Federal Reserve Board Clarifies Regulation E Opt-In Rule
June 2, 2010
The Federal Reserve Board has released a final rule (“Rule”) clarifying issues raised in its November 17, 2009 Regulation E final rule that imposes an opt-in requirement for overdraft services related to ATM and one-time debit card transactions (hereafter, “covered transactions”). The Rule amends portions of Regulation E and related official staff commentary.
One of the questions immediately raised after the 2009 final rule was released was whether institutions that have a policy and practice of declining ATM and one-time debit card transactions that would overdraw an account are subject to the fee prohibition in 12 CFR §205.17(b)(1). The Rule clarifies that such institutions are only relieved from the requirements of §§ 205.17(b)(1)(i)-(iv), including the notice and opt-in requirements. Sections 205.17(b)(1), (b)(4) (deleted and moved to comment §205.17(b)(1)), and related commentary are amended to clarify that the fee prohibition applies to all institutions.
The Board is also revising comment 17(b)-7 to clarify that an institution may not assess any overdraft fee until it has sent the required written confirmation as required under §205.17(b)(1)(iv). To address concerns about operational and litigation risks related to tracking compliance with the confirmation requirement, the comment provides that an institution complies with the confirmation requirement if it has adopted reasonable procedures designed to ensure that the written confirmation is sent before fees are assessed.
In its preamble language, the Board confirms that use of the “mailed or delivered” language in the comment would allow an institution to comply with the confirmation requirement by handing it to the consumer in person, such as at a branch. Also, former references to “written confirmation” are replaced with simply “confirmation” so that, as the Board explains, a confirmation may be provided electronically if the consumer agrees consistent with § 205.17(b)(1)(iv).
Comment 17(b)-8 has been revised to provide that if a fee is based on the amount of the outstanding negative balance (e.g., a tiered fee), the rule prohibits the assessment of any such fee if the negative balance is solely attributable to a covered transaction, unless the consumer has opted into the institution’s overdraft service. However, the Rule does not prohibit an institution from assessing such a fee if the negative balance is attributable in whole or in part to a check, ACH, or other type of transaction not subject to the fee prohibition.
Comment 17(b)-9 explains that for consumers who do not opt in, where a negative balance is attributable solely to a covered transaction, an institution may not assess any daily or sustained overdraft, negative balance, or similar fee. However, where the consumer’s negative balance is attributable in part to a non-covered transaction and in part to a covered transaction, an institution may assess a daily or sustained overdraft, negative balance, or similar fee, even if the consumer has not opted in. The comment also clarifies that the date on which such a fee may be assessed is based on the date on which the non-covered item is paid into overdraft.
Comment 17(b)-9.ii includes examples of how fees may be applied when a negative balance is attributable in part to a non-covered transaction. Comment 17(b)-9.iii provides an alternative approach for complying with the fee prohibition for institutions that do not have deposit allocation policies. Where a consumer has not opted in, an institution may comply with the fee prohibition on covered transactions by not assessing daily or sustained overdraft, negative balance, or similar fees or charges while the negative balance remains outstanding (unless the negative balance is attributable solely to non-covered transactions). Under this approach, the institution would not have to consider how to allocate subsequent deposits that reduce but do not eliminate the negative balance.
The Board is adding new comments 17(d)-3 through 17(d)-5 to address comments related to the model form. Comment 17(d)-3 explains that institutions may tailor Model Form A- 9 to the methods offered by the institution for a consumer to opt in. The comment explains that an institution need not provide the tear-off portion of Model Form A-9, for example, if it is only permitting consumers to opt in telephonically or electronically.
Also, it clarifies that institutions may provide a signature line or check box where the consumer may indicate the option not to opt in.
Comment 17(d)-4 states that an institution may use any reasonable method to identify the account for which the consumer submits the opt-in notice. For example, the institution may include a line for a printed name and an account number, or the institution may print a bar code or use other tracking information.
Comment 17(d)-5 addresses compliance with §205.17(d)(5) regarding the disclosure, where applicable, of the availability of a Regulation Z-covered line of credit that transfers funds from another account to cover overdrafts. As Model Form A-9 includes only a reference to a transfer from a savings account, comment 205.17(d) addresses this issue. If the institution offers both a line of credit and a service that transfers funds from another account to cover overdrafts, the institution must state in its opt-in notice that both alternative plans are offered. If it offers one but not the other, it must state the plan that it offers. If it offers neither, it should omit any reference to alternative plans.
The Rule also includes minor revisions and corrections not discussed in this Bulletin. The effective date is 30 days after its publication in the Federal Register (it is not published yet). Click here for a link to the Rule.
The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.
© This CBA Regulatory Compliance Bulletin is copyrighted by the California Bankers Association, and may not be reproduced or distributed without the prior written consent of CBA.