[Federal Register: May 19, 2008 (Volume 73, Number 97)]
[Proposed Rules]
[Page 28739-28751]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19my08-9]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
[[Page 28739]]
FEDERAL RESERVE SYSTEM
12 CFR Part 230
[Regulation DD; Docket No. R-1315]
Truth in Savings
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule; request for public comment.
-----------------------------------------------------------------------
SUMMARY: The Federal Reserve Board (Board) proposes to amend Regulation
DD, which implements the Truth in Savings Act, and the staff commentary
to the regulation, to provide additional disclosures about account
terms and costs associated with overdrafts. The proposed amendments
would set forth content and timing requirements for a notice to
consumers about any right to opt out of an institution's overdraft
service. Requirements for disclosing overdraft fees on periodic
statements would be expanded to apply to all institutions and not
solely to institutions that promote the payment of overdrafts. The
proposed amendments also address balance disclosures provided in
response to balance inquiries from consumers.
DATES: Comments must be received on or before July 18, 2008.
ADDRESSES: You may submit comments, identified by Docket No. R-1315, by
any of the following methods:
Agency Web Site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: regs.comments@federalreserve.gov. Include the
docket number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper form in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Benjamin K. Olson, Attorney, or Vivian
W. Wong, Senior Attorney, or Ky Tran-Trong, Counsel, Division of
Consumer and Community Affairs, Board of Governors of the Federal
Reserve System, Washington, DC 20551, at (202) 452-2412 or (202) 452-
3667. 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 (NCUA).
Under TISA and Regulation DD, account disclosures must be provided
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 also must be provided 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. Background on Overdraft Services and Regulatory Action to Date
Historically, if a consumer engaged in a transaction that overdrew
his or her account, the consumer's depository institution used its
discretion on an ad hoc basis to determine whether to pay the
overdraft, usually imposing a fee for paying the overdraft. 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 not covered
under Regulation Z where there is no written agreement between the
consumer and institution to pay an overdraft and impose a fee. See 12
CFR 226.4(c)(3). The treatment of overdrafts in Regulation Z was
designed to facilitate depository institutions' ability to accommodate
consumers' transactions on an ad hoc basis.
Over the years, most institutions have largely automated the
overdraft payment process, including setting specific criteria for
determining whether to honor overdrafts and limits on the amount of the
coverage provided. From the industry's perspective, the benefits of
overdraft, or bounced check, services include a reduction in the costs
of manually reviewing individual items, as well as the consistent
treatment for all customers with respect to overdraft payment
decisions. Moreover, industry representatives assert that overdraft
services are valued by consumers, particularly for check transactions,
as they allow consumers to avoid additional fees that would be charged
by the payee if the item was returned unpaid, and other adverse
consequences, such as the furnishing of
[[Page 28740]]
negative information to a consumer reporting agency.\1\
---------------------------------------------------------------------------
\1\ See, e.g., Overdraft Protection: Fair Practices for
Consumers: Hearing before the House Subcomm. on Financial
Institutions and Consumer Credit, House Comm. on Financial Services,
110th Cong. (2007) Overdraft Protection Hearing), (available at
http://www.house.gov/apps/list/hearing/financialsvcs_dem/
hr0705072.shtml).
---------------------------------------------------------------------------
In contrast, consumer advocates believe overdraft transactions are
a high-cost form of lending that traps low- and moderate-income
consumers (particularly students and the elderly) into paying high
fees. Moreover, consumer advocates note that consumers are enrolled in
overdraft services automatically, often with no chance to opt out. In
addition, consumer advocates believe that by honoring check and other
types of overdrafts, institutions encourage consumers to rely on this
service and thereby consumers incur greater costs in the long run than
they would if the transactions were not honored. Consumer advocates
also express concerns about debit card overdrafts where the dollar
amount of the fee may far exceed the dollar amount of the overdraft,
and multiple fees may be assessed in a single day for a series of
small-dollar transactions.\2\
---------------------------------------------------------------------------
\2\ See, e.g., Overdraft Protection Hearing n.1; Jacqueline
Duby, Eric Halperin & Lisa James, High Cost and Hidden From View:
The $10 Billion Overdraft Loan Market, Ctr. Responsible Lending (May
26, 2005) (noting that the bulk of overdraft fees are incurred by
repeat users) (available at http://www.responsiblelending.org/pdfs/
ip009-High_Cost_Overdraft-0505.pdf).
---------------------------------------------------------------------------
According to a recent report from the Government Accountability
Office (GAO), the average cost of overdraft and insufficient funds fees
has increased roughly 11 percent between 2000 and 2007 to just over $26
per item, according to one estimate.\3\ The GAO also reported that
large institutions on average charged between $4 and $5 more for
overdraft and insufficient fund fees compared to smaller
institutions.\4\ In addition, the GAO Bank Fees Report noted that a
small number of institutions (primarily large banks) apply tiered fees
to overdrafts, charging higher fees as the number of overdrafts in the
account increases.\5\
---------------------------------------------------------------------------
\3\ See Bank Fees: Federal Banking Regulators Could Better
Insure That Consumers Have Required Disclosure Documents Prior to
Opening Checking or Savings Accounts, GAO Report 08-281 (January
2008) (hereinafter, GAO Bank Fees Report). See also Bankrate 2007
Checking Account Study, posted September 26, 2007 (available at:
http://www.bankrate.com/brm/news/chk/chkstudy/20070924_bounced_
check_fee_al.asp?caret=2e) (reporting an average overdraft fee of
over $28.00 per item).
\4\ See GAO Bank Fees Report at 16.
\5\ According to the GAO, of the financial institutions that
applied up to 3 tiers of fees in 2006, the average overdraft fees
were $26.74, $32.53 and $34.74, respectively. See GAO Bank Fees
Report at 14.
---------------------------------------------------------------------------
Overdraft services vary among institutions but typically share
certain characteristics. Coverage is ``automatic'' for consumers who
meet the institution's criteria (e.g., the account has been open a
certain number of days, the account is in ``good standing'', deposits
are made regularly). While institutions generally do not underwrite on
an individual account basis in determining whether to enroll the
consumer in the service initially, most institutions will review
individual accounts periodically to determine whether the consumer
continues to qualify for the service, and the amounts that may be
covered.
Most overdraft program disclosures state that payment of an
overdraft is discretionary on the part of the institution, and disclaim
any legal obligation of the institution to pay any overdraft.
Typically, the service is extended to also cover non-check
transactions, including withdrawals at automated teller machines
(ATMs), automated clearinghouse (ACH) transactions, debit card
transactions at point-of-sale, pre-authorized automatic debits from a
consumer's account, telephone-initiated funds transfers, and on-line
banking transactions. A flat fee is charged each time an overdraft is
paid, and commonly, institutions charge the same amount for paying the
overdraft as they would if they returned the item unpaid. A daily fee
also may apply for each day the account remains overdrawn.
Where institutions vary most in their provision of overdraft
services is the extent to which institutions inform consumers about the
existence of the service or otherwise promote the use of the service.
For those institutions that choose to promote the existence and
availability of the service, they may also disclose to consumers,
typically in a brochure or welcome letter, the aggregate dollar limit
of overdrafts that may be paid under the service.
As the availability and customer use of these overdraft services
has increased, the federal banking agencies (Board, Federal Deposit
Insurance Corporation (FDIC), NCUA, Office of the Comptroller of the
Currency (OCC) and Office of Thrift Supervision (OTS)) have become
concerned about aspects of the marketing, disclosure, and
implementation of some of these services. In response to some of these
concerns, the agencies published guidance on overdraft protection
programs in February 2005.\6\ The Joint Guidance addresses three
primary areas--safety and soundness considerations, legal risks, and
best practices, while the OTS Guidance focuses on safety and soundness
considerations and best practices. The best practices focus on the
marketing and communications that accompany the offering of overdraft
services, as well as the disclosure and operation of program features,
including the provision of a consumer election or opt-out of the
overdraft service. The agencies have also published a consumer brochure
on overdraft services.\7\
---------------------------------------------------------------------------
\6\ See Interagency Guidance on Overdraft Protection Programs
(Joint Guidance), 70 FR 9127 (Feb. 24, 2005) and OTS Guidance on
Overdraft Protection Programs (OTS Guidance), 70 FR 8428 (Feb. 18,
2005).
\7\ The brochure entitled ``Protecting Yourself from Overdraft
and Bounced-Check Fees,'' can be found at: http://
www.federalreserve.gov/pubs/bounce/default.htm.
---------------------------------------------------------------------------
In May 2005, the Board separately issued revisions to Regulation DD
and the staff commentary pursuant to its authority under the Truth in
Savings Act (TISA) 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.
70 FR 29582 (May 24, 2005).\8\ The goal of the final rule was to
improve the uniformity and adequacy of disclosures provided to
consumers about overdraft and returned-item fees to assist consumers in
better understanding the costs associated with the payment of
overdrafts. In addition, the final rule addressed some of the Board's
concerns about institutions' marketing practices with respect to
overdraft services.
---------------------------------------------------------------------------
\8\ A substantively similar rule applying to credit unions was
issued separately by the NCUA. 71 FR 24568 (Apr. 26, 2006). The NCUA
previously issued an interim final rule in 2005. 70 FR 72895 (Dec.
8, 2005).
---------------------------------------------------------------------------
Under the May 2005 final rule, which became effective July 1, 2006,
all depository institutions are required to specify in their account
disclosures the categories of transactions for which an overdraft fee
may be imposed, and to include in their advertisements about overdraft
services, certain information about the costs associated with the
service and the circumstances under which the institution would not pay
an overdraft. The Board's final rule also requires institutions that
promote the payment of overdrafts in an advertisement to disclose
separately on their periodic statements the total amount of fees or
charges imposed on the 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
[[Page 28741]]
year to date. The final rule for the aggregate fee disclosures was
narrower than the proposal, which would have applied the periodic
statement requirements to all institutions, regardless of whether they
market the payment of overdrafts.
Notwithstanding the issuance of the February 2005 Joint Guidance
and the Board's May 2005 final rule under Regulation DD, the Board
remains concerned that consumers may not adequately understand the
costs of overdraft services nor how overdraft services operate
generally. The Board is thus proposing additional disclosure
requirements pursuant to its authority under Sections 263, 264, 268 and
269(a) of TISA to facilitate consumers' ability to make informed
judgments about the use of their accounts. 12 U.S.C. 4302(e), 4303(b) &
(d), 4307, 4308(a). The proposed requirements address disclosures to
consumers about the costs associated with overdraft services on
periodic statements and disclosures to consumers about account balances
in response to consumer inquiries.
In addition, as discussed elsewhere in this Federal Register, the
Board, along with the OTS and the NCUA, are proposing to adopt
substantive protections using their authority under the Federal Trade
Commission Act (FTC Act) to address certain unfair or abusive
protections associated with overdraft services.\9\ The Board's proposal
would add a new Subpart D on overdraft services to the Board's
Regulation AA, Unfair or Deceptive Acts or Practices (2008 Regulation
AA Proposal) (12 CFR part 227). Among other things, the proposal would
require institutions to provide consumers the ability to opt out of
their institutions' payment of overdrafts. The Board is proposing to
amend Regulation DD to ensure that consumers receive effective
disclosures about their right to opt out of overdraft services, by
setting forth certain content, format and timing requirements for the
notice.\10\
---------------------------------------------------------------------------
\9\ For simplicity, this notice will refer only to the Board's
proposal.
\10\ While NCUA is not proposing amendments to its 12 CFR part
707 in today's Federal Register, TISA requires NCUA to promulgate
regulations substantially similar to Regulation DD. Accordingly,
NCUA will issue amendments to part 707 following the Board's
adoption of final rules under Regulation DD.
---------------------------------------------------------------------------
During this rulemaking process, Board staff has held discussions
with representatives from banks, core systems providers, consumer
groups, vendors of overdraft services, payment card associations, and
industry trade associations. Board staff has also reviewed current
account disclosures, and solicited input from members of the Board's
Consumer Advisory Council regarding overdraft services.
III. Summary of Proposal
Disclosure of Consumer Opt-Out of Overdraft Services
The Board is proposing amendments under Regulation DD to set forth
content and format requirements for the notices that would be given to
consumers informing them about their right to decline, or opt out of,
their institution's overdraft service. The substantive opt-out
requirement is proposed separately in today's Federal Register under
the Board's authority under the FTC Act. Under the proposal, the notice
must be provided to the consumer before the institution assesses any
fees in connection with paying an overdraft, and subsequently during or
for each statement period in which a fee is imposed (for example, on a
notice sent promptly after an overdraft informing the consumer of that
fact, or on each periodic statement reflecting an overdraft fee or
charge). The notice following assessment of an overdraft fee would help
to ensure that consumers are apprised of their opt-out rights at a time
when the information may be most relevant, that is, after the consumer
has overdrawn his or her account and received information about the
costs of using the service. The content of the notice is discussed in
more detail in the Section-by-Section Analysis below. The Board intends
to conduct consumer testing on the proposed notice following the
issuance of this proposal and review of comments received.
Disclosure of the Aggregate Costs of Overdraft Services on Periodic
Statements
As discussed above, the Board's May 2005 final rule under
Regulation DD requires, among other things, institutions that promote
the payment of overdrafts to provide consumers information about the
aggregate costs of the overdraft service for the statement period and
the calendar year to date. The Board is proposing to expand this
provision to require all institutions, regardless of whether they
promote the payment of overdrafts, to disclose aggregate cost
information. The amendment is intended to provide all consumers that
use overdraft services with additional information about fees to help
them better understand the costs associated with their accounts. Under
the current rule, institutions that do not promote their overdraft
service may be reluctant to provide information about their service,
including other alternatives to overdraft services, out of concern that
such disclosures might trigger the aggregate fee disclosure
requirements. Thus, the proposal would promote greater transparency
about the costs and terms of overdraft services for all institutions.
The proposed rule would also add format requirements to help make the
aggregate fee disclosures are more effective and noticeable to
consumers.
Balance Inquiries
To ensure that consumers are not confused or misled about the
amount of funds in their account when they request their balance, the
Board proposes to require that institutions generally disclose only the
amount of funds available for the consumer's immediate use or
withdrawal, without incurring an overdraft. This rule would apply to
balance inquiries made through any automated system, including, but not
limited to, an ATM, Internet web site, and telephone response system.
Institutions would be permitted to provide a second balance that
includes any additional funds that an institution may advance to cover
an overdraft if this fact is also prominently disclosed to the
consumer, along with that balance information.
IV. Section-by-Section Analysis
Section 230.10 Opt-Out Disclosure Requirements for Overdraft Services
The February 2005 Joint Guidance recommended as a best practice
that where overdraft protection is provided automatically, institutions
should offer consumers the option of ``opting out'' of the overdraft
service with a clear consumer disclosure of this option. See 70 FR at
9132. As discussed separately in this Federal Register, the Board is
proposing to exercise its authority under the FTC Act to require
institutions to provide consumers with a right to opt out of an
institution's overdraft service before assessing a fee or charge for
the service. Proposed Sec. 230.10 sets forth content and timing
requirements for the notice to ensure that the opt-out right is
disclosed effectively to consumers. The Board anticipates that any
final actions taken under the FTC Act and TISA will be issued
simultaneously after the Board has reviewed comments received on the
proposals.
To facilitate compliance, Sample Form B-10 provides a model form
institutions may use to satisfy their disclosure obligations under the
proposed rule. Following issuance of the proposal, the Board intends to
conduct consumer testing to determine
[[Page 28742]]
how well consumers understand and can use the proposed opt-out notice.
10(a) General Rule
Proposed Sec. 230.10(a) states the general rule that if a
depository institution provides a consumer the right to opt out of the
institution's payment of overdrafts pursuant to the institution's
payment of overdrafts on the consumer's account pursuant to the
institution's overdraft service, the institution must provide notice of
that right in writing. As noted above, the Board is separately
proposing, pursuant to its authority under the FTC Act, to require
institutions to provide consumers with a right to opt out of the
institution's overdraft service before assessing a fee or charge for
the service. Section 230.10 generally sets forth requirements regarding
the content and timing requirements for providing this opt-out. See
proposed comment 10-1.
10(b) Format and Content
Under proposed Sec. 230.10(b), institutions are required to
include in their opt-out notice specified information about the
institution's overdraft service. The new disclosures are proposed
pursuant to the Board's authority under TISA Sections 264, 268, and
269. 12 U.S.C. 4303(b) & (d), 4308. Consistent with TISA's purpose, the
proposal would require institutions to provide disclosures about the
terms of deposit accounts to assist consumers in comparing accounts.
Specifically, the proposed disclosures relate to the fees that are
assessed against consumer accounts for the payment of overdrafts, the
conditions under which the fees are imposed, how consumers can avoid
such fees by opting out, and the availability of potentially less
costly alternatives.
Under proposed Sec. 230.10(b)(1), the notice must state the
categories of transactions for which an overdraft fee may be imposed.
For example, if the institution pays overdrafts created by check, ATM
withdrawals and point-of-sale debit card transactions, it must indicate
this fact. See comment 4(b)(4)-5.
Under the proposal, the notice must also include information about
the costs of the institution's overdraft service. See proposed Sec.
230.10(b)(2). In addition to stating the dollar amount of any fees or
charges imposed on the account for paying overdraft items, including
daily fees, institutions would also be required to inform consumers in
the notice that overdraft fees could be charged in connection with an
overdraft as low as $1, or the lowest dollar amount for which the
institution could charge a fee. This latter disclosure is intended to
make consumers aware, in some cases, that the per item overdraft fee
may far exceed the amount of the overdraft. See proposed Sec.
230.10(b)(3).
In the February 2005 Joint Guidance, the federal banking agencies
recommended that institutions consider imposing a cap on consumers'
potential daily costs from the overdraft program, such as a limit on
the number of overdraft transactions subject to a fee per day, or a
dollar limit on the total fees that will be imposed per day. See 70 FR
at 9132. The Board is proposing to require additional disclosures about
the maximum costs that could be incurred in connection with an
institution's overdraft service. Under the proposal, institutions must
disclose any daily dollar limits on the amount of overdraft fees or
charges that may be assessed in addition to any limits for the
statement period. If the institution does not limit the amount of fees
that can be imposed either for a single day or for a statement period,
it must disclose that fact. See proposed Sec. 230.10(b)(4). The Board
intends that both this disclosure about fee limits as well as the
notice that overdraft fees in some cases will exceed the amount of the
overdraft would alert consumers to the potentially high costs of
overdraft services, so that they may more effectively determine whether
the service's terms and features are suited to their needs, or whether
other alternatives would be more appropriate.
Proposed Sec. 230.10(b)(5) requires institutions to inform a
consumer of the right to opt out of the institution's payment of
overdrafts, including the method(s) that the consumer may use to
exercise the opt-out right.\11\ Such methods may include providing a
toll-free telephone number that the consumer may call to opt out or
allowing the consumer to mail in the opt-out request. See proposed
comment 10(b)-2. Comment is requested as to whether institutions should
be required to provide a form with a check-off box that consumers may
mail in to opt out. Comment is also requested regarding whether
consumers should also be allowed to opt out electronically, provided
that the consumer has agreed to the electronic delivery of information.
---------------------------------------------------------------------------
\11\ Under the Board's Regulation AA proposal in today's Federal
Register, an institution would be required to allow consumers to opt
out of the institution's overdraft service for all transaction
types. In addition, the proposal would require the institution to
allow consumers to opt out of the payment of overdrafts resulting
only from ATM withdrawals and point-of-sale debit card transactions.
---------------------------------------------------------------------------
Proposed Sec. 230.10(b)(6) incorporates the February 2005 Joint
Guidance recommendation that when describing an overdraft protection
program, institutions should inform consumers generally of other
overdraft services and credit products, if any, that are available.
These alternatives may include transfers from other accounts held at
the institution, overdraft lines of credit, or transfers from a credit
card issued by the institution. In some cases, these alternatives may
be less costly than the overdraft service offered by the institution.
Under the proposed rule, institutions must state whether it offers any
alternatives for the payment of overdrafts. If one of the alternatives
that the institution offers is an overdraft line of credit, it must
state this fact. Institutions may also, but are not required to, list
any additional alternatives they may offer to overdraft services.
In some cases, institutions may wish to explain to consumers the
consequences of opting out of overdraft services. For example, the
institution may explain that if a consumer opts out and writes a check
that overdraws an account, the institution may still charge a fee if
the check is returned, and that the merchant may also assess a fee.
Proposed comment 10(b)-3 permits institutions to briefly describe the
consequences of opting out. Of course, institutions should not
represent that the payment of overdrafts is guaranteed or assured if
they are not. See comment 8(a)-10.ii.
Comment is requested regarding whether the proposed content
requirements provide sufficient information for consumers to evaluate
effectively whether an institution's overdraft service meets their
needs. In addition, the Board's proposal would require that all opt-out
notices contain the same content, regardless of when the notice is
provided. As further discussed below, the Board is requesting comment
whether the content requirements should differ when the opt-out notice
is provided after an overdraft fee has been charged to the consumer's
account.
Proposed Sec. 230.10(b) also requires institutions to provide the
opt-out notice in a format substantially similar to Sample Form B-10 to
ensure that the opt-out content is segregated from other disclosures
provided by the institution and noticeable by the consumer. The Board
recognizes, however, that institutions may need flexibility in
formatting disclosures, depending on where and when the disclosure is
provided. For example, if the opt-out notice is included in disclosures
provided at account opening,
[[Page 28743]]
segregating the required content from other disclosures may
overemphasize the importance of the disclosure to the consumer in
comparison to other information about the account that the consumer is
given at that time. In contrast, consumers may benefit from a more
conspicuous opt-out notice when the notice is provided on the periodic
statement once the consumer has incurred fees. As noted above, the
Board expects to conduct consumer testing of the proposed sample form
following issuance of this proposal, which may include exploring how
the opt-out notice may be presented in a manner that complies with the
regulation's general clear and conspicuous requirements under Sec.
230.3, including formatting methods.
10(c) Timing
Proposed Sec. 230.10(c) sets forth timing requirements for
providing an opt-out notice. The opt-out notice must initially be
provided before the overdraft service is provided and overdraft fees
are imposed on the consumer's account. For example, notice may be given
at the time of account opening, either as part of the deposit account
agreement or in a stand-alone document. Some institutions, however, do
not enroll consumers in their overdraft service until some time after
account opening, after the consumer has maintained his or her account
in good standing for a certain period of time. Thus, institutions may
provide the opt-out notice closer to the time in which overdraft
services would be added to the consumer's account. The proposed rule
would allow this later notice so long as it is provided, and the
consumer has a reasonable opportunity to exercise the opt-out right,
before the institution imposes any fees in connection with paying an
overdraft.
The Board believes that providing an opt-out notice only at account
opening may have limited effectiveness. For example, consumers may not
focus on the significance of the information at account opening because
they may assume they will not overdraw the account.\12\ Thus, under
both the Board's 2008 Regulation AA proposal and this proposed rule,
institutions must also provide consumers notice of the right to opt-out
of their institution's payment of overdrafts at a time when the
consumer is more likely to be focused on the cost impact of the
service, specifically after the consumer has overdrawn the account and
fees have been assessed on the account. Proposed Sec. 230.10(c)(2)(i)
generally requires institutions to provide a notice meeting the content
requirements of Sec. 230.10(b) on each periodic statement reflecting
the assessment of any overdraft fee or charge. In addition, pursuant to
authority under section 269 of TISA, the proposed rule requires that if
the notice is included on the periodic statement, it must be provided
in close proximity to the aggregate fee disclosures required under
Sec. 230.11(a) to ensure that these related disclosures are presented
together.
---------------------------------------------------------------------------
\12\ This behavior is referred to as ``hyperbolic discounting.''
See Angela Littwin, Beyond Usury: A Study of Credit-Card Use and
Preference Among Low-Income Consumers, 80 Tex. L. Rev. 451, 467-478
(2008) (discussing consumers' tendency to underestimate their future
credit card usage when they apply for a card and thereby failing to
adequately anticipate the costs of the product, and citing Shane
Frederick, George Loewenstein & Ted O'Donoghue, Time Discounting and
Time Preference: A Critical Review, 40 J. Econ. Literature 351, 366-
67 (2002); Ted O'Donoghue & Matthew Rabin, Doing It Now or Later, 89
Am. Econ. Rev. 103, 103, 111 (1999) (explaining people's preference
for delaying unpleasant activities and accepting immediate rewards
despite their knowledge that the delay may lessen potential future
rewards or increase potential adverse consequences)).
---------------------------------------------------------------------------
Alternatively, many institutions notify consumers promptly after
paying an overdraft of the fact of the overdraft and the amount the
consumer's account is overdrawn. While this separate notice is not
required by Regulation DD (it is considered a best practice under the
February 2005 Joint Guidance), institutions providing an opt-out notice
at this time would also be deemed to comply with the timing
requirements of this proposed rule. See proposed Sec.
230.10(c)(2)(ii). Institutions that elect to provide the opt-out
disclosure on a separate notice sent following the institution's
payment of an overdraft need only provide the opt-out notice once per
statement period. For example, assume a statement cycle is for a
calendar month. If a consumer overdraws on the account at the beginning
of the month and receives an opt-out notice shortly after the overdraft
is paid, the institution is not required to provide another opt-out
notice for any additional overdrafts that occur during that statement
period.
As noted above, the Board's proposal would require that
institutions provide the same content in proposed Sec. 230.10(b) for
all opt-out notices to ensure uniform notices and because consumers may
not see the initial opt-out notice. However, the Board is cognizant of
the compliance burden imposed on institutions from the proposed content
requirements. In addition, the Board recognizes that consumers may not
require all of the information in proposed Sec. 230.10(b) in the
notices following an individual overdraft. For example, the consumer
may not need to be reminded that he or she may incur an overdraft fee
for a small dollar overdraft if the periodic statement reflects both
the fee and the amount of the transaction that caused the consumer to
overdraw the account. Similarly, the amount of the fee may not need to
be included in the opt-out notice if the transaction history on the
statement reflects fees charged to the account, including for paying an
overdraft.
Comment is requested on the content requirements of the opt-out
notice, and the burden to institutions and benefits to consumers of
providing all of the proposed content in each notice, including the
information about alternatives to overdraft services. Comment is also
requested regarding whether consumers should receive the same content
for all opt-out notices, regardless of when a notice is provided, or
whether the rule should permit institutions to exclude some of the
required content in subsequent notices. For example, if the information
about alternatives to overdraft services is retained generally, should
this information be excluded from periodic statements. In addition,
comment is requested on the burden to institutions of requiring that
the opt-out disclosures appear in close proximity to the fees. The
Board also intends to explore these issues through its consumer testing
of the opt-out notice following the issuance of this proposal.
The Board anticipates that the requirement to provide notice before
overdraft fees are assessed would apply only to accounts opened after
the effective date of the final rule. Thus, depository institutions
would not be required to provide initial opt-out notices to existing
customers. Nonetheless, the requirement to provide subsequent notice of
the opt-out after the consumer has overdrawn the account and fees have
been assessed on the account would apply to all accounts after the
effective date of the final rule, including those existing as of the
effective date of the rule.
Section 230.11 Additional Disclosure Requirements Regarding Overdraft
Services
11(a) Disclosure of Total Fees on Periodic Statements
Applicability of Aggregate Fee Disclosures
Although periodic statements are not required under TISA,
institutions that do provide such statements are required to disclose
fees or charges imposed on
[[Page 28744]]
the account during the statement period. See 12 U.S.C. 4307(3) and 12
CFR 230.6(a)(3). Section 230.11(a) further requires institutions that
promote the payment of overdrafts in an advertisement to provide
aggregate dollar amount totals for overdraft fees and for returned item
fees, both for the statement period as well as for the calendar year to
date. Under the proposed rule, Sec. 230.11(a) is amended to require
all institutions to provide these fee disclosures, whether or not they
promote the payment of overdrafts.
As originally proposed in May 2004, all institutions would have
been required to separately disclose the total dollar amount of
overdraft fees and the total dollar amount of returned-item fees for
the statement period and for the calendar year to date. Most industry
commenters opposed the proposal, stating that it would be costly and
provide little benefit to consumers. The majority of industry
commenters stated that if the Board adopted such a requirement, it
should apply to all institutions and not just institutions that market
overdraft services. Some of these commenters stated that a rule based
on ``marketing'' would be too vague, while others asserted that if the
Board believed the cost disclosures are useful, they would be just as
beneficial to consumers regardless of whether the overdraft service is
marketed. See 70 FR at 29,588.
In limiting the aggregate fee disclosures to institutions that
market overdraft services in the May 2005 final rule, the Board stated
its intention to avoid imposing compliance burdens on institutions that
pay overdrafts infrequently, such as institutions that only pay
overdrafts on an ad hoc basis. See 70 FR at 29,589. To address industry
concerns that a rule based on marketing would be too vague to
administer, the final rule also specified certain types of
communications and practices that would not trigger the requirement for
disclosing aggregate fees on periodic statements, including responding
to consumer-initiated inquiries about deposit accounts or overdrafts or
making disclosures that are required by federal or other applicable
law. See Sec. 230.10(a)(2).
Since issuance of the May 2005 final rule, Board staff and staff of
other federal banking agencies have received a number of questions and
requests for more guidance about when an institution is deemed to be
promoting the payment of overdrafts in an advertisement to trigger the
aggregate fee disclosure requirements. Compliance issues have most
often been raised by financial institutions that are concerned that
implementing the best practices recommended by the February 2005 Joint
Guidance may lead to a determination that they are promoting their
overdraft service. For example, Board staff has received a number of
inquiries about how institutions may provide notices informing
consumers about their ability to opt out of an institution's overdraft
service without being considered to be promoting the service.
Similarly, an institution may want to inform consumers of less costly
alternatives to the institution's overdraft service as recommended by
the February 2005 Joint Guidance, but refrain from doing so because
they may inadvertently trigger the aggregate fee disclosure
requirements under Sec. 230.11(a). Based on further analysis, the
Board is concerned that limiting the scope of the rule to institutions
that market the service may have led to the unintended consequence of
discouraging transparency by depository institutions regarding their
overdraft payment practices.
In addition, although the rule's application only to institutions
that market overdraft services was intended to avoid imposing
compliance burdens on institutions that pay overdrafts infrequently,
the Board is concerned that the vast majority of institutions may no
longer pay overdrafts on an entirely ``ad hoc'' basis, but rather
automate most of their overdraft payment decision process, leading to
more frequent payment of overdrafts. Available data reviewed by Board
staff indicates that the percentage of accountholders with one or more
overdrafts paid during a calendar year appears to be consistent across
institutions, whether or not an institution promotes its overdraft
service. Thus, a significant number of consumers who use overdraft
services on a regular basis do not receive the benefit of the aggregate
fee disclosures which might otherwise help them in evaluating their
approach to account management and determine whether other types of
accounts or services would be more appropriate for their needs.
Moreover, the Board notes that the ability of consumers to compare
effectively the terms of accounts is potentially undercut by a rule
that distinguishes between institutions that promote overdraft services
and those that do not.
In light of the concerns noted above, the Board is proposing to
require all institutions to provide aggregate dollar amount totals of
fees for paying overdrafts and for fees for returning items unpaid on
periodic statements provided to consumers, pursuant to its authority
under Sections 268 and 269 of TISA. See Sec. 230.11(a)(1). As under
the current rule, institutions must provide these totals for both the
statement period and the calendar year to date. See Sec. 230.11(a)(2).
Comment is requested on the potential benefits to consumers and
compliance burden for institutions for the proposed approach.
Format of Aggregate Fee Disclosures
Board staff's review of current periodic statement disclosures for
institutions that promote overdraft services indicates the aggregate
fee totals are often disclosed in a manner that may not be effective in
informing consumers of the totals. Accordingly, pursuant to its
authority under Section 269 of TISA, the Board is proposing to require
that these disclosures be provided in close proximity to fees
identified under Sec. 230.6(a)(3). See proposed Sec. 230.11(a)(3).
For example, the aggregate fee totals could appear immediately after
the transaction history on the periodic statement reflecting the fees
that have been imposed on the account during the statement period. The
proposed format requirement has been informed to a significant degree
by the Board's consumer testing in the context of credit card
disclosures. In that testing, consumers consistently reviewed
transactions identified on their periodic statements and noticed totals
for fees and interest charges when they were grouped together with
transactions. See 72 FR at 32996. Similarly, the Board believes that
the requirement to provide the aggregate cost disclosures for overdraft
and returned item fees will be more noticeable to consumers when
grouped together with the itemized fees, thus enabling them to act as
appropriate to manage their accounts effectively. In addition, the
proposed rule requires the information to be presented in a tabular
format similar to the proposed interest charge and fees total
disclosures under the Board's June 2007 proposal under Regulation Z.
See 72 FR at 32996, 33052; proposed 12 CFR 226.7(b)(6). The proposal
includes two alternatives for Sample Form B-11 to illustrate how
institutions may provide the aggregate cost information on their
periodic statements. Following issuance of this proposal, the Board
intends to conduct additional consumer testing to test the format,
placement, and content of this periodic statement disclosure.
The proposal contains additional revisions to the provisions in
Sec. 230.11(a) and accompanying staff commentary to reflect the
revised scope of institutions subject to the disclosure requirement,
including deletion as unnecessary of the
[[Page 28745]]
examples in Sec. 230.11(a)(2) of communications that would not trigger
the aggregate fee disclosure requirement.
11(b) Advertising Disclosures for Overdraft Services
Section 230.11(b) contains a list of communications about the
payment of overdrafts that are not subject to additional advertising
disclosures. The Board proposes to add a new example under Sec.
230.11(b) to include the proposed opt-out notice under Sec. 230.10 of
this rule. See proposed Sec. 230.11(b)(2)(xii).
11(c) Disclosure of Account Balances
Section 230.11(b)(1) currently requires institutions that promote
the payment of overdrafts to include certain disclosures in their
advertisements about the service to avoid confusion between overdraft
services and traditional lines of credit. The May 2005 final rule
provided additional guidance in the staff commentary in the form of
examples of institutions promoting the payment of overdrafts and stated
that an institution must include the additional advertising disclosures
if it ``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 comment 11(b)-1.iii; see also Sec. 230.11(b)(1);
70 FR at 29,590. To facilitate responsible use of overdraft services
and ensure that consumers receive accurate information about their
account balances, the Board is proposing additional restrictions on
account balances that may be disclosed in response to a consumer
inquiry. Specifically, to avoid consumer confusion with respect to
account balances disclosed in response to an inquiry, proposed Sec.
230.11(c) would prohibit institutions from including in the consumer's
disclosed balance any funds the institution may provide to cover an
overdraft item. The proposed provision would apply to any automated
system used by an institution to provide balance information. The
proposed rule would not apply to in-person discussions or telephone
discussions or Internet chats with live personnel due to concerns about
the compliance burden associated with monitoring individual
conversations and responses. Of course, such discussions may not be
deceptive.
The proposed provision implements the prohibition in TISA Sec.
263(e) (12 U.S.C. 4303(e)) on misleading or inaccurate advertisements,
announcement, or solicitations relating to a deposit account. Thus,
under proposed Sec. 230.11(c), institutions must disclose an account
balance that solely includes funds that are available for the
consumer's immediate use or withdrawal, and may not include any
additional amount that the institution may provide to cover an
overdraft. For example, as part of its overdraft service, an
institution may add a $500 cushion or overdraft limit to the consumer's
account balance when determining whether to pay an overdrawn item; the
additional $500 could not be included in this balance disclosed to the
consumer in response to an inquiry. The proposed provision incorporates
a best practice recommended by the February 2005 Joint Guidance.
Similarly, as provided in the February 2005 Joint Guidance,
institutions may, at their option, disclose a second balance that
includes funds that may be advanced through the institution's overdraft
service, provided that the institution prominently discloses at the
same time that the second balance includes funds provided by the
institution to cover overdrafts.
Proposed comment 11(c)-1 clarifies that for purposes of this
provision, the institution may, but need not, include funds that are
deposited in the consumer's account, such as from a check, but that are
not yet made available for withdrawal in accordance with the funds
availability rules under the Board's Regulation CC (12 CFR part 229).
Similarly, the balance may, but need not, include any funds that are
held by the bank to satisfy a prior obligation of the consumer (for
example, to cover a hold for an ATM or debit card transaction that has
been authorized but for which the bank has not settled). The proposed
comment recognizes that the methods used by depository institutions for
determining the balances that are available for the consumer's use or
withdrawal may vary significantly by institution. For example, smaller
institutions may only consider a balance that reflects the ledger
balance for the consumer's account at the end of the previous day after
the institution has completed its processing activities. Other
institutions may update the balance on a near-or real-time basis to
reflect recent transactions that have been authorized, but have not
been presented for settlement. The proposed comment is intended to make
clear that institutions are not expected to reconfigure their internal
systems to provide ``real-time'' balance disclosures. Regardless of the
transactions that are reflected in the account balance disclosed to
consumers, the proposed rule is intended only to require that the
balance must not include any additional amounts that the institution
may provide to pay an overdraft.
Proposed comment 11(c)-2 provides that the balance disclosure
requirement applies to any automated system through which the consumer
requests a balance, including, but not limited to, a telephone response
machine (such as an interactive voice response system), at an ATM (both
on the ATM screen and on receipts), or on an institution's Internet
site (other than live chats with an account representative). The
proposed comment further clarifies that the reference to ATM inquiries
applies equally to inquiries at ATMs owned or operated by a consumer's
account-holding institution, as well as to inquiries at foreign ATMs,
including those operated by non-depository institutions.
While the Board considered addressing concerns about potentially
deceptive balances under its separate rulemaking authority under
Section 5(a) of the FTC Act (15 U.S.C. 45(n)), the Board is proposing
to address this issue under its TISA authority because such rules (if
similarly adopted under the NCUA's separate authority under TISA, see
12 CFR part 707) would also extend to state-chartered credit
unions.\13\ Nevertheless, the Board believes that adoption of this rule
under TISA would not preclude a separate determination by a federal
banking agency that it is a deceptive practice under the FTC Act to
disclose a single balance that includes funds that an institution may
provide to cover an overdraft, if the institution does not state that
fact.
---------------------------------------------------------------------------
\13\ The Board notes that rules promulgated by the NCUA under
the FTC Act do not apply to state-chartered credit unions. As noted
above, following the Board's adoption of final rules under
Regulation DD, NCUA intends to issue substantially similar
amendments to 12 CFR part 707.
---------------------------------------------------------------------------
V. Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
generally requires an agency to perform an assessment of the impact a
rule is expected to have on small entities.
However, under section 605(b) of the RFA, 5 U.S.C. 605(b), the
regulatory flexibility analysis otherwise required under section 604 of
the RFA is not required if an agency certifies, along with a statement
providing the factual basis for such certification, that the rule will
not have a significant economic impact on a substantial number of small
entities. Based on its analysis and for the reasons stated below, the
Board believes that this proposed rule will not
[[Page 28746]]
have a significant economic impact on a substantial number of small
entities. A final regulatory flexibility analysis will be conducted
after consideration of comments received during the public comment
period.
1. Statement of the need for, and objectives of, the proposed rule.
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 revising Regulation DD to set forth content, timing
and format requirements for a notice provided to consumers about their
right to opt out of an institution's overdraft service. The proposed
requirements are intended to ensure that consumers receive effective
disclosures about the opt-out right. In addition, current requirements
for disclosing totals for overdraft and returned item fees on periodic
statements would be expanded to apply to all institutions and not
solely to institutions that promote the payment of overdrafts. Thus,
all consumers that use overdraft services will receive additional
information about fees to help them better understand the costs
associated with their accounts, regardless of whether the service is
marketed to them. Lastly, the proposed rule would ensure that consumers
are not misled about the funds they have available for a transaction by
requiring institutions that provide balance information through an
automated system in response to a consumer inquiry, to only include
funds available for the consumer's immediate use or withdrawal pursuant
to the terms of the account agreement, and not any funds that may be
advanced through the institution's overdraft service.
2. Small entities affected by the proposed rule. Approximately
12,117 depository institutions in the United States that must comply
with TISA have assets of $150 million or less and thus are considered
small entities for purposes of the RFA, based on 2007 call report data.
Approximately 4,774 are institutions that must comply with the Board's
Regulation DD; approximately 7,343 are credit unions that must comply
with NCUA's Truth in Savings regulations which must be substantially
similar to the Board's Regulation DD.
Under the proposed rule, all small depository institutions that pay
overdrafts will have to revise their disclosures both at account
opening (or before the overdraft service is provided) and on periodic
statements, to reflect the proposed consumer right to opt out. (The
rule provides alternative means for complying with the periodic
statement opt-out disclosure requirement, such as by providing the opt-
out disclosure on a notice sent promptly after an overdraft. To the
extent a depository institution elects to comply with this alternative
means, it will have to revise those disclosures, as appropriate.) The
Board notes, however, that some depository institutions likely already
provide some form of consumer opt-out based on their implementation of
best practices under the February 2005 Joint Guidance.
In addition, institutions that did not previously revise their
periodic statement disclosures to comply with the prior May 2005
Regulation DD amendments because they did not promote their overdraft
service will need to do so to reflect aggregate overdraft and aggregate
returned-item fees for the statement period and year to date. Lastly,
institutions will have to reprogram their automated systems to provide
balances that exclude additional funds the institution may provide to
cover an overdraft in response to consumer balance inquiries, if the
institution has not done so as previously recommended by the February
2005 Joint Guidance.
3. Recordkeeping, reporting, and compliance requirements. The
proposed revisions to Regulation DD require all depository institutions
to provide consumers notice of their right to opt out of the
institution's overdraft service before the service is provided, and on
each periodic statement reflecting an overdraft fee or charge (or
alternatively, on a notice sent promptly after an overdraft informing
the consumer of that fact). In addition, as discussed in more detail
above, institutions that have not previously provided total dollar
amounts of fees imposed on the account for paying overdrafts and total
dollar amounts of fees for returning items unpaid will be required to
do so for both the statement period and the calendar year to date.
Disclosures of account balances that include funds that the institution
may provide to cover an overdraft will be prohibited, unless the
institution specifically discloses that fact.
4. Other federal rules. The Board has not identified any federal
rules that duplicate, overlap, or conflict with the proposed revisions
to Regulation DD.
5. Significant alternatives to the proposed revisions. The Board
solicits comment about additional ways to reduce regulatory burden
associated with this proposed rule.
VI. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the rule
under the authority delegated to the Federal Reserve by the Office of
Management and Budget (OMB). The collection of information that is
subject to the PRA by this proposed rulemaking is found in 12 CFR part
230. The Federal Reserve may not conduct or sponsor, and an
organization is not required to respond to, this information collection
unless the information collection displays a currently valid OMB
control number. The OMB control number is 7100-0271.
This information collection is required to provide benefits for
consumers and is mandatory (15 U.S.C. 1601 et seq.). Since the Board
does not collect any information, no issue of confidentiality arises.
The respondents/recordkeepers are creditors and other entities subject
to Regulation DD, including for-profit financial institutions and small
businesses.
Section 269 of the Truth in Savings Act (TISA) (12 U.S.C. 4308)
authorizes the Board to issue regulations to carry out the provisions
of TISA. TISA and Regulation DD require depository institutions to
disclose yields, fees, and other terms concerning deposit accounts to
consumers at account opening, upon request, and when changes in terms
occur. Depository institutions that provide periodic statements are
required to include information about fees imposed, interest earned,
and the annual percentage yield earned during those statement periods.
The act and regulation mandate the methods by which institutions
determine the account balance on which interest is calculated. They
also contain rules about advertising deposit accounts. To ease the
compliance cost (particularly for small entities), model clauses and
sample forms are appended to the regulation. Depository institutions
are required to retain evidence of compliance for twenty-four months,
but the regulation does not specify types of records that must be
retained.
Regulation DD applies to all depository institutions except credit
unions. Credit unions are covered by a substantially similar rule
issued by the National Credit Union Administration. Under the PRA, the
Federal Reserve accounts for the paperwork burden associated with
Regulation DD only for
[[Page 28747]]
Board-supervised institutions. Regulation DD defines Board-regulated
institutions as: State member banks, branches and agencies of foreign
banks (other than federal branches, federal agencies, and insured state
branches of foreign banks), commercial lending companies owned or
controlled by foreign banks, and organizations operating under section
25 or 25A of the Federal Reserve Act. Other federal agencies account
for the paperwork burden imposed on the depository institutions for
which they have administrative enforcement authority.
As mentioned in the preamble, the proposed rulemaking sets forth
content, timing and format requirements for a notice provided to
consumers about their right to opt out of an institution's overdraft
service. Current requirements for disclosing totals for overdraft and
returned item fees on periodic statements would be extended to apply to
all institutions and not solely to institutions that promote the
payment of overdrafts. The proposed rule would also require
institutions that provide balance information in response to a balance
inquiry by the consumer, to only include funds available for the
consumer's immediate use or withdrawal without incurring an overdraft,
and not any funds added through the institution's overdraft service.
The Board estimates that 1,172 respondents regulated by the Board
would take, on average, 40 hours (one business week) to re-program and
update their systems to comply with the proposed disclosure
requirements. These disclosure requirements include opt-out disclosures
for overdraft services (Sec. 230.10), disclosure of total fees on
periodic statements (Sec. 230.11(a)), and disclosure of account
balances (Sec. 230.11(c)). The Board estimates the total annual one-
time burden to be 46,880 hours and believes that, on a continuing
basis, there would be no increase in burden as the proposed disclosures
would be sufficiently accounted for once incorporated into the current
account disclosures (Sec. 230.4) and periodic statement disclosure
(Sec. 230.6). To ease the compliance cost model clauses, B-10 consumer
opt-out from overdraft services sample form (Sec. 230.10) and B-11
aggregate overdraft and returned item fees sample form (Sec. 230.11),
are proposed in Appendix B.
The current total annual burden is estimated to be 176,177 hours
for 1,172 Board-covered institutions. The proposed total annual burden
is estimated to be 223,057 hours, an increase of 46,880 hours.
The other federal financial 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 Board's burden estimates. Using the
Board's method, the total estimated annual burden for all financial
institutions subject to Regulation DD, including Board-supervised
institutions, would be approximately 2,898,548 hours. The proposed
amendments would impose a one-time increase in the estimated annual
burden for all institutions subject to Regulation DD by 772,000 hours
to 3,670,548 hours. The above estimates represent an average across all
respondents and reflect variations between institutions based on their
size, complexity, and practices. All covered institutions, including
depository institutions (of which there are approximately 19,300),
potentially are affected by this collection of information, and thus
are respondents for purposes of the PRA.
Comments are invited on: (1) Whether the proposed collection of
information is necessary for the proper performance of the Board's
functions; including whether the information has practical utility; (2)
the accuracy of the Board's estimate of the burden of the proposed
information collection, including the cost of compliance; (3) ways to
enhance the quality, utility, and clarity of the information to be
collected; and (4) ways to minimize the burden of information
collection on respondents, including through the use of automated
collection techniques or other forms of information technology.
Comments on the collection of information should be sent to Michelle
Shore, Federal Reserve Board Clearance Officer, Division of Research
and Statistics, Mail Stop 151-A, Board of Governors of the Federal
Reserve System, Washington, DC 20551, with copies of such comments sent
to the Office of Management and Budget, Paperwork Reduction Project
(7100-0271), Washington, DC 20503.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
changes to the text of the regulation and staff commentary. New
language is shown inside bold-faced arrows, while language that would
be deleted is set off with bold-faced brackets.
List of Subjects in 12 CFR Part 230
Advertising, Banks, Banking, Consumer protection, Reporting and
recordkeeping requirements, Truth in savings.
Authority and Issuance
For the reasons set forth in the preamble, the Board proposes to
amend Regulation DD, 12 CFR part 230, and the Official Staff
Commentary, as set forth below:
PART 230--TRUTH IN SAVINGS (REGULATION DD)
1. The authority citation for part 230 continues to read as
follows:
Authority: 12 U.S.C. 4301 et seq.
2. Section 230.1 is amended by revising paragraph (a) to read as
follows:
Sec. 230.1 Authority, purpose, coverage, and effect on state laws.
(a) Authority. This regulation, known as Regulation DD, is issued
by the Board of Governors of the Federal Reserve System to implement
the Truth in Savings Act of 1991 (the act), contained in the Federal
Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. 3201
et seq., Pub. L. 102-242, 105 Stat. 2236). Information-collection
requirements contained in this regulation have been approved by the
Office of Management and Budget under the provisions of 44 U.S.C. 3501
et seq. and have been assigned OMB No. [lsqbb]7100-0255[rsqbb]
[rtrif]7100-0271[ltrif].
* * * * *
3. Section 230.10 is added to read as follows:
Sec. 230.10 [rtrif]Opt-out disclosure requirements for overdraft
services.
(a) General rule. If a depository institution provides a consumer
the right to opt out of the institution's payment of overdrafts
pursuant to the institution's overdraft service, as defined in 12 CFR
227.31(c), the institution must provide written notice of that right in
accordance with the requirements of this section.
(b) Format and content. The notice described in paragraph (a) of
this section must use a format substantially similar to Sample Form B-
10, and include the following information:
(1) Overdraft policy. The categories of transactions for which a
fee for paying an overdraft may be imposed;
(2) Fees imposed. The dollar amount of any fees or charges imposed
for paying checks or other items when there are insufficient or
unavailable funds and the account becomes overdrawn;
(3) Potential impact of fee in relation to overdraft amount. A
statement that a fee may be charged for overdrafts as low as $1, or the
lowest dollar amount for which the institution may charge an overdraft
fee;
(4) Limits on fees charged. The maximum amount of overdraft fees or
[[Page 28748]]
charges that may be assessed per day and per statement period, or, if
applicable, that there is no limit to the fees that can be imposed;
(5) Disclosure of opt-out right. An explanation of the consumer's
right to opt out of the institution's payment of overdrafts, including
the method(s) by which the consumer may exercise that right; and
(6) Alternative payment options. As applicable, a statement that
the institution offers other alternatives for the payment of
overdrafts. In addition, if the institution offers a line of credit
subject to the Board's Regulation Z (12 CFR part 226) for the payment
of overdrafts, the institution must also state that fact. An
institution may, but is not required to, list additional alternatives
for the payment of overdrafts.
(c) Timing. As applicable, the notice described in paragraph (a) of
this section must be provided:
(1) Prior to the institution's imposition of any fee for paying a
check or other item when there are insufficient or unavailable funds in
the consumer's account, provided that the consumer has a reasonable
opportunity to exercise the opt-out right prior to the assessment of
any fee for paying an overdraft; and
(2)(i) On each periodic statement reflecting any fee(s) or
charge(s) for paying an overdraft, in close proximity to the
disclosures required by Sec. 230.11(a); or
(ii) At least once per statement period on any notice sent promptly
after the institution's payment of an overdraft.[ltrif]
4. Section 230.11 is amended by revising the heading, paragraphs
(a) (b)(2)(x) and (b)(2)(xi), and adding paragraphs (b)(2)(xii) and (c)
to read as follows:
Sec. 230.11 Additional disclosure requirements [lsqbb]for
institutions advertising the payment of overdrafts[rsqbb] [rtrif]for
overdraft services.[ltrif]
(a) [lsqbb]Periodic statement disclosures[rsqbb] [rtrif]Disclosure
of total fees on periodic statements[ltrif]--(1) Disclosure of total
fees[rsqbb] [rtrif]General[ltrif]. [lsqbb](i) Except as provided in
paragraph (a)(2) of this section, if a depository institution promotes
the payment of overdrafts in an advertisement, the[rsqbb] [rtrif]A
depository[ltrif] institution must separately disclose on each periodic
statement[rtrif], as applicable[ltrif]:
[lsqbb](A)[rsqbb] [rtrif](i)[ltrif] 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
[lsqbb](B)[rsqbb] [rtrif](ii)[ltrif] The total dollar amount for
all fees imposed on the account for returning items unpaid.
[lsqbb](ii)[rsqbb] [rtrif](2) Totals required.[ltrif] The
disclosures required by [lsqbb]this[rsqbb] paragraph [rtrif](a)(1) of
this section[ltrif] must be provided for the statement period and for
the calendar year to date [lsqbb]for any account to which the
advertisement applies[rsqbb];
[rtrif](3) Format requirements. The aggregate fee disclosures
required by paragraph (a) of this section must be disclosed in close
proximity to fees identified under Sec. 230.6(a)(3), using a format
substantially similar to Sample Form B-11 in appendix B.[ltrif]
[lsqbb](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) 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 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.[rsqbb]
(b) * * *
* * * * *
(2) * * *
(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; [lsqbb]or[rsqbb]
(xi) Informational or educational materials concerning the payment
of overdrafts if the materials do not specifically describe the
institution's overdraft service[lsqbb].[rsqbb][rtrif]; or
(xii) An opt-out notice regarding the institution's payment of
overdrafts under Sec. 230.10 of this part.[ltrif]
* * * * *
[rtrif](c) Disclosure of account balances. In response to an
account balance inquiry by a consumer through an automated system, an
institution must provide a balance that solely includes funds that are
available for the consumer's immediate use or withdrawal, and may not
include additional amounts that the institution may provide to cover an
item when there are insufficient or unavailable funds in the consumer's
account. The institution may, at its option, disclose a second account
balance that includes such an additional amount, if the institution
prominently indicates that this balance includes funds provided by the
institution to cover overdrafts.[ltrif]
5. In Appendix B to Part 230, and new forms B-10 Overdraft Services
Opt-Out Notice Sample Form and B-11 Aggregate Overdraft And Returned
Item Fees Sample Form to read as follows:
[[Page 28749]]
Appendix B to Part 230--Model Clauses and Sample Forms
* * * * *
[GRAPHIC] [TIFF OMITTED] TP19MY08.004
[[Page 28750]]
[GRAPHIC] [TIFF OMITTED] TP19MY08.005
6. In Supplement I to part 230:
a. In Section 230.10, the heading is revised and new paragraphs
1. through 3. are added.
b. In Section 230.11 and Section 230.11(a), the headings are
revised and paragraphs (a)(1)1. and (a)(1)2. are removed.
c. In Section 230.11, paragraphs (a)(1)3. through (a)(1)8. are
redesignated as paragraphs (a)(1)1. through (a)(1)6., respectively.
d. In Section 230.11, new paragraphs (a)(1)2. and (a)(1)3. are
revised.
e. In Section 230.11, new paragraphs (c)1. and (c)2. are added.
Supplement I to Part 230--Official Staff Interpretations
* * * * *
Section 230.10 Opt-out Disclosure Requirements for the Payment of
Overdrafts
[rtrif]1. Disclosure of opt-out right. Section 230.10 sets forth
the disclosures that must be provided if a depository institution
provides a consumer the right to opt out of the institution's
payment of overdrafts. Institutions may be required to provide
consumers with the right to opt out in accordance with federal or
other applicable law. See, e.g., Sec. 227.31(a) of the Board's
Regulation AA (12 CFR part 227).
2. Methods of opting out. Reasonable methods that a consumer may
use to opt out of an institution's payment of overdrafts include
mailing a form and calling a toll-free telephone number.
3. Additional opt-out notice content. In the opt-out notice
provided under Sec. 230.10(a) of this part, an institution may
briefly describe the consequences of the consumer's election to opt
out of the institution's payment of overdrafts. For example, the
institution may state that if a consumer opts out, the consumer's
payment may be denied, or returned unpaid, and that the consumer may
incur returned item fees from both the institution as well as the
payee.[ltrif]
* * * * *
Section 230.11 Additional Disclosures Regarding the Payment of
Overdrafts
(a) Disclosure of total fees on periodic statements.
(a)(1) General.
* * * * *
2. Fees for paying overdrafts. [lsqbb]An institution that
advertises the payment of overdrafts[rsqbb]
[rtrif]Institutions[ltrif] 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.
3. Fees for returning items unpaid. [lsqbb]An institution that
advertises the payment of overdrafts must disclose a[rsqbb]
[rtrif]The[ltrif] total dollar amount [rtrif]of[ltrif] [lsqbb]for
all[rsqbb] fees [rtrif]for returning items unpaid must include all
fees[ltrif] 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.
* * * * *
[rtrif](c) Disclosure of account balances.
1. Funds available for consumer's immediate use or withdrawal.
For purposes of the balance disclosure requirement in Sec.
230.11(c), an institution must generally disclose a balance that
solely reflects the funds that are available for the consumer's
immediate use or withdrawal, without the consumer incurring an
overdraft. The balance disclosed may, but need not, include funds
that are deposited in the consumer's account, such as from a check,
that are not yet made available for withdrawal in accordance with
the funds availability rules under the Board's Regulation CC (12 CFR
part 229). In addition, the balance disclosed may, but need not,
include any funds that are held by the institution to satisfy a
prior obligation of the consumer (for example, to cover a hold for
an ATM or debit card transaction that has been authorized but for
which the bank has not settled).
2. Balance inquiry channels. The balance disclosure requirement
in Sec. 230.11 applies to any automated system through which the
consumer requests a balance, including, but not limited to, a
telephone response system, the institution's Internet site or an
automated teller machine (ATM) (whether or not the ATM is owned or
operated by the institution). If the balance is obtained at an
[[Page 28751]]
ATM, the disclosure requirement applies whether the balance is
disclosed on the ATM screen or on a paper receipt.[ltrif]
* * * * *
By order of the Board of Governors of the Federal Reserve
System, May 2, 2008.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E8-10243 Filed 5-16-08; 8:45 am]
BILLING CODE 6210-01-P