Compliance Bulletin

Summary of Overdraft Fee Disclosure Amendments to Regulation DD
February 4, 2009

The Federal Reserve Board (“Board”) issued a final rule (“Rule”) amending Regulation DD, which implements the Truth-in-Savings Act, to require banks to make certain disclosures regarding overdraft fees. 

The Board also issued a proposed rule to amend Regulation E (Electronic Funds Transfer Act) to limit the ability of banks to charge overdraft fees in connection with ATM withdrawals and debit card transactions, and to provide an opportunity to opt out. The Board, together with the Office of Thrift Supervision and the National Credit Union Administration, had earlier issued a proposal to regulate overdraft practices pursuant to their unfair and deceptive acts and practices (UDAP) authority granted under the Federal Trade Commission Act, but they ultimately did not issue a final UDAP rule.

Account statement disclosure. Beginning in January 1, 2010, banks will be required to disclose on each periodic statement the total dollar amount for charges imposed by reason of overdraft activities. This requirement applies without regard to whether the bank promotes its overdraft services. The disclosure includes charges for paying overdrawing items and for returning items unpaid for the statement period and calendar year-to-date. The disclosures must be disclosed in close proximity to fees listed in 12 CFR 230.6(a)(3) and in a format substantially similar to a sample provided in Appendix B to Regulation DD.

The total dollar amount of overdraft charges includes per-item fees, interest charges, daily or periodic fees, and fees charged for maintaining an account in overdraft status. Also included are fees charged when there are insufficient funds because previously deposited funds are subject to a hold or are uncollected. Not included are fees for transferring funds from another account to avoid an overdraft, or fees charged under a service subject to Regulation Z (12 CFR part 226) such as an overdraft line of credit [1].

Included among returned item fees are those charged for dishonoring or returning items, but not fees charged when deposited items are returned [2]. If a consumer has not incurred fees since the beginning of the year (or statement period), the bank is not required to provide a “$0” aggregate total for the year-to-date (or statement period), but it may do so disclose at its option. See Comment 230.11(a)(1)-4 regarding a disclosure when the bank charges and subsequently waives or re-credits a fee.

Disclosure of balances. When disclosing balance information through an automated system [3], the bank may not include any amount that the bank may make available to cover overdrawing items. The restriction applies whether the additional funds constitute a service provided in the bank’s discretion, a service subject to Regulation Z (such as an overdraft line of credit), or a service to transfer funds from another account of the consumer. The balance may, but need not, include funds that are deposited that are not yet made available for withdrawal. The balance may also include funds that are held to satisfy a prior obligation of the consumer, for example, to cover a debit hold that has not been settled. These allowances are intended to relieve banks from having to provide “real time” balances that may not be operationally feasible to ascertain [4].

The bank may also disclose another balance that includes the additional funds (eg., available overdraft, etc.), but it must prominently state that the balance includes such funds and, if applicable, that additional funds are not available for all transactions. However, a disclosure of an additional balance is not appropriate for a consumer who has opted out [5]. If the additional balance is disclosed, the bank may not simply state that the second balance is the consumer’s “available balance” or contains “available funds.” It could state that the balance includes “overdraft funds” or otherwise provide enough information to convey that the second balance includes these amounts [6].

Advertisement. The Rule also adds an additional exception to the requirement to make overdraft fee disclosures in advertisements pursuant to 230.11(b) (i.e., the overdraft fee, categories of transactions affected, time allowed for repayment, and the circumstances in which the bank will not pay an overdraft). The new exception (in new subparagraph 230.11(b)(xii)) is for an opt-out or opt-in notice regarding the bank’s payment of overdrafts or provision of discretionary overdraft services [7].

The new disclosures are required to be included on periodic statements starting the first statement period that begins after January 1, 2010. For example, if a statement period closes on the 15th of each month, the bank must provide the disclosures on subsequent periodic statements beginning with the statement reflecting the period from January 16 to February 15, 2010. The Rule, including the sample disclosure, is available at:
http://edocket.access.gpo.gov/2009/pdf/E8-31183.pdf.

Comments to the Board, the Office of Thrift Supervision, and the National Credit Union Administration on the proposed amendments to Regulation E are due by March 30, 2009. That proposal is available at: http://edocket.access.gpo.gov/2009/pdf/E8-31184.pdf.

  1. Comment 230.11(a)(1)-2.
  2. Comment 230.11(a)(1)-3.
  3. An automated system includes, without limitation, a telephone response system, the bank’s Internet site, or an ATM, whether owned or operated by the bank or not, and whether the balance is disclosed on the ATM screen or on a paper receipt.
  4. Comment 230.11(a)(1)-3.
  5. Comment 230.11(c)-1.
  6. Thus, if the consumer has opted out of overdraft services for ATM and debit card transactions, the bank should convey that the overdraft funds are not available for ATM and debit card transactions. Comment 230.11(c)-2. Id.
  7. An opt out or opt in opportunity is not required by the Rule, but an opt out notice provision is included in the Joint Guidance on Overdraft Protection Programs issued in 2005 by the federal banking agencies and applies to banks that promote overdraft protection services. An opt out proposal is also included in the proposed amendments to Regulation E released jointly with this 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.

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