disclosures required by Sec.
230.11(a)(1) of this part for the acquired accounts even if the
depository institution that previously held the accounts advertised
the payment of overdrafts with respect to those accounts.
(b) Advertising Disclosures in Connection With Overdraft Services
1. Examples of institutions promoting the payment of overdrafts.
A depository institution would be required to include the
advertising disclosures in Sec. 230.11(b)(1) of this part if the
institution:
i. Promotes the institution's policy or practice of paying
overdrafts (unless the service would be subject to the Board's
Regulation Z (12 CFR part 226)). This includes advertisements using
print media such as newspapers or brochures, telephone
solicitations, electronic mail, or messages posted on an Internet
site. (But see Sec. 230.11(b)(2) of this part for communications
that are not subject to the additional advertising disclosures);
ii. Includes a message on a periodic statement informing the
consumer of an overdraft limit or the amount of funds available for
overdrafts. For example, an institution that includes a message on a
periodic statement informing the consumer of a $500 overdraft limit
or that the consumer has $300 remaining on the overdraft limit, is
promoting an overdraft service.
iii. Discloses an overdraft limit or includes the dollar amount
of an overdraft limit in a balance disclosed on an automated system,
such as a telephone response machine, ATM screen or the
institution's Internet site. (See, however, Sec. 230.11(b)(3) of
this part.).
2. Transfer services. The overdraft services covered by Sec.
230.11(b)(1) of this part do not include a service providing for the
transfer of funds from another deposit account of the consumer to
permit the payment of items without creating an overdraft, even if a
fee is charged for the transfer.
3. Electronic media. The exception for advertisements made
through broadcast or electronic media, such as television or radio,
does not apply to advertisements posted on an institution's Internet
site, on an ATM screen, provided on telephone response machines, or
sent by electronic mail.
4. Fees. The fees that must be disclosed under Sec.
230.11(b)(1) of this part include per-item fees as well as interest
charges, daily or other periodic fees, and fees charged for
maintaining an account in overdraft status, whether the overdraft is
by check or by other means. The fees also include fees charged when
there are insufficient funds because previously deposited funds are
subject to a hold or are uncollected. The fees do not include fees
for transferring funds from another account to avoid an overdraft,
or fees charged when the institution has previously agreed in
writing to pay items that overdraw the account and the service is
subject to the Board's Regulation Z, 12 CFR part 226.
5. Categories of transactions. An exhaustive list of
transactions is not required. Disclosing that a fee may be imposed
for covering overdrafts ``created by check, in-person withdrawal,
ATM withdrawal, or other electronic means' would satisfy the
requirements of Sec. 230.11(b)(1)(ii) of this part where the fee
may be imposed in these circumstances. See comment 4(b)(4)-5 of this
part.
6. Time period to repay. If a depository institution reserves
the right to require a consumer to pay an overdraft immediately or
on demand instead of affording consumers a specific time period to
establish a positive balance in the account, an institution may
comply with Sec. 230.11(b)(1)(iii) of this part by disclosing this
fact.
7. Circumstances for nonpayment. An institution must describe
the circumstances under which it will not pay an overdraft. It is
sufficient to state, as applicable: ``Whether your overdrafts will
be paid is discretionary and we reserve the right not to pay. For
example, we typically do not pay overdrafts if your account is not
in good standing, or you are not making regular deposits, or you
have too many overdrafts.''
8. Advertising an account as ``free.'' If the advertised
account-related service is an overdraft service subject to the
requirements of Sec. 230.11(b)(1) of this part, institutions must
disclose the fee or fees for the payment of each overdraft, not
merely that a cost is associated with the overdraft service, as well
as other required information. Compliance with comment 8(a)-10.v. is
not sufficient.
By order of the Board of Governors of the Federal Reserve
System, May 19, 2005.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 05-10348 Filed 5-23-05; 8:45 am]
BILLING CODE 6210-01-P