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Final
Rule on Reg E Requries Opt In
The
Federal Reserve Board
(FRB) has issued its final rule and official staff commentary
changes on Regulation E, Electronic
Funds Transfer. The final decision is to require that consumers
opt in
to the overdraft service for ATM and one-time debit card
transactions before fees can be charged for paying overdrafts on
those types of transactions.
The
FRB made this decision based on its consumer testing that showed
that most consumers prefer not to be enrolled in overdraft services
for ATM and one-time debit card transactions, unless they opt in.
The testing also revealed that most consumers want overdraft
services to cover important bills, such as checks they use to pay
rent, utilities and telephone bills.
Regulators
believe that consumers will be able to limit the costs of overdraft
services by making the choice of participating in their
institution’s program. Using the rule prescribed by the FRB,
consumers will be provided a clear disclosure of the fees and terms
associated with an institution’s overdraft services. (A model form
for disclosing overdraft policies is included in the rule.)
Highlights
of the rule are:
·
Scope
– the opt-in right applies to all
consumers, including existing account holders. The right to opt-out
is ongoing.
·
Conditioning
the Opt-in –
cannot tie the payment of overdrafts for checks and other
transactions to the consumer opting into the overdraft service for
ATM and one-time debit card transactions.
·
Same
Account Terms, Conditions and Features
– must provide those who do not
opt in with the same account terms, conditions, and features,
including price, as provided to those who do opt in.
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. It is not
an exception from the prohibition on charging fees for ATM
and one-time debit card overdrafts, as some would like to interpret
it. Bottom line – no fee can be charged without an opt-in.
Rather
than summarize the rule since it is very detailed, following is an
outline that will be much quicker reading.
Scope
The rule pertains to all consumer accounts covered by Reg E, including payroll card
accounts, to the extent overdraft fees may be imposed. The rule does
not apply to
business accounts.
The opt-in
requirement pertains to both existing
and new accounts. And, applies to ATM and one-time debit
card transactions made with a debit card issued by or on behalf of
the account-holding
institution.
The rule
applies to the following transactions:
1.
Any ATM withdrawal,
including those at proprietary or foreign ATMs;
2.
All transactions
originated at an ATM that overdraw a consumer’s account, not just
withdrawals. (This could include transfers from account to account,
bill payments, or stamp purchases when they overdraw an account).
3.
Any one-time debit
transaction whether at the POS, on-line, or by telephone.
Effective
Date
January 19, 2010, with mandatory
compliance by July 1, 2010.
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