[Federal Register: March 1, 2010 (Volume 75, Number 39)]
[Proposed Rules]
[Page 9126-9129]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01mr10-23]
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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: Proposed rule; request for public comment.
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SUMMARY: On January 29, 2009, the Board published final rules amending
Regulation DD, which implements the Truth in Savings Act, and the
official staff commentary to the regulation. The final rule addressed
depository institutions' disclosure practices related to overdraft
services, including balances disclosed to consumers through automated
systems. The Board proposes to amend Regulation DD and the official
staff commentary to clarify the application of the rule to retail sweep
programs and the terminology for overdraft fee disclosures, and to make
amendments that conform to the Board's final Regulation E amendments
addressing overdraft services, adopted in November 2009.
DATES: Comments must be received on or before March 31, 2010.
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: Dana E. Miller or Vivian W. Wong,
Senior Attorneys, or Ky Tran-Trong, Counsel, Division of Consumer and
Community Affairs, at (202) 452-3667 or (202) 452-2412, Board of
Governors of the Federal Reserve System, 20th and C Streets, NW.,
Washington, DC 20551. For users of Telecommunications Device for the
Deaf (TDD) only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
In December 2008, the Board adopted a final rule amending
Regulation DD, which implements the Truth in Savings Act, and the
official staff commentary to the regulation. The final rule addressed
depository institutions' disclosure practices related to overdraft
services, including balances disclosed to consumers through automated
systems. The rule was published in the Federal Register on January 29,
2009 and became effective January 1, 2010. See 74 FR 5584 (Regulation
DD final rule).\1\
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\1\ The Board published a technical amendment in April 2009
correcting a printing error with respect to Sample Form B-10.
Depository institutions must use Sample Form B-10, or a
substantially similar form, including the box and gridlines, to
provide totals for overdraft fees and returned item fees for the
statement cycle and year-to-date. 74 FR 17768 (April 17, 2009).
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In November 2009, the Board adopted a final rule under Regulation
E, which implements the Electronic Fund Transfer Act, limiting a
financial institution's ability to assess fees for paying ATM and one-
time debit card transactions pursuant to the institution's
discretionary overdraft service without the consumer's affirmative
consent to such payment. The Rule was published in the Federal Register
on November 17, 2009 and has a mandatory compliance date of July 1,
2010. See 74 FR 59033 (Regulation E final rule).
Since publication of the two rules, institutions and others have
requested clarification of particular aspects of the rule and further
guidance regarding compliance with the rule. In addition, conforming
amendments to the Regulation DD final rule are necessary in light of
certain provisions subsequently adopted in the Regulation E final rule.
Accordingly, the Board is proposing to amend Regulation DD and the
official staff commentary, as discussed in Section III of this
SUPPLEMENTARY INFORMATION. Similarly, elsewhere in today's Federal
Register, the Board has proposed to amend certain aspects of the
Regulation E final rule.
II. Statutory Authority
The Truth in Savings Act, 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. In the SUPPLEMENTARY INFORMATION to the
Regulation DD final rule, the Board described its statutory authority
and applied that authority to the requirements of the rule. For
purposes of this rulemaking, the Board continues to rely on that legal
authority and analysis.
III. Section-by-Section Analysis
A. Section 230.6(a)--Periodic Statement Disclosures; General Rule
Section 230.6(a) describes disclosures that are required to be made
when statements are provided, including certain fees or charges. The
Board is proposing two technical amendments to Sec. 230.6(a) and the
related staff commentary. First, the Board is proposing to add a new
Sec. 230.6(a)(5) to clarify that the periodic statement aggregate fee
disclosures required by Sec. 230.11(a), discussed below, are among the
disclosures that are required to be provided on periodic statements for
purposes of Sec. 230.6(a). Second, the Board is proposing to revise
comment 6(a)(3)-2, which contains a cross-reference to Sec. 230.11(a)
that references institutions that promote the payment of overdrafts.
Because the Regulation DD final rule extended the aggregate fee
disclosure requirement to all institutions, and not just those
institutions that promote the payment of overdrafts, the proposed
revision eliminates the promotion reference.
B. Section 230.11(a)--Disclosure of Total Fees on Periodic Statements
Section 230.11(a)(1)(i) requires institutions to disclose on each
periodic statement, as applicable, the total dollar amount of 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. Sample Form B-10 displays this total as ``Total Overdraft
Fees.'' Some institutions may use terms other than ``overdraft fee,''
such as ``NSF
[[Page 9127]]
items-paid'' to describe per-item overdraft fees in their account
agreements. Under Regulation DD, comment 3(a)-2 requires institutions
to use consistent terminology in their account-opening disclosures,
periodic statements, and other disclosures. In light of this comment,
questions have been raised as to whether institutions may use
terminology other than ``Total Overdraft Fees'' in the periodic
statement aggregate fee disclosure to describe the total amount of all
fees or charges imposed on the account for paying overdrafts.\2\
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\2\ The official staff commentary to Regulation DD provides that
institutions should not use the generic term ``insufficient funds
fee'' or ``NSF fee'' to describe both fees for paying overdrafts and
fees for returning items unpaid. See, e.g., comment 6(a)(3)-2(iv)
(institutions may group itemized fees, but may not group together
fees for paying overdrafts and fees for returning checks or other
items unpaid).
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Under Sec. 230.11(a)(1), institutions are required to provide a
fee total that includes all overdraft fees, including any additional
daily or sustained overdraft, negative balance, or similar fees or
charges imposed by the institution. See comment 11(a)(1)-2. Thus, the
use of terminology other than ``Total Overdraft Fees'' may not capture
the various fees associated with the discretionary overdraft service.
Moreover, the purpose of the aggregate fee disclosure is to provide
consumers who use overdraft services with additional information about
fees to help them better understand the costs associated with the
service. Permitting the use of other terminology could be confusing to
consumers and potentially undermines their ability to compare costs,
particularly if a consumer has accounts at different institutions that
each use different terminology.
Accordingly, the Board is proposing to revise Sec. 230.11(a)(1)(i)
to clarify that the periodic statement aggregate fee disclosure must
disclose the total dollar amount for all fees or charges imposed on the
account for paying overdrafts, using the term ``Total Overdraft Fees.''
Proposed comment 11(a)-2 would explain that this provision supersedes
comment 3(a)-2. As explained in comment 11(a)(1)-3, institutions may
use terminology such as ``returned item fee'' or ``NSF fee'' to
describe the fees for returning items unpaid.
C. Section 230.11(c)--Disclosure of Account Balances
Comment 11(c)-2--Retail Sweep Programs
Under the Regulation DD final rule, Sec. 230.11(c) requires
institutions that disclose balance information to a consumer through an
automated system to disclose a balance that does 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,
including under a service to transfer funds from another account of the
consumer. The Board adopted this provision to ensure that consumers
receive accurate information about their account balances and to help
avoid consumer confusion as to whether an account has sufficient funds
to cover a transaction.
Questions have been raised about the application of the rule to
retail sweep programs. In a retail sweep program, an institution
establishes two legally distinct subaccounts, a transaction subaccount
and a savings subaccount, which together make up the consumer's
account. The institution allocates and transfers funds between the two
subaccounts in order to maximize the balance in the savings subaccount
while complying with the monthly limitations on transfers out of
savings accounts established under the Board's Regulation D, 12 CFR
204.2(d)(2).
Retail sweep programs are distinguishable from overdraft protection
plans that transfer funds from a consumer's linked accounts in several
respects. In particular, retail sweep programs are generally not
established for the purpose of covering overdrafts. Rather,
institutions typically establish retail sweep programs by agreement
with the consumer, in order for the institution to minimize its
transaction account reserve requirements and, in some cases, to provide
a higher interest rate for the consumer than the consumer would earn on
a transaction account alone. Furthermore, most retail sweep programs
are structured so that the consumer (or person acting on behalf of the
consumer) cannot independently access the funds in the savings
subaccount; all transfers out of, and deposits or transfers into, the
savings subaccount component of a retail sweep program are effected
through the transaction subaccount. Notwithstanding the establishment
of two legally distinct subaccounts under a retail sweep program, the
account statements that consumers receive under such a program show a
single consumer account balance, and a single account on which all
transactions into and out of the account are reflected.
By contrast, linked accounts can be used and funded independently
of one another. For example, a consumer can directly make deposits to,
and withdrawals from, a savings account whether or not it is linked to
a checking account. The link between accounts under an overdraft
protection program is primarily established for purposes of providing
funds from the savings account in the event that the consumer has
insufficient funds in the checking account. Additionally, retail sweep
programs typically do not impose fees on transfers between the savings
subaccount and the transaction subaccount, while institutions typically
charge fees for transfers from linked accounts to cover an overdraft.
Based on the foregoing, consumers under a retail sweep program may
reasonably expect to see a single balance combining the funds in the
transaction subaccount and the savings subaccount when they request an
account balance. Consumers could be confused if a balance that only
includes funds in the transaction subaccount were displayed because, in
some cases, the balance in the transaction subaccount could be zero (to
the extent funds had been transferred to the savings subaccount at the
time of the balance inquiry). In recognition of the distinct
characteristics of retail sweep programs, the Board is proposing to add
a new comment 11(c)-2 to clarify that Sec. 230.11(c) does not require
an institution to exclude from the consumer's balance funds that may be
transferred from another account pursuant to a retail sweep program
when disclosing a transaction account balance under such a program.
Comment 11(c)-3--Additional Balance
Section 230.11(c) of the Regulation DD final rule permitted
institutions to disclose an additional balance including overdraft
funds, so long as the institution prominently states that the balance
contains additional overdraft funds. Comment 11(c)-2 of the final rule
provided guidance on how institutions could appropriately identify the
additional funds. However, the comment only addressed opt-outs.
Subsequent to the adoption of the Regulation DD final rule, however,
the Board adopted the Regulation E final rule, which requires
institutions to obtain a consumer's affirmative consent, or opt-in, to
the institution's overdraft service, before charging any fee for paying
ATM and one-time debit card transactions. In light of the final
Regulation E opt-in requirement, the Board is proposing to renumber
current comment 11(c)-2 as comment 11(c)-3 and amend it to include
references to the opt-in requirement. References to opt-outs have been
retained in some instances because some institutions may provide an
opt-out choice with respect to checks, ACH, and other types of
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transactions not subject to the Regulation E final rule restrictions.
The Board is also proposing to extend the requirement to indicate,
when applicable, that funds in the additional balance may not be
available for all transactions to circumstances under which funds from
overdraft services subject to the Board's Regulation Z or from services
that transfer funds from another account are not available for all
transactions. For example, if a consumer has an overdraft line of
credit, but under the terms of the agreement with the institution, the
consumer cannot access the line of credit when using a debit card at a
point-of-sale transaction, the proposed comment would state that any
additional balance displayed through an automated system should
indicate that the overdraft funds are not available for all
transactions.
D. Effective Date
Because some depository institutions may be using terminology other
than ``Total Overdraft Fees'' in their aggregate fee disclosure under
Sec. 230.11(a)(1), the Board is proposing to make the proposed
revisions to Sec. 230.11(a)(1)(i) effective approximately 90 days
after publication of the final rule in the Federal Register. The Board
solicits comment on whether this time frame would be an appropriate
time period for implementation. The Board is proposing to make the
remaining revisions effective approximately 30 days after publication
of the final rule in the Federal Register.
IV. Regulatory Analysis
Sections VI and VII of the SUPPLEMENTARY INFORMATION to the
Regulation DD final rule set forth the Board's analyses under the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.) and the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506; 5 CFR part 1320 Appendix A.1).
See 74 FR 5591-5593. Because the proposed amendments are clarifications
and would not, if adopted, alter the substance of the analyses and
determinations accompanying the Regulation DD final rule, the Board
continues to rely on those analyses and determinations for purposes of
this rulemaking.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
revisions. New language is shown inside [rtrif]bold-type arrows[ltrif]
while language that would be deleted is set off with [lsqbb]bold-type
brackets[rsqbb].
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 discussed in the preamble, the Board proposes to
amend 12 CFR part 230 and the Official Staff Commentary, as set forth
below:
1. The authority citation for part 230 continues to read as
follows:
Authority: 12 U.S.C. 4301 et seq.
2. Section 230.6 is amended by adding paragraph (a)(5) to read as
follows:
(a) General rule. * * *
[rtrif](5) Aggregate fee disclosure. The disclosure of total
overdraft and returned item fees required by Sec. 230.11(a).[ltrif]
* * * * *
3. Section 230.11 is amended by revising paragraph (a)(1)(i) to
read as follows:
(a) Disclosure of total fees on periodic statements--(1) * * *
(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[rtrif], using the
term ``Total Overdraft Fees.''[ltrif][lsqbb].[rsqbb]
* * * * *
4. In Supplement I to part 230,
a. In Section 230.6(a)(3), paragraph 2. is revised.
b. In Section 230.11(a)(1), paragraph 2. is revised.
c. In Section 230.11(c), paragraphs 2. and 3. are redesignated as
paragraphs 3. and 4., respectively.
d. In Section 230.11(c), new paragraph 2. is added.
e. In Section 230.11(c), newly redesignated paragraph 3. is
revised.
Supplement I to Part 230--Official Staff Interpretations
* * * * *
Sec. 230.6 Periodic Statement Disclosures.
(a) General Rule
(a)(3) Fees Imposed
* * * * *
2. Itemizing fees by type. In itemizing fees imposed more than once
in the period, institutions may group fees if they are the same type.
(See 230.11(a)(1) of this part regarding certain fees that are required
to be grouped [lsqbb]when an institution promotes the payment of
overdrafts[rsqbb].) * * *
* * * * *
Sec. 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). [rtrif]Under Sec. 230.11(a)(1)(i), the disclosure must
describe the total dollar amount for all fees or charges imposed on the
account for paying overdrafts using the term ``Total Overdraft Fees.''
This requirement supersedes comment 3(a)-2.[ltrif]
* * * * *
(c) Disclosure of account balances
* * * * *
[rtrif]2. Retail sweep programs. In a retail sweep program, an
institution establishes two legally distinct subaccounts, a transaction
subaccount and a savings subaccount, which together make up the
consumer's account. The institution allocates and transfers funds
between the two subaccounts in order to maximize the balance in the
savings account while complying with the monthly limitations on
transfers out of savings accounts established under the Board's
Regulation D, 12 CFR 204.2(d)(2). Retail sweep programs are generally
not established for the purpose of covering overdrafts. Rather,
institutions typically establish retail sweep programs by agreement
with the consumer, in order for the institution to minimize its
transaction account reserve requirements and, in some cases, to provide
a higher interest rate for the consumer than the consumer would earn on
a transaction account alone. Section 230.11(c) does not require an
institution to exclude from the consumer's balance funds that may be
transferred from another account pursuant to a retail sweep program
that
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are established for such purposes and that have the following
characteristics: (1) The classification of the accounts involved
complies with the Board's Regulation D, 12 CFR 204.2(d)(2), (2) the
consumer does not have direct access to the non-transaction subaccount
that is part of the retail sweep program, and (3) the consumer's
monthly statement shows the account balance as the combined balance in
the subaccounts.
3[ltrif][lsqbb]2[rsqbb]. 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
[rtrif]has not opted into, or as applicable,[ltrif] has opted out of
the institution's discretionary overdraft service, any additional
balance disclosed should not include funds [lsqbb]institutions[rsqbb]
provided under that service. Where a consumer [rtrif]has not opted
into[ltrif][lsqbb]has opted out of [rsqbb] the institution's
discretionary overdraft service for some, but not all transactions
(e.g., the consumer has [rtrif]not opted into[ltrif][lsqbb]opted
out[rsqbb] overdraft services for ATM and [rtrif]one-time [ltrif]debit
card transactions), an institution that includes [rtrif]these
additional overdraft [ltrif]funds [lsqbb]from its discretionary
overdraft service[rsqbb] in the [rtrif]second [ltrif]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 [rtrif]one-time (or everyday) [ltrif]debit card
transactions.[rtrif] Similarly, if funds are not available for all
transactions pursuant to a service subject to the Board's Regulation Z
(12 CFR part 226) or a service that transfers funds from another
account, a second balance that includes such funds should also indicate
this fact.[ltrif]
* * * * *
By order of the Board of Governors of the Federal Reserve
System, February 18, 2010.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2010-3719 Filed 2-26-10; 8:45 am]
BILLING CODE 6210-01-P