[Federal Register: January 29, 2009 (Volume 74, Number 18)]
[Rules and Regulations]
[Page 5584-5594]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29ja09-14]
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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: Final rule; official staff commentary.
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SUMMARY: The Federal Reserve Board (Board) is amending Regulation DD,
which implements the Truth in Savings Act, and the official staff
commentary to the regulation to require all depository institutions to
disclose aggregate overdraft fees on periodic statements, and not
solely institutions that promote the payment of overdrafts. The final
rule also addresses balance disclosures provided to consumers through
automated systems. In addition, the Board is separately issuing a
proposed rulemaking, published in today's Federal Register, to
incorporate the notice requirements into Regulation E that were
previously proposed under Regulation DD.
Dates: Effective Date: The rule is effective January 1, 2010.
FOR FURTHER INFORMATION CONTACT: Dana E. Miller, 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)
452-3667. 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, 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).
The Board's authority under section 269(a) of TISA provides that
its regulations may contain such classifications, differentiations, or
other provisions, and may provide for such adjustments and exceptions
for any class of accounts as, in the judgment of the Board, are
necessary or proper to carry out the purposes of TISA, to prevent
circumvention or evasion of the requirements of TISA, or to facilitate
compliance with the requirements of TISA. 12 U.S.C. 4308. It is the
purpose of TISA to require the clear and uniform disclosure of the fees
that are assessable against deposit accounts, so that consumers can
make a meaningful comparison between the competing claims of depository
institutions with regard to deposit accounts. 12 U.S.C. 4301.
In addition, 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.
TISA and Regulation DD contain rules for advertising deposit
accounts. TISA and Regulation DD prohibit inaccurate or misleading
advertisements, announcements, or solicitations, or those that
misrepresent the deposit contract. TISA and Regulation DD also prohibit
institutions from advertising an
[[Page 5585]]
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.
II. Background on Overdraft Services and Regulatory Action to Date
Historically, if a consumer attempted to engage in a transaction
that would overdraw his or her deposit account, the consumer's
depository institution used its discretion on an ad hoc basis to
determine whether to pay the overdraft. If an overdraft was paid, the
institution usually imposed a fee on the consumer's account.\1\ In
recent years, many institutions have largely automated the overdraft
payment process. Automation is used to set specific criteria for
determining whether to honor overdrafts and set limits on the amount of
the coverage provided.
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\1\ 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 consumer's transactions on any
ad hoc basis.
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Overdraft services vary among institutions but often share certain
common characteristics. In general, consumers who meet the
institution's criteria are automatically enrolled in overdraft
services.\2\ While institutions generally do not initially underwrite
on an individual account basis when enrolling a consumer in the
service, 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 institutions disclose to
consumers that the payment of overdrafts is discretionary, and that the
institution has no legal obligation to pay any overdraft.
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\2\ These criteria may include whether the account has been open
a certain number of days, whether the account is in ``good
standing,'' and whether deposits are regularly made to the account.
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In the past, institutions generally provided overdraft coverage
only for check transactions.\3\ In recent years, however, the service
has been extended to cover overdrafts resulting from non-check
transactions, including withdrawals at automated teller machines
(ATMs), automated clearinghouse transactions, debit card transactions
at point-of-sale, pre-authorized automatic debits from a consumer's
account, telephone-initiated funds transfers, and online banking
transactions.\4\
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\3\ According to the FDIC's Study of Bank Overdraft Programs,
nearly 70 percent of banks surveyed implemented their automated
overdraft program after 2001. In addition, 81 percent of banks
surveyed that operate automated programs allow overdrafts to be paid
at ATMs and POS debit card terminals. See FDIC Study of Bank
Overdraft Programs 8, 10 (November 2008) (available at: http://
www.fdic.gov/bank/analytical/overdraft/FDIC138_Report_
FinalTOC.pdf) (FDIC Study). See also Overdraft Protection: Fair
Practices for Consumers: Hearing before the House Subcomm. on
Financial Institutions and Consumer Credit, House Comm. on Financial
Services 110th Cong., at 72 (2007) (hereinafter, Overdraft
Protection Hearing) (available at http://www.house.gov/apps/list/
hearing/financialsvcs_dem/hr0705072.shtml) (stating that as
recently as 2004, 80 percent of banks still declined ATM and debit
card transactions without charging a fee when account holders did
not have sufficient funds in their account).
\4\ See Interagency Guidance on Overdraft Protection Programs,
70 FR 9127, Feb. 24, 2005, and OTS Guidance on Overdraft Protection
Programs, 70 FR 8428, Feb. 18, 2005.
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A flat fee is charged each time an overdraft is paid, regardless of
the amount of the overdraft. Institutions commonly 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.
The Board, Federal Deposit Insurance Corporation (FDIC), NCUA and
Office of the Comptroller of the Currency published guidance on
overdraft protection programs in February 2005 (Joint Guidance) in
response to concerns about aspects of the growing marketing,
disclosure, and implementation of overdraft services. The Joint
Guidance addressed three primary areas--safety and soundness
considerations, legal risks, and best practices. The Office of Thrift
Supervision (OTS) published similar guidance which focused on safety
and soundness considerations and best practices (OTS Guidance). The
best practices described in the Joint Guidance and the OTS Guidance
focused on the marketing of overdraft services and the disclosure and
operation of program features, including distinguishing actual
available account balances from account balances that include overdraft
protection amounts.
In May 2005, the Board separately published revisions to Regulation
DD and the official staff commentary to address concerns about the
uniformity and adequacy of institutions' disclosure of overdraft fees
generally, and the advertisement of overdraft services in particular.
70 FR 29582, May 24, 2005.\5\ Under the May 2005 final rule, which
became effective July 1, 2006, all depository institutions were
required to specify in their account disclosures the categories of
transactions for which an overdraft fee may be imposed. Depository
institutions that promote the payment of overdrafts in an advertisement
were required to include in such advertisements certain information
about the costs associated with the service and the circumstances under
which the institution would not pay an overdraft. These institutions
were also required 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 were required to be provided for the
statement period and for the calendar year-to-date.
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\5\ A substantively similar rule applying to credit unions was
issued separately by the NCUA. 71 FR 24568, Apr. 26, 2006.
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III. The Board's Proposed Revisions to Regulation DD
In May 2008, the Board issued two proposals relating to overdraft
services. These proposals were intended to address concerns that
consumers may not adequately understand the costs of overdraft services
or how overdraft services operate generally. The Board, along with the
OTS and the NCUA, proposed to adopt substantive protections using their
authority under the Federal Trade Commission Act (FTC Act).\6\ The
Board also separately proposed to add a new Subpart D on overdraft
services to the Board's Regulation AA, Unfair or Deceptive Acts or
Practices (FTC Act Proposal) (12 CFR part 227). Among other provisions,
the proposed rules would require institutions to provide consumers the
right to opt out of their institutions' payment of overdrafts.
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\6\ 73 FR 28904, May 19, 2008. For simplicity, this notice will
refer only to the Board's proposal.
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Pursuant to its authority under sections 263, 264, 268 and 269(a)
of TISA,\7\ the Board also proposed new disclosure requirements under
Regulation DD to facilitate consumers' ability to make informed
judgments about the use of their accounts.\8\ The proposed revisions to
Regulation DD addressed three types of overdraft disclosures. First,
the Board proposed to revise Sec. 230.10 to establish format, content,
and timing requirements for the notices given to consumers by their
depository institution informing them about their right to opt out of
their
[[Page 5586]]
institution's overdraft service. The proposal included a model opt-out
form. Second, the Board proposed to extend to all institutions the
requirement to disclose on periodic statements the aggregate dollar
amounts charged for overdraft fees and for returned-item fees (for the
statement period and the year-to-date). Currently, Regulation DD
requires that only institutions that promote or advertise the payment
of overdrafts must disclose aggregate amounts. Third, the Board
proposed to require institutions that provide account balance
information through an automated system to disclose the amount of funds
available for the consumer's immediate use or withdrawal, without
including additional funds the institution may provide to cover
overdrafts. Under the proposal, institutions would be permitted to
disclose a second account balance that includes funds available for
paying overdrafts, provided the institution prominently discloses at
the same time that this balance includes additional funds provided by
the institution to cover overdrafts.
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\7\ 12 U.S.C. 4302(e), 4303(b) & (d), 4307, 4308(a). While the
NCUA did not separately propose amendments to its 12 CFR part 707 in
May 2008, TISA requires the NCUA to promulgate regulations
substantially similar to Regulation DD. Accordingly, the NCUA
anticipates issuing proposed amendments to part 707 shortly after
the Board's adoption of final rules under Regulation DD.
\8\ 73 FR 28739, May 19, 2008.
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Overview of Public Comments
The Board received over 600 comments on the Regulation DD proposal.
Additionally, a number of comments submitted in connection with the FTC
Act Proposal contained comments on the Regulation DD proposal.
Commenters included individual consumers, consumer advocates, federal
and state regulators and officials, large financial institutions,
credit unions, community banks, industry trade associations, members of
Congress, core systems providers, and vendors of overdraft services.
Most commenters focused on the proposed model opt-out form.\9\
Consumer groups supported the proposed model form for notifying
consumers of their right to opt out of overdraft services, but urged
the Board to enhance the model form in various ways, including making
the opt-out right more prominent. Most industry commenters stated that
the proposed model form was unduly biased towards encouraging consumers
to opt out and did not sufficiently explain that payment of overdrafts
is discretionary. These commenters maintained that the model form could
mislead consumers into believing that overdrafts will be paid in all
cases.
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\9\ Comments that addressed the merits of the substantive opt-
out right were provided in response to the May 2008 FTC Act
Proposal. Many industry commenters argued that the substantive opt-
out right should be addressed under Regulation E. These commenters
argued that consumers prefer to have their checks paid and an
overdraft fee assessed rather than face possible negative
consequences resulting from a bounced check.
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Consumers and consumer groups supported extending the aggregate
overdraft fee disclosures on periodic statements to all financial
institutions. These commenters maintained that streamlined disclosures
will ensure that consumers fully understand the consequences of
overdrawing their account. However, most industry commenters objected
to extending the aggregate fee disclosures to all institutions, stating
the burden would outweigh the limited benefits of the disclosure.
Consumer groups also supported the proposed requirement that
institutions disclose account balance information without including any
overdraft funds provided by the institution. Consumer groups urged the
Board to apply the same requirement to balance information provided in
person, by telephone or e-mail, or in Internet ``chats'' with bank
personnel. Some consumer groups argued that institutions also should be
prohibited from disclosing a second balance that includes these
overdraft funds because it could mislead consumers. Industry response
to the balance disclosure proposal was mixed; of those commenters that
supported the proposal, some argued that it should only apply to
proprietary ATMs. Other industry commenters requested the rule be
revised to clarify what funds must be excluded from the balance (and
from any second balance that might be disclosed).
Subsequent to the issuance of the Regulation DD proposal, the Board
used a testing consultant, Macro International, Inc. (Macro), to
conduct qualitative consumer testing to assess consumer understanding
of the model form. Macro also conducted qualitative consumer testing of
various model opt-out language and aggregate fee tables. Except where
relevant to this final rule, the testing results are discussed in the
final FTC Act rule and the Board's Regulation E proposal, where
appropriate. These rulemakings are published elsewhere in today's
Federal Register.
IV. Summary of the Final Rule
The following is a summary of the significant revisions to the
regulation and the official staff commentary. The revisions are
discussed in more detail below in the section-by-section analysis.
The Board is adopting final revisions to Regulation DD and the
official staff commentary to expand the requirement to disclose
overdraft fees on periodic statements to apply to all institutions, and
not solely to institutions that promote the payment of overdrafts. The
final rule adds format requirements to help make the aggregate fee
disclosures more effective and noticeable to consumers.
In addition, the final rule requires an account balance disclosed
to a consumer through any automated system (including, but not limited
to, an ATM, Internet Web site, or telephone response system) to exclude
additional amounts that the institution may provide or that may be
transferred from another account of the consumer to cover an item where
there are insufficient or unavailable funds in the consumer's account.
The rule is designed to ensure that consumers are not confused or
misled about the available amount of funds in their account when they
request their account balance. The final rule permits the institution
to disclose an additional balance that includes funds provided pursuant
to a discretionary overdraft service or a line of credit, or funds that
could be transferred from a consumer's linked individual or joint
account, so long as the institution prominently states that the balance
includes these additional amounts.
Based on the Board's review of comments received and consumer
testing results, the Board believes it is appropriate to place opt-out
requirements under the Board's authority under the Electronic Fund
Transfer Act and Regulation E.\10\ Thus, a revised substantive opt-out
is set forth in a proposal under Regulation E. The Regulation E
proposal also proposes, in the alternative, to require institutions to
provide customers an opt-in to payment of overdrafts for ATM and debit
transactions, and includes a proposed model opt-in notice. The
Regulation E proposal would also incorporate the content and timing
requirements for consumer opt-out (and opt-in) notices. The new
proposed model forms have been modified to conform to the revised
substantive opt-out right, and reflect consumer testing results and
commenter suggestions.
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\10\ These comments and the testing results are more fully
discussed in the final FTC Act rule and the Board's Regulation E
proposal published elsewhere in today's Federal Register, where
appropriate.
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[[Page 5587]]
V. Section-by-Section Analysis
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 provide such statements are required to disclose fees
or charges imposed on the account during the statement period. See 12
U.S.C. 4307(3) and 12 CFR 230.6(a)(3). Further, Sec. 230.11(a) of
Regulation DD requires institutions that promote the payment of
overdrafts in an advertisement to provide on periodic statements the
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. Pursuant to its authority under Sections 268 and 269 of TISA,
the Board proposed to expand Sec. 230.11(a) to require all
institutions, regardless of whether they promote the payment of
overdrafts, to disclose the aggregate fee information. The revision was
intended to provide all consumers that use discretionary overdraft
services, consistent with the purposes of TISA, with additional
information about fees to help them better understand the costs
associated with their accounts. The proposed rule also added format
requirements to help make the aggregate fee disclosures more effective
and noticeable to consumers. The final rule generally adopts the
proposal, with certain clarifications to reflect the expanded scope of
the rule. The final rule deletes as unnecessary certain of the examples
in existing Sec. 230.11(a)(2) of communications that would not trigger
the aggregate fee disclosure requirement. 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). In addition, the
Board is adopting, generally as proposed, commentary clarifying that
the aggregate fee total does not include fees for transferring funds
from another account of the consumer to avoid an overdraft, or fees
charged under a service subject to the Board's Regulation Z (12 CFR
part 226). See comment 11(a)(1)-2.
Consumers and consumer groups supported extending the aggregate
overdraft fee disclosures on periodic statements to all financial
institutions because, in their view, most institutions systematically
cover overdrafts whether they promote the service or not.
These commenters asserted that consistent disclosures will ensure that
consumers fully understand the consequences of overdrawing their
account. These commenters stated that the aggregate fee disclosures
would help consumers to better manage their bank accounts and to
understand the total costs they have incurred over time. In addition,
these commenters believed that the aggregate disclosures may encourage
consumers to explore other potentially lower-cost alternatives that may
be available to them.
In contrast, most industry commenters objected to extending the
aggregate fee disclosures to all institutions. These commenters stated
that revisions to periodic statements would be costly and would require
extensive and time-consuming programming changes. Industry commenters
also argued that the burden would outweigh the limited benefits of the
disclosure; some argued that aggregate fee information would benefit
only a limited number of consumers who incur substantial fees.
The final rule is intended to provide all consumers who use
discretionary overdraft services with additional information to help
them better understand the overdraft and NSF (returned item) costs
associated with their accounts. The aggregate fee disclosures will
benefit those consumers who overdraw their accounts with some frequency
but who do not currently receive aggregate fee disclosures because
their institution does not promote its overdraft service.
In addition, the Board believes the final rule will promote greater
transparency about the terms and costs of overdraft services for all
institutions. Under the current rule, institutions that do not promote
their overdraft service may be reluctant to provide information about
the service out of concern that such disclosures might trigger the
aggregate fee disclosure requirements. The Board also believes the rule
will create consistency in disclosures and will eliminate compliance
challenges inherent in a regulatory scheme based on a ``promoting'' or
``marketing'' distinction.
Several industry commenters argued that overdraft fees are already
disclosed in the deposit agreement or fee schedule, and questioned why
these types of fees deserve special attention on the statement compared
to other types of account fees. Others argued that consumers already
receive itemized fees on their periodic statements. Some industry
commenters argued that the emphasis on overdraft and returned item fees
would detract from other account charges.
The Board believes this requirement is appropriate because
overdraft and returned item fees are not as predictable as many other
types of account fees. Consumers cannot always know when settlement on
any one item will occur (particularly relative to other transactions,
where an institution processes items using different methods). Also,
balance inquiries may not always contain real-time balance information;
therefore, consumers may not realize that one overdrawn item could
trigger overdrafts on other transactions, and thus may not be able to
predict the total fees that will be charged for any one overdraft
occurrence. When there are multiple overdrafts, fee amounts may be
significant, even though each item may represent a relatively small
dollar amount.\11\ In addition, a small segment of consumers incur the
majority of overdraft fees.\12\ The aggregate fee disclosures will
benefit these consumers by showing them the total expenditures on
overdraft fees for the statement period and year, which may encourage
them to explore alternatives that might be less costly.
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\11\ Eric Halperin, Lisa James & Peter Smith, Debit Card Danger,
Ctr. For Responsible Lending at 25 (consumers pay $1.94 in fees for
every one dollar borrowed to cover a debit card POS overdraft). The
FDIC's Study of Bank Overdraft Programs found that the median
overdraft amount for debit card overdrafts was $20, and the median
overdraft amount for ATM transactions was $60. FDIC Study of Bank
Overdraft Programs 79 (Nov. 2008), available at: http://
www.fdic.gov/bank/analytical/overdraft/FDIC138_Report_
FinalTOC.pdf. Overdraft fees have increased significantly over the
last decade. See Federal Reserve Bulletin, Retail Fees of Depository
Institutions, 1997-2001, 405, 409, available at: http://
www.federalreserve.gov/pubs/bulletin/2002/0902lead.pdf (average
overdraft fee in 1997: $16.51); Bankrate, 2007 Courtesy Overdraft
Study, available at: http://www.bankrate.com/brm/news/chk/20071219_
overdraft_survey_main_a1.asp (average overdraft fee in 2007:
$29). See also Bank Fees: Federal Banking Regulators Could Better
Ensure that Consumers Have Required Disclosure Documents Prior to
Opening Checking or Savings Accounts, GAO Report 08-281 (January
2008) (11% increase from 2000 to 2007, according to one estimate).
\12\ See, e.g., Jacqueline Duby, Eric Halperin & Lisa James,
High Cost and Hidden From View: The $10 Billion Overdraft Loan
Market, Ctr. For Responsible Lending (May 26, 2005).
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A few industry commenters requested that, in lieu of a year-to-date
fee total, the Board permit a rolling twelve-statement-cycle total,
because the latter would be more useful for consumers. However,
consumer testing on both credit card and overdraft disclosures
indicated that consumers noticed year-to-date cost figures, and that
they would find the numbers helpful in making financial decisions. The
Board further
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notes that some consumers are already receiving year-to-date totals
from institutions currently subject to the rule; thus, requiring year-
to-date disclosures for all institutions will promote consistency of
disclosure across institutions. The Board is also adopting, elsewhere
in today's Federal Register, requirements to disclose year-to-date
interest charges and fees under Regulation Z. Consistency among the
various consumer disclosure regulations should facilitate consumer
understanding of disclosures. Thus, the final rule requires totals for
both the statement period and the calendar year-to-date. See Sec.
230.11(a)(2).
Several industry commenters asked whether an institution must
provide an aggregate fee disclosure if the consumer has not been
charged an overdraft or returned item fee for the year-to-date. Section
230.11(a)(1) states that a depository institution must separately make
the fee disclosures on each periodic statement, as applicable (emphasis
added). Thus, if a consumer has not incurred fees since the beginning
of the year (or statement period), the institution is not required to
provide a ``$0'' aggregate total for the year-to-date (or statement
period). However, institutions may, at their option, provide aggregate
fee disclosures even if a consumer has not been charged fees since the
beginning of the year or for a particular statement period.
Because the final rule expands the applicability of the aggregate
fee disclosures to all financial institutions, certain existing staff
comments addressing institutions that promote overdraft services
require modification or are no longer applicable. Thus, comment
11(a)(3)-1 has been revised, and comment 11(a)(5)-1 has been deleted.
Format of Aggregate Fee Disclosures
Pursuant to the Board's authority under TISA Section 269, the final
rule also adds proximity and format requirements which are intended to
enhance the effectiveness of the disclosures and to make them more
noticeable to consumers. Board staff reviewed current periodic
statement disclosures for institutions that promote overdraft services.
This review indicated that the aggregate fee totals are often disclosed
in a manner that may not be effective in informing consumers of the
totals.\13\ Accordingly, proposed Sec. 230.11(a)(3) stated that
aggregate fee disclosures must be provided in close proximity to the
fees identified under Sec. 230.6(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 rule also provided
that the information must be presented in a tabular format similar to
the proposed interest charge and total fees disclosures under the
Board's June 2007 proposal under Regulation Z. See 72 FR at 32996,
33052. The proposal requested comment on two alternatives of Sample
Form B-11, which illustrates how institutions should provide the
aggregate cost information on their periodic statements.
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\13\ For example, several statements contained inconsistent
formatting, or fee totals were included at the end of the statement
and not highlighted in a manner noticeable to consumers.
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Consumer groups supported the proposed proximity and formatting
requirements. These commenters maintained that the requirement to place
the aggregate fee disclosures in close proximity to the transaction
history would better enable consumers to understand how their current
account activity may have contributed to a history of overdrafts. They
also supported the proposed tabular format.
Industry commenters, however, objected to the proximity and fee
table requirement. They argued that it would require extensive, costly
systems changes to provide a fee table in close proximity to the
transaction history. Some industry commenters also argued that a
proximity requirement is subjective and subject to litigation risk.
As described above, Board staff's review of current periodic
statement disclosures for institutions that promote overdraft services
showed that in some cases, fee tables were not placed in a location
noticeable to consumers. Thus, the Board believes that uniform
proximity requirements are necessary to enable consumers to easily find
fee information so that, consistent with the purposes of TISA, they
better understand the costs of using the service. The proposed
proximity and format requirements were informed by the Board's consumer
testing undertaken in the context of credit card disclosure
requirements under Regulation Z. In that testing, consumers reviewing
transactions identified on their periodic statements consistently
noticed totals for fees and interest charges when they were grouped
together with transactions. See 72 FR at 32996. Additional consumer
testing was conducted subsequent to the May 2008 proposal on overdraft
fee disclosures and confirmed that aggregate cost disclosures for
overdraft and returned item fees were more noticeable to consumers when
grouped together with the itemized fees.\14\ Further, the testing
indicated that consumers tend to notice fee disclosures when expressed
in tabular form. Consumer testing on the two proposed tabular format
alternatives demonstrated that the first alternative, a clear graphic
disclosure, was the preferred alternative. Consumers found it easiest
to identify and digest the relevant fees in a column and row format.
Thus, the Board is adopting the first proposed alternative, renumbered
as Sample Form B-10, to illustrate how an institution should provide
the aggregate cost data. Aggregate fee disclosures must be provided
using a format substantially similar to Sample Form B-10. See Sec.
230(11)(a)(3).
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\14\ See Review and Testing of Overdraft Notices, Macro
International, December 8, 2008.
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Despite their general support of the aggregate fee disclosures,
consumer groups nonetheless urged the Board to find that overdraft
services are credit under Regulation Z so that consumers would be
provided disclosures containing an effective APR figure. The Board
believes that requiring an effective APR is not necessary to alert
consumers to the costs of the service. Moreover, the Board believes the
proposed aggregate fee table will be of more value than an effective
APR in the overdraft context. Consumer testing in the credit card
context showed that consumers preferred seeing costs reflected as
amount totals rather than expressed as an effective APR.\15\
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\15\ For this reason, the Board is revising Regulation Z to
replace the disclosure of the effective APR with a tabular
disclosure of the proposed interest charge and total fees.
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Several industry commenters requested that the Board permit some
flexibility in the language used in the aggregate fee table for the
total returned item fees, because their customers are more familiar
with language such as ``NSF fee'' rather than ``returned item fee.''
The Board has revised comment 11(a)(1)-3 to clarify that institutions
may use terminology such as ``returned item fee'' or ``NSF fee'' to
describe the fees for returning items unpaid.
Several industry commenters also requested clarification on how to
display fees that have been refunded. Comment 11(a)(1)-6, which has
been redesignated as comment 11(a)(1)-4 in the final rule, addresses
this issue where an institution provides a statement for the current
period reflecting that fees imposed during a previous period were
waived and credited to the account. This comment provides that, in
these circumstances, institutions may, but are not required to, reflect
the adjustment in the total for the calendar year-to-date
[[Page 5589]]
and in the applicable statement period. For example, if an institution
assesses a fee in January and refunds the fee in February, the
institution could disclose a year-to-date total reflecting the amount
credited, but it should not affect the total disclosed for the February
statement period, because the fee was not assessed in the February
statement period. However, because some institutions may assess and
then waive and credit a fee within the same statement cycle, the
comment has been revised to clarify that, in such a case, the
institution may reflect the adjustment in the total disclosed for fees
imposed during the current statement period and for the total for the
calendar year-to-date. In this case, if the institution assesses and
waives the fee in February, the February fee total could reflect a
total net of the waived fee.
11(b) Advertising Disclosures for Overdraft Services
Section 230.11(b)(2) lists the types of communications about the
payment of overdrafts that are not subject to additional advertising
disclosures under Sec. 230.11(b)(1). The final rule expands the list
in Sec. 230.11(b)(2) to include an opt-out or opt-in notice regarding
the institution's payment of overdrafts or provision of discretionary
overdraft services. See 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 examples of institutions promoting the payment of overdrafts
in the staff commentary.\16\ In particular, the commentary 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.'' \17\ To facilitate responsible use of overdraft services and
ensure that consumers receive accurate information about their account
balances, the May 2008 Regulation DD Proposal would have prohibited
institutions from including funds the institution may provide to cover
an overdraft item in a consumer's account balance disclosed through any
automated system in response to a balance inquiry. The proposal would
have permitted an institution to disclose a second balance that
includes these additional funds, if the institution prominently
indicates these funds are included. The rule as adopted has been
revised to clarify that the balance disclosed may not include any funds
the institution may provide to cover an overdraft, funds that will be
paid by the institution under a service subject to the Board's
Regulation Z (12 CFR part 226), or funds transferred from another
account of the consumer. The final rule permits an institution to
disclose another balance that includes these additional funds, so long
as the institution prominently states that the balance includes such
funds.
---------------------------------------------------------------------------
\16\ See comment 11(b)-1.
\17\ Comment 11(b)-1.iii.
---------------------------------------------------------------------------
Industry response to the proposal was mixed. Some supported the
rule as proposed; for example, one national community bank trade
association stated that a common consumer complaint has been
misunderstanding whether an account has sufficient funds to cover a
transaction. This commenter believed that requiring the bank to
disclose the available balance would help avoid customer confusion.
Others argued for limiting the scope of coverage to balances provided
at proprietary ATMs; some opposed the rule altogether as too
burdensome. Some commenters requested that the rule be revised to
clarify what funds must be excluded from the balance.
Consumer groups supported the proposed rule as a significant
protection for consumers. These commenters argued that disclosing a
balance without overdraft funds provided by the institution would equip
consumers with the knowledge necessary to make informed financial
decisions. However, these commenters urged the Board to apply the same
requirement to balance information provided during communications with
bank personnel. Some consumer groups also urged the Board to prohibit
financial institutions from disclosing a second account balance.
The Board is adopting a revised rule, pursuant to its authority in
TISA section 263(e) to prohibit misleading or inaccurate
advertisements, announcements, or solicitations relating to a deposit
account. Under Sec. 230.11(c) of the final rule, if an institution
discloses balance information through an automated system, it must
disclose an account balance that excludes funds that the institution
may provide to cover an overdraft in its discretion, funds that will be
paid by the institution under a service subject to the Board's
Regulation Z (12 CFR part 226), or funds transferred from another
account of the consumer. For example, although an institution may add a
$500 cushion to the consumer's account balance when determining whether
to pay an overdrawn item, under the final rule, the additional $500
could not be included in the balance provided to the consumer through
an automated system.
The proposed rule covered account balances disclosed in response to
a consumer's inquiry. However, balances may also be disclosed to the
consumer even if the consumer has not specifically requested a balance.
For example, if a consumer withdraws funds at an ATM from his or her
checking account, the receipt for that transaction may also include the
consumer's account balance. Or, a consumer may receive an account
balance when requesting a transaction history online. The Board
believes the requirement to provide a balance not supplemented by
overdraft funds should apply equally in these circumstances to ensure
consumers are given an accurate account balance. Thus, the final rule
deletes the reference to the consumer's inquiry.
Funds Included In and Excluded From Balance
Several industry commenters argued that the reference in proposed
Sec. 230.11(c) to ``funds that are available for the consumer's
immediate use or withdrawal'' is superfluous and adds unnecessary
complexity to the rule. They contended that this language could lead to
litigation over what is actually ``available.'' Some commenters
suggested that, to provide greater certainty, the rule should focus on
the funds that must be excluded from the balance, rather than on the
funds that should be included. The proposed language was intended to
provide clarity that institutions should not provide a balance
including overdraft funds, so that a consumer receives an accurate
disclosure of his or her balance to help the consumer better manage his
or her account. The rule was not intended to define what funds are
available pursuant to Regulation CC. Accordingly, to avoid any
ambiguity, Sec. 230.11(c) has been revised to delete the language
``funds that are available for the consumer's immediate use or
withdrawal.'' As discussed below, the final rule does not require
disclosures of real-time balances nor otherwise affect what funds an
institution considers to be available.
Several other industry commenters requested clarification as to
whether institutions may include in the balance disclosure amounts
available under a consumer's overdraft line of credit with
[[Page 5590]]
the institution, and how to treat funds from a linked account (such as
a savings account). As described above, the rule was intended to give
consumers an accurate idea of their balance. The Board is concerned
that permitting a balance to include funds available under a consumer's
overdraft line of credit or through a transfer from a consumer's
savings or other linked account would cause consumer confusion--
comparable to the inclusion of an overdraft cushion--as to the amount a
consumer may withdraw or spend without incurring an overdraft. Thus,
Sec. 230.11(c) has been revised to clarify that an institution must
disclose a balance that does not include additional amounts that the
institution may provide in its discretion to cover an overdraft, funds
that will be paid by the institution under a service subject to the
Board's Regulation Z (12 CFR part 226), or funds transferred from
another account of the consumer.
Proposed comment 11(c)-1 clarified that the institution may, but
need not, include in the balance 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
comment stated that 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
comment is generally adopted as proposed.
Some consumer groups argued that the disclosed account balance
should not be permitted to reflect deposits not yet available under the
institution's funds availability policy, or debit card holds. They
argued that inclusion of such funds misstates the balance and can cause
consumers to incur overdraft fees. In contrast, industry commenters
supported proposed comment 11(c)-1 based on operational concerns. These
commenters agreed 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. Industry commenters
also agreed that the disclosed balance should be able to include funds
that have deposited but not yet cleared.
Proposed comment 11(c)-1 reflected the Board's intent not to
require institutions to reconfigure their internal systems to provide
``real-time'' balance disclosures in order to comply with the balance
disclosure provision. For example, some institutions may only be able
to provide a balance to the ATM network 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. Section
230.11(c) does not require institutions to provide a ``real-time''
balance, but only prohibits institutions from including additional
overdraft funds such as a discretionary overdraft cushion in the
disclosed balance.
Additional Balances
The February 2005 Joint Guidance stated that if more than one
balance is provided, the institution should ``separately (and
prominently) identify the balance without the inclusion of overdraft
protection.'' 70 FR at 9132. Proposed Sec. 205.11(c) incorporated this
portion of the Joint Guidance by providing that the institution may, at
its option, disclose a second account balance that includes the
additional overdraft funds, if the institution prominently indicates
that this balance includes funds provided by the institution to cover
overdrafts.\18\
---------------------------------------------------------------------------
\18\ The FDIC Study found that of the 374 study population banks
that extended their overdraft service to ATM withdrawals, most
excluded the overdraft limit from ATM balances. Of the remaining
banks, 16.1% displayed the overdraft limit separately from the
account balance at proprietary ATMs (7.0% at non-proprietary ATMs),
and 7.1% combined the overdraft limit with the account balance in
the only balance displayed to customers at proprietary ATMs (5.6% at
non-proprietary ATMs). See FDIC Study at 38-39.
---------------------------------------------------------------------------
Some consumer groups urged the Board to prohibit financial
institutions from disclosing this second account balance. These
commenters argued that disclosure of a second balance could be
confusing to consumers, who may not realize they will incur fees by
accessing the overdraft funds. One bank trade association also
questioned whether permitting disclosure of a second balance would be
particularly useful, although it supported including the option for
banks to provide that information.
The final rule permits, but does not require, disclosure of an
additional balance that includes these additional overdraft funds,
which may be useful to some consumers. For example, consumers may wish
to receive a balance disclosure that indicates how much overdraft
coverage they have available, so that they can make an informed
decision as to whether or not to go forward with a transaction. The
final rule thus permits an additional balance to be disclosed, so long
as the institution prominently states that the balance contains
additional overdraft funds. To address commenter concerns that
consumers will be confused if multiple balances are disclosed to them
on an automated system, new comment 11(c)-2 has been added to provide
guidance on how institutions can appropriately identify that an
additional balance includes overdraft funds. (Proposed comment 11(c)-2,
described below, has been renumbered as comment 11(c)-3.) New comment
11(c)-2 explains that the institution may not simply state, for
instance, that the second balance is the consumer's ``available
balance,'' or contains ``available funds.'' Rather, the institution
should provide enough information to convey that the second balance
includes these overdraft amounts. For example, the institution may
state that the balance includes ``overdraft funds.''
Further, the Board notes that Sec. 230.11(c) does not affect the
existing application of the advertising disclosure rules of Sec.
230.11(b). Thus, to the extent an institution includes the dollar
amount of a discretionary overdraft limit in a disclosed balance on an
automated system, the disclosure will continue to be considered an
advertisement promoting the payment of overdrafts. See comment 11(b)-
1.iii. Therefore, the disclosures required by Sec. 230.11(b)(1)
(including the amount of overdraft fees) must be provided. The existing
exemption in Sec. 230.11(b)(2) from these disclosures for ATM receipts
also continues to apply. However, under the final rule, any receipt
containing a second balance including overdraft funds must prominently
state that those funds are included and may not simply label the second
balance as the consumer's ``available balance'' or ``available funds.''
See comment 11(c)(2).
Many institutions currently provide consumers the ability to opt
out of or opt into their overdraft service. Where a consumer has opted
out of the institution's overdraft service (or, where an institution
offers an opt-in and the consumer has not opted in), comment 11(c)-2
also clarifies that any additional balance disclosed may not include
funds provided under their institution's service (because presumably
the consumer would not have access to those funds). For example, if a
consumer has $200 in his or her account, and has opted out of the
institution's overdraft service, a second balance may not reflect the
additional $100 that the institution might otherwise have provided
under the service. (However, if the consumer is not enrolled in the
institution's overdraft service but has a line of credit or other
overdraft alternative, the
[[Page 5591]]
additional balance may continue to include funds available pursuant to
that other alternative.)
Similarly, some institutions may provide consumers the ability to
opt out of overdraft services for ATM and debit card transactions. In
this instance, the institution would continue to offer the overdraft
service for other transactions, such as check transactions. Because the
institution's overdraft service would be available for some, but not
all transactions, comment 11(c)-2 states that if an institution
discloses an additional balance where a consumer has opted out of some,
but not all of the institution's overdraft services, the institution
may choose whether or not to include the overdraft funds in the
balance. However, if the institution chooses to include the overdraft
funds in the additional balance, it must indicate that the additional
overdraft funds are not available for all transactions.
Automated Systems
Proposed comment 11(c)-2 explained 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). Proposed
comment 11(c)-2 also clarified that the reference to ATMs applies
equally to ATMs owned or operated by a consumer's account-holding
institution, as well as to ``foreign'' ATMs, including those operated
by non-depository institutions. Some industry commenters supported the
proposed comment, stating that it reflected the current practice at
some institutions. However, other industry commenters argued that the
account balance disclosure requirement should only apply to disclosures
at proprietary ATMs. They stated that if the institution makes two
balances available to the ATM network, one for balances and one for
authorizations, it would have no control over what balances are
displayed by a foreign ATM.
The comment, renumbered as comment 11(c)-3, is adopted with minor
adjustments. The balance disclosure requirements apply to account
balances an institution discloses through any ATM. Because account-
holding institutions have discretion with respect to the balances they
provide to an ATM network, they ultimately determine what additional
funds (whether from the institution's discretionary overdraft service,
an overdraft line of credit, or a linked account) are included in those
balances (i.e., the institution has the discretion to provide to the
network only balances that exclude overdraft funds). Thus, the Board
believes that it is appropriate to include the information that
account-holding institutions disclose through foreign ATMs within the
scope of the rule.
Several industry commenters requested clarification that the rule
applies only where a financial institution chooses to provide balance
information, or when an ATM or other electronic terminal has the
capability to provide a balance. The final rule applies only to the
extent balance information is offered on an automated system; it does
not require financial institutions or other automated systems owners to
provide balance information on automated systems available to
consumers.
Consumer groups commented that the Board should apply the balance
disclosure requirement to information provided during discussions with
bank personnel, whether in person, by telephone or e-mail, or over the
Internet. They argued that many consumers obtain account balances
directly from bank personnel, and that banks should be required to
instruct employees to provide consumers with an account balance that
does not include additional funds. Nonetheless, the Board continues to
believe that the compliance burden and enforcement challenges
associated with monitoring individual conversations and responses would
outweigh the benefits provided by such a rule. Therefore, the final
rule applies only to balance information disclosed through an automated
system.
VI. 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.)
(RFA). The RFA 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 certifies that the rule will not have a significant economic
impact on a substantial number of small entities.
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 expand the current
requirements for disclosing totals for overdraft and returned item fees
on periodic statements. The requirement is expanded 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. The Board is also revising Regulation DD to address
balance disclosures provided to consumers through automated systems.
2. Significant issues raised by comments in response to the initial
regulatory flexibility analysis. In accordance with section 3(a) of the
RFA, the Board conducted an initial regulatory flexibility analysis in
connection with the proposed rule. The Board did not receive any
comments on its initial regulatory flexibility analysis.
3. Description and estimate of classes of small entities affected
by the final rule. Approximately 12,356 depository institutions in the
United States that must comply with TISA have assets of $175 million or
less and thus are considered small entities for purposes of the RFA,
based on June 30, 2008, Call Report data. Approximately 5,075 are
institutions that must comply with the Board's Regulation DD;
approximately 7,281 are credit unions that must comply with NCUA's
Truth in Savings regulations which must be substantially similar to the
Board's Regulation DD.
The Board believes that many small depository institutions will not
be significantly impacted by the final rule because many of these
institutions already have required systems in place for compliance with
the rule, either in conformity with the May 2005 Regulation DD
amendments or the February 2005 Joint Guidance containing similar
obligations. Under the rule, all small depository institutions that did
not previously revise their periodic statement
[[Page 5592]]
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. Those institutions that previously
revised their periodic statements may also need to reprogram their
automated systems to include the specified fee table format in the
statement. Institutions may also have to reprogram their automated
systems to disclose balances that exclude additional funds the
institution may provide to cover an overdraft, if the institution has
not done so as previously recommended by the February 2005 Joint
Guidance, and to exclude funds paid by the institution under a service
subject to Regulation Z, or funds transferred from another account held
individually or jointly by a consumer. To the extent institutions
disclose an additional balance that includes overdraft funds,
institutions may also have to reprogram their systems to prominently
state that the balance includes those additional overdraft funds, as
described in the preamble.
4. Recordkeeping, reporting, and other compliance requirements. 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. Institutions that disclose balances through any
automated system must also, at a minimum, disclose balances that are
not supplemented by additional funds that may be provided to cover an
overdraft. For example, the balance must exclude funds that will be
paid by the institution under a service subject to Regulation Z, and
funds transferred from another account held individually or jointly by
a consumer.
5. Steps taken to minimize the economic impact on small entities.
The factual, policy, and legal reasons for selecting the alternatives
adopted and why other significant alternatives were not adopted, are
described above in the SUPPLEMENTARY INFORMATION. For example, the
Board has provided more specific commentary on the balance disclosure
rule in response to comments received in order to ease compliance
burdens. In addition, based on the Board's review of comments received
and consumer testing results, the Board is not adopting the proposed
format, content and timing requirements regarding a consumer's right to
opt out of overdraft coverage under Regulation DD, and instead is
proposing these requirements under Regulation E (as well as an
alternative opt-in proposal), revised in response to commenter
suggestions. An initial RFA analysis is included in that proposal.
The Board is also providing an implementation period that responds
to commenters' concerns about the time needed to comply with the final
rule. The Board believes the extended effective date will decrease
costs for small entities by providing them with sufficient time to come
into compliance with the final rule's requirements.
VII. 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
final 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 final 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 entities subject to Regulation DD,
including for-profit small business depository institutions.
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 Federal Reserve-supervised institutions.
Regulation DD defines Federal Reserve-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.
The rulemaking makes the current requirements for disclosing totals
for overdraft and returned item fees on periodic statements applicable
to all institutions and not solely to institutions that promote the
payment of overdrafts. The rulemaking also requires that institutions
that disclose balances through any automated system must, at a minimum,
disclose a balance that is not supplemented by additional funds that
may be provided to cover an overdraft. For example, the balance must
exclude funds that will be paid by the institution in its discretion or
under a service subject to Regulation Z, or funds transferred from
another account held individually or jointly by a consumer.
On May 19, 2008, a notice of proposed rulemaking (NPR) was
published in the Federal Register (73 FR 28739). The comment period for
this notice expired July 18, 2008. No comments specifically addressing
the burden estimate were received. As mentioned above, the proposed
amendment regarding notice of a consumer's right to opt out of an
institution's overdraft service has been withdrawn. Instead, the
Federal Reserve is separately proposing to incorporate this notice
requirement into its Regulation E (OMB No. 7100-0200).
The Federal Reserve has revised its burden estimate in this final
rule to reflect the withdrawn proposed notice. In addition, the number
of Federal Reserve-regulated institutions that are deemed to be
respondents for the purposes of the PRA has been updated from 1,172 to
1,138.
The current total annual burden is estimated to be 170,984 hours.
The final
[[Page 5593]]
rule will impose a one-time increase in the total annual burden under
Regulation DD by 18,208 hours to 189,192 hours.
The Board estimates that 1,138 respondents regulated by the Federal
Reserve would take, on average, 16 hours (two business days) to re-
program and update their systems to comply with the disclosure
requirements. These disclosure requirements include disclosure of total
fees on periodic statements (Sec. 230.11(a)) and disclosure of account
balances (Sec. 230.11(c)). The Federal Reserve estimates the total
annual one-time burden to be 18,208 hours and believes that, on a
continuing basis, there would be no increase in burden as the
disclosures would be sufficiently accounted for once incorporated into
the current periodic statement disclosure (Sec. 230.6). To ease the
compliance burden, model clause B-10 (aggregate overdraft and returned
item fees sample clause) (Sec. 230.11), is adopted in Appendix B.
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 estimation methodology.
Using the Board's method, the total estimated annual burden for all
financial institutions subject to Regulation DD, including Federal
Reserve-regulated institutions, would be approximately 2,584,275 hours.
The final rule would impose a one-time increase in the estimated annual
burden for all institutions subject to Regulation DD by 275,200 hours
to 2,859,475 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 17,200),
potentially are affected by this collection of information, and thus
are respondents for purposes of the PRA.
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: Secretary, Board of Governors of the Federal Reserve System,
20th and C Streets, NW., Washington, DC 20551; and to the Office of
Management and Budget, Paperwork Reduction Project (7100-0271),
Washington, DC 20503.
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, and the Official Staff Commentary, 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 230.1 is amended by revising paragraph (a) to read as
follows:
Sec. 230.1 Authority, purpose, coverage, and effect on state laws.
(a) Authority. This part, 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 part 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. 7100-0271.
* * * * *
0
3. 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 for overdraft
services.
(a) Disclosure of total fees on periodic statements--(1) General. A
depository institution must separately disclose on each periodic
statement, as applicable:
(i) The total dollar amount for all fees or charges imposed on the
account for paying checks or other items when there are insufficient or
unavailable funds and the account becomes overdrawn; and
(ii) The total dollar amount for all fees or charges imposed on the
account for returning items unpaid.
(2) Totals required. The disclosures required by paragraph (a)(1)
of this section must be provided for the statement period and for the
calendar year-to-date;
(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-10 in Appendix B to this part.
(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;
(xi) Informational or educational materials concerning the payment
of overdrafts if the materials do not specifically describe the
institution's overdraft service; or
(xii) An opt-out or opt-in notice regarding the institution's
payment of overdrafts or provision of discretionary overdraft services.
* * * * *
(c) Disclosure of account balances. If an institution discloses
balance information to a consumer through an automated system, the
balance 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, whether under a service provided in
its discretion, a service subject to the Board's Regulation Z (12 CFR
part 226), or a service to transfer funds from another account of the
consumer. The institution may, at its option, disclose additional
account balances that include such additional amounts, if the
institution prominently states that any such balance includes such
additional amounts and, if applicable, that additional amounts are not
available for all transactions.
0
4. Amend Appendix B to part 230, by adding B-10 to read as follows:
Appendix B to Part 230--Model Clauses and Sample Forms
* * * * *
B-10 Aggregate Overdraft and Returned Item Fees Sample Form
------------------------------------------------------------------------
Total for this Total year-to-
period date
------------------------------------------------------------------------
Total Overdraft Fees................ $60.00 $150.00
Total Returned Item Fees............ 0.00 30.00
------------------------------------------------------------------------
[[Page 5594]]
0
5. In Supplement I to part 230:
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a. In Section 230.11 and Section 230.11(a), the headings are revised
and paragraphs (a)(1)-1. and (a)(1)-2. are removed.
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b. In Section 230.11, paragraphs (a)(1)-3. through (a)(1)-8. are
redesignated as paragraphs (a)(1)-1. through (a)(1)-6, respectively.
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c. In Section 230.11, newly designated paragraphs (a)(1)-2. through
(a)(1)-4. are revised.
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d. In Section 230.11, paragraph (a)(3)-1. is revised.
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e. In Section 230.11, paragraph (a)(5). is removed.
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f. In Section 230.11, new paragraphs (c)-1. through (c)-3. are added.
Supplement I to Part 230--Official Staff Interpretations
* * * * *
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. Institutions must disclose on
periodic statements a total dollar amount for all fees or charges
imposed on 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 of the
consumer to avoid an overdraft, or fees charged under a service
subject to the Board's Regulation Z (12 CFR part 226).
3. Fees for returning items unpaid. The total dollar amount for
all fees for returning items unpaid must include 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. Institutions may
use terminology such as ``returned item fee'' or ``NSF fee'' to
describe fees for returning items unpaid.
4. 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 and in the applicable
statement period. For example, if an institution assesses a fee in
January and refunds the fee in February, the institution could
disclose a year-to-date total reflecting the amount credited, but it
should not affect the total disclosed for the February statement
period, because the fee was not assessed in the February statement
period. If an institution assesses and then waives and credits a fee
within the same cycle, the institution may, at its option, reflect
the adjustment in the total disclosed for fees imposed during the
current statement period and for the total for the calendar year-to-
date. Thus, if the institution assesses and waives the fee in the
February statement period, the February fee total could reflect a
total net of the waived fee.
* * * * *
(a)(3) Time period covered by disclosures
1. Periodic statement disclosures. The disclosures under section
230.11(a) must be included on periodic statements provided by an
institution starting the first statement period that begins after
January 1, 2010. For example, if a consumer's statement period
typically closes on the 15th of each month, an institution must
provide the disclosures required by Sec. 230.11(a)(1) on subsequent
periodic statements for that consumer beginning with the statement
reflecting the period from January 16, 2010 to February 15, 2010.
* * * * *
(c) Disclosure of account balances
1. Balance that does not include additional amounts. For
purposes of the balance disclosure requirement in Sec. 230.11(c),
if an institution discloses balance information to a consumer
through an automated system, it must disclose a balance that
excludes any funds that the institution may provide to cover an
overdraft pursuant to a discretionary overdraft service, that will
be paid by the institution under a service subject to the Board's
Regulation Z (12 CFR part 226), or that will be transferred from
another account held individually or jointly by a consumer. The
balance 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 may, but need not, include 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. Additional balance. The institution may disclose additional
balances supplemented by funds that may be provided by the
institution to cover an overdraft, whether pursuant to a
discretionary overdraft service, a service subject to the Board's
Regulation Z (12 CFR part 226), or a service that transfers funds
from another account held individually or jointly by the consumer,
so long as the institution prominently states that any additional
balance includes these additional overdraft amounts. The institution
may not simply state, for instance, that the second balance is the
consumer's ``available balance,'' or contains ``available funds.''
Rather, the institution should provide enough information to convey
that the second balance includes these amounts. For example, the
institution may state that the balance includes ``overdraft funds.''
Where a consumer has opted out of the institution's discretionary
overdraft service, any additional balance disclosed should not
include funds institutions provide under that service. Where a
consumer has opted out of the institution's discretionary overdraft
service for some, but not all transactions (e.g., the consumer has
opted out overdraft services for ATM and debit card transactions),
an institution that includes funds from its discretionary overdraft
service in the balance should convey that the overdraft funds are
not available for all transactions. For example, the institution
could state that overdraft funds are not available for ATM and debit
card transactions.
3. Automated systems. The balance disclosure requirement in
Sec. 230.11(c) 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
ATM. The requirement applies whether the institution discloses a
balance through an ATM owned or operated by the institution or
through an ATM not owned or operated by the institution (including
an ATM operated by a non-depository institution). If the balance is
obtained at an ATM, the requirement also applies whether the balance
is disclosed on the ATM screen or on a paper receipt.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, December 18, 2008.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E8-31183 Filed 1-28-09; 8:45 am]
BILLING CODE 6210-01-P