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Proposed
Reg DD Amendment Issued
Regulators
have been concerned about the wide-spread use of bounce protection
programs for a long time. They were not quiet about their concerns;
however, that did not seem to stop financial institutions from
continuing to imposing these plans on consumers. The first step
regulators took occurred May 2005 when regulators issued a final
rule, effective
July 1, 2006
, that required all
depository institutions to specify in their account disclosures the
categories of transactions for which an overdraft fee could be
imposed. They were also required to include in advertisements about
these services certain information about the costs associated with
the service and the circumstances under which the institution would
not pay an overdraft.
If
an institution marketed these services, it was required to disclose
separately on consumers’ periodic statements the total amount of
fees or charges imposed for paying overdrafts and the total amount
of fees charged for returning items unpaid. These disclosures had to
be provided for the statement period and the calendar year to date.
Even
with the changes described, the FRB remains concerned about
consumers’ understanding of the costs of overdraft services and
how those services operate generally. Therefore, the FRB is
proposing to amend Truth in
Savings (Regulation DD). The FRB’s goal is to facilitate
consumers’ ability to make informed judgments about the use of
their accounts.
This
Regulation DD proposal is complementary to the proposal to amend
FRB’s Regulation AA, Unfair
or Deceptive Acts or Practices, and the OTS’ and NCUA’s
rules on the same topic. This proposal involves the following:
·
Disclosure of
consumer opt-out of overdraft services – the proposal includes
content and format requirements for the notices that would be given
to consumers informing them about their right to decline, or opt out
of, their institution’s overdraft service. The notices must be in
writing and include:
o
Types of
transactions covered by the overdraft program;
o
Amount of any
fees or charges that could be imposed;
o
The amount of
overdraft that will trigger fees so consumers can understand fully
how the fees may affect the account balance.
o
Maximum
amount of overdraft fees or charges that may be assessed per day or
per statement period, or that there is no limit if that is the case;
o
Explanation
of the right to opt out of overdraft payments, including how to
exercise that right; and
o
A statement
that the institution offers other alternatives for payment of
overdrafts, such as lines of credit, if applicable.
·
Timing of
notice:
o
Prior
to the imposition
of any fee for paying an overdraft, provided the consumer has a
reasonable opportunity to exercise the opt-out right prior to the
assessment of any fee; and
o
On
each periodic statement
on which overdraft fees are shown and at least once each statement
period on any notice sent after the institution pays an overdraft.
Each periodic statement would disclose the total dollar amount for
all fees related to overdraft payments together with the total
dollar amount for fees imposed for returning items unpaid. All fees
would be disclosed for the statement period and cumulatively for the
year. Note that the proposal would make this applicable to all
institutions that offer the overdraft service, whether or not the
institution “promotes” the service.
When
consumers make a balance inquiry through any automated system, such
as at an ATM, the Internet web site, or a telephone response system,
the balance must only show the balance in the account. It must not
include any amount authorized for overdrafts. The proposal would
permit an additional disclosure showing an amount available through
overdraft.
Comments
are due by July 18. The complete proposal can be viewed at http://edocket.access.gpo.gov/2008/pdf/E8-10243.pdf.
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