The Federal Reserve Board's Overdraft rules

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The Federal Reserve Board'sOverdraft rules

• Outlook Live Audio Conference
• Dana Miller, Attorney
• David Stein, Managing Counsel
• Division of Consumer and Community Affairs
• Federal Reserve Board
• December 10, 2009

The following presentation contains the views and
opinions of the speaker and his or her
interpretation of regulatory guidance.  It does
not necessarily reflect the views of the
management of the Board of Governors of the
Federal Reserve System.
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Background

• 2005 Interagency Guidance on Overdraft
  Protection Programs and revisions to Reg. DD
• April 2008 UDAP proposal
• January 2009 Reg. DD final rule
• Reg. E proposal
• November 2009 Reg. E final rule

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Regulation DD Final Rule
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Aggregate Fee Disclosures on Periodic Statements
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• Depository institutions must disclose on periodic
  statements aggregate costs of the overdraft
  service for the statement period and the calendar
  year-to-date.

Total For This Period Total Year-to-Date
Total Overdraft Fees 60.00 150.00
Total Returned Item Fees 0.00 30.00
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Balance Inquiry Disclosures

• Institutions must disclose balance that does not
  include amounts the institution may provide to
  cover overdrafts.
• Applies to balance inquiries made through any
  automated system, such as an ATM.
• Amounts from overdraft lines of credit and linked
  accounts also must be excluded.
• Second balance that includes available overdraft
  funds may be provided with prominent statement
  that balance includes those amounts (and if
  applicable, that those amounts are not available
  for all transactions).

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Effective Date

• January 1, 2010

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Regulation E Final Rule
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The Proposed Rule

• Limited to ATM and one-time debit card
  transactions.
• Prohibited financial institutions from charging
  overdraft fees for these transactions unless
  consumer is given notice and a choice regarding
  payment of overdrafts, and consumer chooses to
  have overdrafts paid.
• Alternative opt-out and opt-in approaches
  proposed.
• Board solicited comment on hybrid approach
  (opt-in for new customers, opt-out for existing
  customers).

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The Final Rule Opt-In

• Opt-in for new and existing consumers.
• Four requirements
• Provide opt-in notice, segregated from other
  information
• Provide reasonable opportunity to opt in
• Obtain consumers affirmative consent
• Provide written confirmation to the consumer
• Ongoing right to consent and to revoke consent.
• Model form for compliance.

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Application of Final Rule

• Final rule does not apply to checks, ACH or
  recurring debit card transactions.
• Consumer testing shows consumers want checks and
  other important bills paid.
• Institutions may still offer an opt-in or opt-out
  for those transactions.
• Institutions must have systems to identify
  whether or not a debit card transaction is
  recurring, but once they do, they may rely on
  merchant coding.

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Non-Discrimination Provisions

• Final rule includes two provisions designed to
  ensure that consumers do not feel compelled to
  opt in, and therefore have a meaningful choice
  with respect to the overdraft service
• Conditioning the opt-in
• Variation of account terms

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Conditioning the Opt-In

• Financial institutions are prohibited from
  requiring consumers to opt into the overdraft
  service for ATM and one-time debit card
  transactions in order to have checks, ACH and
  other types of transactions paid.
• Financial institutions are also prohibited from
  declining to pay checks and other transactions
  just because a consumer has not opted in.

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Variation of Account Terms

• Financial institutions must provide consumers who
  do not opt in with the same account terms,
  conditions and featuresincluding priceas
  provided to consumers who do opt in.

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No Exceptions to Fee Prohibition

• Under the final rule, banks cannot charge
  overdraft fees unless the bank has provided
  notice and obtained the consumers opt-in.
• The final rule does not have any exceptions to
  the fee prohibition.
• The final rule does permit institutions to
  collect amount overdrawn.

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Exceptions to Notice and Opt-In Requirements

• The final rule contains an exception for
  institutions that have a policy and practice of
  declining to authorize and pay transactions when
  the institution has a reasonable belief that the
  consumer has insufficient funds.
• This is an exception from the notice and opt-in
  requirements.
• This is not an exception from the prohibition on
  charging fees for ATM and one-time debit card
  overdrafts.

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Effective Date

• Mandatory compliance date is July 1, 2010.
• New customers For accounts opened on or after
  July 1, 2010, notices must be provided and opt-in
  obtained before overdraft fees may be assessed.
• Existing customers For any consumer who has not
  opted in by August 15, 2010, institution must
  stop assessing overdraft fees.

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Questions?