[Federal Register Volume 75, Number 39 (Monday, March 1, 2010)]
[Proposed Rules]
[Pages 9120-9125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-3720]
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FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-1343]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule; request for public comment.
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SUMMARY: On November 17, 2009, the Board published final rules amending
Regulation E, which implements the Electronic Fund Transfer Act, and
the official staff commentary to the regulation. The final rule limited
the ability of financial institutions to assess overdraft fees for
paying automated teller machine (ATM) and one-time debit card
transactions that overdraw a consumer's account, unless the consumer
affirmatively consents, or opts in, to the institution's payment of
overdrafts for those transactions. The Board proposes to amend
Regulation E and the official staff commentary to clarify certain
aspects of the final rule.
DATES: Comments must be received on or before March 31, 2010.
ADDRESSES: You may submit comments, identified by Docket No. R-1343, 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: [email protected]. 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
[[Page 9121]]
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 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 Regulation E final rule, institutions have
requested clarification of particular aspects of the rule and further
guidance regarding compliance with the rule. In addition, certain
technical corrections are necessary. Accordingly, the Board is
proposing to amend certain provisions of Regulation E and the official
staff commentary, as discussed in Section III of this SUPPLEMENTARY
INFORMATION. Separately, the Board is also proposing elsewhere in
today's Federal Register to amend Regulation DD to make certain
clarifications and conforming amendments in light of particular
provisions adopted in the Regulation E final rule.
Although comment is requested on the proposed amendments, the Board
emphasizes that the purpose of this rulemaking is to clarify and
facilitate compliance with the final rule, not to reconsider the need
for--or the extent of--the protections that the rule affords consumers.
Thus, commenters are encouraged to limit their submissions accordingly.
In addition, because the Board does not intend to extend the
mandatory compliance date for the Regulation E final rule, any
amendments must be adopted in final form promptly to give institutions
sufficient time to implement the amended rule by July 1, 2010. In order
to ensure that final clarifications can be provided as soon as
possible, comments on this proposal must be submitted within 30 days
from publication in the Federal Register.
II. Statutory Authority
The Electronic Fund Transfer Act, 15 U.S.C. 1693 et seq., is
implemented by the Board's Regulation E (12 CFR part 205). The purpose
of the act and regulation is to provide a framework establishing the
rights, liabilities, and responsibilities of participants in electronic
fund transfer systems. An official staff commentary interprets the
requirements of Regulation E (12 CFR part 205 (Supp. I)). In the
SUPPLEMENTARY INFORMATION to the Regulation E 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 the description of its legal authority and
analysis in the Regulation E final rule.
III. Section-by-Section Analysis
A. Section 205.17(a)--Definition
Section 205.17(a) of the Regulation E final rule defines the term
``overdraft service'' for purposes of Sec. 205.17. In particular,
Sec. 205.17(a)(3) of the final rule explains that the term does not
include payments of overdrafts pursuant to a line of credit or other
credit exempt from Regulation Z pursuant to 12 CFR 226.3(d)--that is,
credit secured by margin securities in brokerage accounts extended by
Securities and Exchange Commission or Commodity Futures Trading
Commission-registered broker-dealers. Comment 17(a)-1 provided further
guidance on this exception. However, comment 17(a)-1 inadvertently
stated that ``Sec. 205.17(a)(3) does not apply'' to margin credit
transactions. As drafted, this would mean that the Sec. 205.17(a)(3)
exception to the definition of ``overdraft service'' does not apply to
margin credit. The proposed rule revises comment 17(a)-1 to eliminate
the incorrect reference.
B. Section 205.17(b)--Opt-In Requirement
17(b)(1), 17(b)(4)--General Rule and Scope of Opt-In; Notice and Opt-In
Requirements
Section 205.17(b)(1) of the Regulation E final rule sets forth the
general rule prohibiting an account-holding financial institution from
assessing a fee or charge on a consumer's account held at the
institution for paying an ATM or one-time debit card transaction
pursuant to the institution's overdraft service, unless the institution
satisfies several requirements, including providing consumers notice
and obtaining the consumer's affirmative consent to the overdraft
service. Section 205.17(b)(4) includes an exception from the notice and
opt-in requirements of Sec. 205.17(b)(1) for institutions that have a
policy and practice of declining ATM and one-time debit card
transactions for which authorization is requested, when the institution
has a reasonable belief that the consumer's account has insufficient
funds at the time of the authorization request.
Since the issuance of the final rule, questions have been raised
whether the Sec. 205.17(b)(4) exception would permit institutions with
such a policy and practice to assess an overdraft fee without the
consumer's affirmative consent if an authorized transaction settles on
insufficient funds. To clarify the scope of this provision, the Board
is proposing to amend Sec. Sec. 205.17(b)(1), (b)(4), and the related
commentary to explain that the fee prohibition of Sec. 205.17(b)(1)
applies to all institutions, and that Sec. 205.17(b)(4) provides
relief only from the requirements of Sec. Sec. 205.17(b)(1)(i)-(iv),
including the notice and opt-in requirements, when no overdraft fees
are assessed. The proposal thus clarifies the Board's intent that
institutions cannot assess a fee for the payment of ATM and one-time
debit card overdrafts if the consumer does not opt in, even if the
institution has a policy and practice of declining ATM and one-time
debit card transactions upon a reasonable belief that an account has
insufficient funds.
An institution may not be able to avoid paying certain ATM or one-
time debit card transactions that overdraw a consumer's account, even
if a consumer does not opt in. This can occur in limited circumstances.
For example, an institution may authorize a debit card transaction on
the reasonable belief that there are sufficient funds in the account,
but intervening transactions, such as checks, may reduce the available
funds in the checking account before the debit card transaction is
presented for settlement, causing an overdraft. Or, a merchant may
request authorization of an amount that is less than the amount later
submitted for settlement, or not request authorization at all. The
proposal clarifies that in such circumstances, an institution may not
assess an overdraft fee for paying the debit card transaction into
overdraft.
In the January 2009 proposed rule, the Board proposed two limited
exceptions to the fee prohibition under proposed Sec. 205.17(b)(5),
including one which would have permitted an institution to assess
overdraft fees, even if the
[[Page 9122]]
consumer had not opted in, if the institution had a reasonable belief
that there were sufficient funds available in the consumer's account at
the time it authorized an ATM or one-time debit card transaction. This
exception did not extend to transactions for which the merchant did not
request authorization.
The Board declined to adopt the proposed exceptions to the fee
prohibition under Sec. 205.17(b)(5). See 74 FR 59033, 59046 (Nov. 17,
2009). As explained in the SUPPLEMENTARY INFORMATION to the Regulation
E final rule, consumers who choose not to opt in may reasonably expect
that an ATM or one-time debit card transaction will be declined if
there are insufficient funds in their account, and that they will not
be assessed overdraft fees. Adopting exceptions to the fee prohibition
would undermine the consumer's ability to understand the institution's
overdraft practices and make an informed choice. While the Board
recognized that both financial institutions and consumers can have
imperfect account balance information, the Board stated that financial
institutions are in a better position to mitigate the information gap
than consumers, such as through improvements to payment processing
systems.
By contrast, the exception adopted by the Board in Sec.
205.17(b)(4) of the Regulation E final rule was intended to provide
relief from the requirements of Sec. Sec. 205.17(b)(1)(i)-(iv),
including but not limited to the requirement to provide an opt-in
notice.\1\ The exception was not intended to permit institutions to
assess fees for paying overdrafts absent consumer consent.
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\1\ See 74 FR 59045 (noting that the proposed rule ``created an
exception to the notice and opt-in requirement for institutions that
have a policy and practice of declining to pay any ATM withdrawals
or one-time debit card transactions for which authorization is
requested, when the institution has a reasonable belief that the
consumer's account does not have sufficient funds available to cover
the transaction at the time of the authorization request'' (emphasis
added)).
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If Sec. 205.17(b)(4) were read to permit an exception from the fee
prohibition, consumers with accounts at institutions that do not offer
discretionary overdraft programs would be treated differently and
provided fewer protections than consumers at institutions that do offer
such programs, where an institution cannot prevent paying overdrafts
resulting from ATM and one-time debit card transactions. Specifically,
consumers with accounts at institutions that do not offer discretionary
overdraft services could be assessed an overdraft fee without
consenting to the payment of overdrafts. In contrast, consumers with
accounts at institutions that do offer discretionary overdraft services
and who did not opt in could not be assessed such fees. Such a result
would not promote transparency or benefit consumers overall.
Nonetheless, the Board understands that the Sec. 205.17(b)(4)
exception could be read to permit institutions to assess overdraft
fees, even if the consumer did not opt in. Accordingly, the Board is
proposing to revise Sec. 205.17(b)(4) and the related commentary to
clarify that the prohibition on assessing overdraft fees under Sec.
205.17(b)(1) applies to all institutions, including those institutions
that have a policy and practice of declining to authorize and pay any
ATM or one-time debit card transactions when the institution has a
reasonable belief at the time of the authorization request that the
consumer does not have sufficient funds available to cover the
transaction.\2\ The proposal adds new comment 17(b)(4)-1 to explain
that, assuming a consumer has not opted in, if an institution with such
a policy and practice authorizes an ATM or one-time debit card
transaction on the reasonable belief that the consumer has sufficient
funds in the account to cover the transaction, but at settlement the
consumer has insufficient funds in the account (for instance, due to
intervening transactions that post to the consumer's account), the
institution may not assess an overdraft fee or charge for paying that
transaction.\3\ However, institutions that have such a policy and
practice are not required to comply with the requirements of Sec. Sec.
205.17(b)(1)(i)-(iv), including the notice and opt-in requirements, if
no fees are assessed.\4\
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\2\ The Board is also proposing conforming revisions to Sec.
205.17(b)(1).
\3\ The proposal also revises comment 17(b)(4)-1, redesignated
as comment 17(b)(4)-2, to address the application of the final rule
when institutions follow different practices for different types of
accounts. The proposed comment is also revised to eliminate text now
reflected in proposed new comment 17(b)(4)-1.
\4\ Some institutions have asked whether they may provide
supplemental materials with the opt-in notices that describe their
overdraft services. In footnote 39 to the Regulation E final rule,
the Board explained that institutions may provide consumers other
information about their overdraft services and other overdraft
protection plans in a separate document outside of the opt-in
notice. See 74 FR at 59047. However, institutions are reminded that,
to the extent such additional materials promote the payment of
overdrafts under Regulation DD, those materials may be subject to
additional disclosure requirements under 12 CFR 230.11(b).
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17(b)(1)(iv)--Written Confirmation
Section 205.17(b)(1)(iv) states that an institution must provide
the consumer a written confirmation of his or her opt-in choice before
charging overdraft fees. The written confirmation helps ensure that a
consumer intended to opt into an institution's overdraft service by
providing the consumer with a written record of that choice. Written
confirmation is particularly appropriate to evidence the consumer's
choice where a consumer opts in by telephone. Some institutions have
asked whether the written confirmation required by Sec.
205.17(b)(1)(iv) must be sent to the consumer before the institution
may assess overdraft fees.
The requirement to provide the confirmation before charging
overdraft fees balances the interest in ensuring that consumers
understand their choice, with the interest in providing consumers
access to overdraft services expeditiously when requested. The
requirement ensures that institutions send out the written confirmation
promptly, which minimizes the time until consumers receive the
confirmation, while recognizing that a consumer may not opt into an
institution's overdraft service until the time the service is needed.
Permitting fees to be assessed once the written confirmation has been
sent permits institutions to pay the transaction with minimal delay to
the consumer. Consumers who did not intend to opt in would be able to
revoke the opt-in at any time.
To provide additional clarity, the Board is proposing to revise
comment 17(b)-7 to clarify that an institution may not assess any
overdraft fees or charges on the consumer's account until the
institution has sent the written confirmation. To address concerns
about operational and litigation risks related to tracking compliance
with the requirements for charging overdraft fees, the proposed comment
also states that an institution complies with Sec. 205.17(b)(1)(iv) if
it has adopted reasonable procedures designed to ensure that the
written confirmation is sent before fees are assessed.
Comment 17(b)-8--Outstanding Negative Balance
While many institutions charge the same per-item overdraft fee
amount regardless of the amount of the consumer's negative balance,
some institutions impose tiered fees based on the amount of the
consumer's outstanding negative balance at the end of the day. For
example, an institution may impose a $10 per-item overdraft fee if the
consumer's account is overdrawn by less than $20, and a $25 per-item
overdraft fee if the account is overdrawn by $20 or more. Questions
have been raised as to how overdraft fees may be assessed in these
circumstances.
[[Page 9123]]
To the extent institutions impose tiered fees based on the amount
of the consumer's outstanding negative balance, proposed new comment
17(b)-8 clarifies that the fee or charge must be based on the amount of
the negative balance attributable solely to check, ACH, or other
transactions not subject to the fee prohibition. For instance, if a
consumer's negative balance of $30 is attributable in part to a debit
card transaction that initially overdrew the account, and in part to a
$10 check that the bank subsequently paid, the institution should base
any overdraft fees solely on an outstanding negative balance of $10.
Comment 17(b)-9--Daily or Sustained Overdraft, Negative Balance, or
Similar Fees or Charges
Some institutions assess daily or sustained overdraft, negative
balance, or similar fees or charges when a consumer has overdrawn an
account and has not repaid the amount overdrawn within a specified
period of time. For example, today, if a consumer overdraws his or her
account by $30, the institution may assess an overdraft fee of $20. If
the resulting negative $50 balance is not paid back on the fifth day,
the institution may assess an additional $20 sustained overdraft fee.
In certain circumstances, an ATM or one-time debit card transaction
may overdraw a consumer's account, even if the consumer has not opted
in, as discussed above. The Board has been asked whether the
prohibition in Sec. 205.17(b)(1) against assessing overdraft fees on
ATM and one-time debit card transactions where the consumer has not
opted in also extends to daily or sustained overdraft, negative
balance, or similar fees or charges.
In addition, a consumer who has not opted in may sometimes overdraw
his or her account as a consequence of the payment both of ATM or one-
time debit card transactions and of check, ACH, or other transactions
not subject to the fee prohibition in Sec. 205.17(b)(1). The Board has
also been asked to clarify whether a daily or sustained overdraft,
negative balance, or similar fee or charge may be assessed if an
account is overdrawn based in part on an ATM or one-time debit card
transaction and in part to a check, ACH or other type of transaction
not subject to the final rule. The proposed clarifications would
address both questions.
Under the final rule, consumers who do not opt in may not be
assessed any overdraft fees for paying ATM or one-time debit card
transactions, including daily or sustained overdraft, negative balance,
or similar fees or charges. As noted above, consumers who do not opt in
may reasonably expect not to incur per-item overdraft fees for ATM and
one-time debit card transactions, even if such transactions overdraw
their account. Similarly, such consumers would reasonably expect not to
incur daily or sustained overdraft, negative balance, or similar fees
or charges due to these transactions. For clarity, proposed comment
17(b)-9.i explains that if a consumer has not opted in, the prohibition
on assessing overdraft fees and charges in Sec. 205.17(b)(1) applies
to all overdraft fees or charges, including but not limited to daily or
sustained overdraft, negative balance, or similar fees or charges,
assessed for paying an ATM or one-time debit card transaction. Thus,
where a consumer's negative balance is attributable solely to an ATM or
one-time debit card transaction, the rule prohibits the assessment of
such sustained overdraft fees if the consumer has not opted in. For
example, if a consumer who has not opted in has a $50 account balance,
and the institution nonetheless pays a $60 debit card transaction (and
no other transactions occur), the institution may not charge any
overdraft fees, including a daily or sustained overdraft, negative
balance, or similar fee or charge, for paying that debit card
transaction.
The Regulation E final rule applies solely to ATM and one-time
debit card transactions. That is, the final rule does not apply to
overdraft fees imposed in connection with other types of transactions,
including check, ACH or recurring debit card transactions. As a result,
institutions may impose daily or sustained overdraft, negative balance,
or similar fees or charges associated with paying overdrafts for such
transactions. For example, where a consumer has a $50 account balance,
and the institution pays a $60 check, the institution may charge a per-
item overdraft fee, as well as a daily or sustained, negative balance,
or similar fee or charge if a negative balance remains outstanding.
Similarly, proposed comment 17(b)-9.i clarifies that where the
consumer's negative balance is attributable in part to a check, ACH or
other transaction not subject to the fee prohibition of Sec.
205.17(b)(1), an institution is not prohibited from assessing a daily
or sustained overdraft, negative balance, or sustained fee, even if the
negative balance is also attributable in part to an ATM or one-time
debit card transaction. The Board believes this result is consistent
with the general scope of the Regulation E final rule, which prohibits
fees only with respect to ATM and one-time debit card transactions. For
example, if a consumer has a $50 account balance, and the institution
posts a one-time debit card transaction of $60 and a check transaction
of $40 that same day, the institution may charge a per-item fee for the
check overdraft (but cannot assess any overdraft fees for the debit
card transaction because the consumer has not opted in). Likewise,
assuming no other transactions occur or deposits are made to the
account, because the consumer's negative balance is attributable in
part to the $40 check, the institution may charge a sustained overdraft
fee when permitted by the account agreement.
The proposal also provides guidance on the date on which such a fee
may be assessed. Specifically, proposed comment 17(b)-9.i states that
the date is determined by the date on which the check, ACH, or other
transaction is paid into overdraft. Because the rule does not cover
checks, ACH, or other transactions, the Board believes institutions may
charge per-item overdraft fees, or sustained or other similar fees.
Nonetheless, the Board believes it is appropriate to base the date on
which fees may be charged on the date that the transaction not subject
to the rule is paid.
Proposed comment 17(b)-9.ii includes three examples illustrating
how fees may be applied when a negative balance is attributable in part
to a check, ACH, or other transaction not subject to Sec.
205.17(b)(1). The first example demonstrates the general application of
the rule. The second example addresses the result when a consumer with
an outstanding negative balance makes a deposit that diminishes the
negative balance, but does not bring the account current. The third
example demonstrates how to determine the date when fees may apply when
the check, ACH or other transaction is paid on a different date than
the ATM or one-time debit card transaction that overdraws the account.
The examples are based on certain assumptions. Among them are that
the institution posts ATM and debit card transactions before it posts
other transactions, and that it allocates deposits to debits in the
same order in which it posts debits. Thus, the examples assume that
deposits made to the account are allocated first to debit card
transactions, then to checks. The proposed rule does not, however,
require transactions to be posted or deposits to be allocated in the
manner set forth in the example. Institutions may post transactions or
allocate deposits as permitted by applicable law.
The Board recognizes that programming systems to conform to the
[[Page 9124]]
proposed rule may raise operational and cost concerns, and could be
challenging to implement by July 1, 2010. Institutions that do not make
the necessary systems changes could not assess daily or sustained,
negative balance or similar overdraft fees or charges, even on checks
and other transactions not subject to the opt-in requirement, after the
final rule's mandatory compliance date of July 1, 2010.
17(b)(3)--Same Account Terms, Conditions, and Features
Comment 17(b)(3)-2 provides guidance on limited-feature deposit
account products in light of the requirement under Sec. 205.17(b)(3)
to offer consumers the same account terms, conditions, and features
regardless of their opt-in choice. This comment inadvertently included
an incorrect cross-reference. The proposal revises the comment to omit
the cross-reference.
IV. Regulatory Analysis
Sections VII and VIII of the SUPPLEMENTARY INFORMATION to the
Regulation E 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 59050-59052. Because the proposed amendments are
clarifications and would not, if adopted, alter the substance of the
analyses and determinations accompanying the Regulation E 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 205
Consumer protection, Electronic fund transfers, Federal Reserve
System, Reporting and recordkeeping requirements.
Authority and Issuance
For the reasons discussed in the preamble, the Board proposes to
amend 12 CFR part 205 and the Official Staff Commentary, as follows:
PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for part 205 continues to read as
follows:
Authority: 15 U.S.C. 1693b.
2. Section 205.17 is amended by revising paragraphs (b)(1)
introductory text and (b)(4) to read as follows:
* * * * *
(b) Opt-in requirement. (1) General. Except as provided under
paragraph[lsqbb]s (b)(4) and[rsqbb] (c) of this section, a financial
institution holding a consumer's account shall not assess a fee or
charge on a consumer's account for paying an ATM or one-time debit card
transaction pursuant to the institution's overdraft service, unless the
institution:
* * * * *
(4) [lsqbb]Exception to[rsqbb][rtrif]Application to certain
financial institutions;[ltrif] notice and opt-in requirements.
[lsqbb]The requirements of Sec. 205.17(b)(1) do not apply to an
institution that has[rsqbb][rtrif]The prohibition on assessing
overdraft fees under Sec. 205.17(b)(1) applies to all institutions,
including an institution that has[ltrif] a policy and practice of
declining to authorize and pay any ATM or one-time debit card
transactions when the institution has a reasonable belief at the time
of the authorization request that the consumer does not have sufficient
funds available to cover the transaction.[rtrif] However, such an
institution is not required to comply with the requirements of
Sec. Sec. 205.17(b)(1)(i)-(iv), including the notice and opt-in
requirements, if it does not assess overdraft fees.[ltrif] Financial
institutions may [rtrif] rely on[ltrif][lsqbb]apply[rsqbb] this
[rtrif]provision[ltrif][lsqbb]exception[rsqbb] on an account[rtrif]
type[ltrif]-by-account[rtrif] type[ltrif] basis.
* * * * *
3. In Supplement I to part 205,
a. In Section 205.17(a), paragraph 1. is revised.
b. In Section 205.17(b), paragraph 7. is revised.
c. In Section 205.17(b), new paragraphs 8. and 9. are added.
d. In Section 205.17(b), paragraph 17(b)(3)-2. is revised.
e. In Section 205.17(b), paragraph 17(b)(4)-1. is redesignated as
17(b)(4)-2. and revised, and new paragraph 17(b)(4)-1. is added.
Supplement I to Part 205--Official Staff Interpretations
* * * * *
Section 205.17(a)--Requirements for Overdraft Services
17(a) Definition
1. Exempt securities- and commodities-related lines of credit.
[lsqbb]Section 205.17(a)(3)[rsqbb][rtrif]The definition of ``overdraft
service''[ltrif] does not [lsqbb]apply to[rsqbb][rtrif]include the
payment of[ltrif] transactions in a securities or commodities account
pursuant to which credit is extended by a broker-dealer registered with
the Securities and Exchange Commission or the Commodity Futures Trading
Commission.
17(b) Opt-In Requirement
* * * * *
7. Written confirmation. A financial institution may comply with
the requirement in Sec. 205.17(b)(1)(iv) by providing to the consumer
a copy of the consumer's completed opt-in form or by sending a letter
or notice to the consumer acknowledging that the consumer has elected
to opt into the institution's service. The written confirmation notice
must include a statement informing the consumer of his or her right to
revoke the opt-in at any time. To the extent the institution complies
with the written confirmation requirement by providing a copy of the
completed opt-in form, the institution may include the statement about
revocation on the initial opt-in notice.[rtrif] An institution may not
assess any overdraft fees or charges on the consumer's account until
the institution has sent the written confirmation. An institution
complies with this requirement if it has adopted reasonable procedures
designed to ensure that the written confirmation is sent before fees
are charged.
8. Outstanding Negative Balance. For a consumer who has not opted
in, to the extent that a fee or charge is based on the amount of the
outstanding negative balance, the fee or charge must be based on the
amount of the negative balance attributable solely to check, ACH, or
other transactions not subject to the fee prohibition. For instance, if
a consumer's negative balance of $30 is attributable in part to a debit
card transaction that overdrew the account, and in part to a $10 check
subsequently paid by the institution, the institution should base any
overdraft fees solely on an outstanding negative balance of $10.
9. Daily or Sustained Overdraft, Negative Balance, or Similar Fee
or Charge
i. Daily or sustained overdraft, negative balance, or similar fees
or charges. If a consumer has not opted into the institution's
overdraft service, the prohibition on assessing overdraft fees or
charges in Sec. 205.17(b)(1) applies to all overdraft fees or charges,
including but not limited to daily or sustained overdraft, negative
balance, or similar fees or charges. Thus, where a consumer's negative
balance is solely attributable to an ATM or one-time debit card
transaction, the rule prohibits the assessment of such fees unless the
consumer has opted in. However, the
[[Page 9125]]
rule does not prohibit an institution from assessing daily or sustained
overdraft, negative balance, or similar fees or charges if a negative
balance is attributable in whole or in part to a check, ACH, or other
transaction not subject to the fee prohibition of Sec. 205.17(b)(1).
In such case, the date on which such a fee may be assessed is
determined by the date on which the check, ACH, or other transaction is
paid into overdraft.
ii. Examples. The following examples illustrate the application of
the rule. For each example, assume the following: (a) The debit card
transactions are paid into overdraft, even though the consumer has not
opted in, because the amount of the transaction at settlement exceeded
the amount authorized or the amount was not submitted for
authorization; (b) under the terms of the account agreement, the
institution may charge a one-time sustained overdraft fee of $20 on the
fifth consecutive day the consumer's account remains overdrawn; (c) the
institution posts ATM and debit card transactions before other
transactions; and (d) the allocates deposits to account debits in the
same order in which it posts debits.
a. Assume that a consumer has a $50 account balance on March 1.
That day, the institution posts a one-time debit card transaction of
$60 and a check transaction of $40. The institution charges an
overdraft fee of $20 for the check overdraft but cannot assess any
overdraft fees for the debit card transaction because the consumer has
not opted in. At the end of the day, the consumer has an account
balance of negative $70. The consumer does not make any deposits to the
account, and no other transactions occur between March 2 and March 6.
Because the consumer's negative balance is attributable in part to the
$40 check (and associated overdraft fee), the institution may charge a
sustained overdraft fee on March 6.
b. Same facts as in a., except that on March 3, the consumer
deposits $40 in the account. The institution allocates the $40 to the
debit card transaction first, consistent with its posting order policy.
At the end of the day on March 3, the consumer has an account balance
of negative $30, which is attributable to the check transaction (and
associated overdraft fee). The consumer does not make any further
deposits to the account, and no other transactions occur between March
4 and March 6. Because the remaining negative balance is attributable
to the March 1 check transaction, the institution may charge a
sustained overdraft fee on March 6.
c. Assume that a consumer has a $50 account balance on March 1.
That day, the institution posts a one-time debit card transaction of
$60. At the end of the day on March 1, the consumer has an account
balance of negative $10. Because the consumer did not opt in, the
institution may not assess an overdraft fee for the debit card
transaction. On March 3, the institution pays a check transaction of
$100 and charges an overdraft fee of $20. At the end of the day on
March 3, the consumer has an account balance of negative $130. The
consumer does not make any further deposits to the account, and no
other transactions occur between March 4 and March 8. Because the
consumer's negative balance is attributable in part to the check, the
institution may assess a $20 sustained overdraft fee. However, because
the check was paid on March 3, the institution must use March 3 as the
start date for determining the date on which the sustained overdraft
fee may be assessed under the terms of the account agreement. Thus, the
institution may charge a $20 sustained overdraft fee on March 8.[ltrif]
* * * * *
Paragraph 17(b)(3)--Same Account Terms, Conditions, and Features
* * * * *
2. Limited-feature bank accounts. Section 205.17(b)(3) does not
prohibit institutions from offering deposit account products with
limited features, provided that a consumer is not required to open such
an account because the consumer did not opt in [lsqbb](see comment
17(b)(3)-2)[rsqbb]. For example, Sec. 205.17(b)(3) does not prohibit
an institution from offering a checking account designed to comply with
state basic banking laws, or designed for consumers who are not
eligible for a checking account because of their credit or checking
account history, which may include features limiting the payment of
overdrafts. However, a consumer who applies, and is otherwise eligible,
for a full-service or other particular deposit account product may not
be provided instead with the account with more limited features because
the consumer has declined to opt in.
* * * * *
Paragraph 17(b)(4)--[lsqbb]Exception to[rsqbb][rtrif]Application to
certain financial institutions;[ltrif] notice and opt-in requirements.
[rtrif]1. Application of fee prohibition. Although the fee
prohibition in Sec. 205.17(b)(1) applies to all institutions, an
institution that has a policy and practice of declining to authorize
and pay ATM or one-time debit card transactions when it has a
reasonable belief that the consumer does not have sufficient funds to
cover the transaction is not required to provide an opt-in notice or
comply with the other requirements of Sec. Sec. 205.17(b)(1)(i)-(iv).
Nonetheless, the prohibition against assessing overdraft fees or
charges in Sec. 205.17(b)(1) still applies. For example, if an
institution with such a policy and practice authorizes an ATM or one-
time debit card transaction on the reasonable belief that the consumer
has sufficient funds in the account to cover the transaction, but at
settlement, the consumer has insufficient funds in the account (for
example, due to intervening transactions that post to the consumer's
account), the institution may not assess an overdraft fee or charge for
paying that transaction, and it is not required to provide an opt-in
notice.
2[ltrif][lsqbb]1[rsqbb]. Account[rtrif]type[ltrif]-by-account
[rtrif]type application[ltrif][lsqbb]exception[rsqbb]. [lsqbb]If a
financial institution has a policy and practice of declining to
authorize and pay any ATM or one-time debit card transactions with
respect to one type of deposit account offered by the institution, when
the institution has a reasonable belief at the time of the
authorization request that the consumer does not have sufficient funds
available to cover the transaction, that account is not subject to
Sec. 205.17(b)(1), even if other accounts that the institution offers
are subject to the rule. For example, if the institution[rsqbb]
[rtrif]If a financial institution [ltrif]offers three types of checking
accounts, and the institution has [lsqbb]such[rsqbb] a policy and
practice [rtrif]of declining to authorize and pay any ATM or one-time
debit card transactions when it has a reasonable belief that the
consumer does not have sufficient funds to cover the transaction
[ltrif]with respect to only one of the three types of accounts, that
[lsqbb]one[rsqbb] type of account is not subject to the notice
[rtrif]and opt-in [ltrif]requirement[rtrif]s, assuming no fees are
charged[ltrif]. However, the other two types of accounts offered by the
institution remain subject to the notice [rtrif]and opt-in
[ltrif]requirement[rtrif]s[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. 2010-3720 Filed 2-26-10; 8:45 am]
BILLING CODE 6210-01-P