The Federal Reserve has proposed amendments to the final rule and official staff commentary governing overdraft services adopted in November 2009 to clarify certain aspects of the final rule and to make technical corrections. The proposed changes announced on February 19 would clarify that the prohibition under the Federal Reserve’s Regulation E (Electronic Fund Transfers) against assessing overdraft fees without a consumer’s affirmative consent applies to all institutions, including those with a policy and practice of declining automated teller machine and one-time debit card transactions when an account has insufficient funds. Effective July 1, 2010, Regulation E will generally prohibit an institution from assessing any fee or charge for paying an ATM or one-time debit card transaction on an overdrawn account unless the institution satisfies certain requirements, including providing notice and obtaining the consumer’s affirmative consent to the overdraft service. The final rule provides an exception from the notice and opt-in requirements for institutions that have a policy and practice of declining ATM and one-time debit card transactions when the institution has a reasonable belief that the consumer’s account has insufficient funds at the time. The proposed amendment to the final rule and the related commentary would explain that the exception provides relief only from the notice and opt-in requirements when no overdraft fees are assessed.
Nutter Notes: The proposed amendments would also change the Federal Reserve’s Regulation DD (Truth in Savings) and its official staff commentary to clarify the application of the rule to retail sweep programs and to clarify certain terminology for overdraft fee disclosures. Regulation DD requires institutions that disclose balance information to a consumer through an automated system to disclose a balance that does not include additional amounts that may be provided under an overdraft protection service, including a program involving an automatic transfer of funds from another account of the consumer. A retail sweep program involves two legally distinct subaccounts, a transaction subaccount and a savings subaccount, which together make up the consumer’s sweep account. Notwithstanding the establishment of two legally distinct subaccounts, the sweep account statement typically shows a single account balance, and a single account on which all transactions into and out of the sweep account are reflected. The proposed amendment to the official commentary would clarify that Regulation DD does not require an institution to exclude from the consumer’s available balance funds that may be transferred from a savings subaccount pursuant to a retail sweep program when disclosing a transaction account balance under such a program. Comments on the proposed amendments will be due 30 days after publication in the Federal Register, which is expected shortly.