Fed Releases Regulation DD, E Clarifications

Credit Union Association of Rhode Island
June 10, 2010 | COMMENTS

The Federal Reserve recently clarified some aspects of its Regulation E, Electronic Fund Transfers, and Regulation DD, Truth in Savings that address overdraft services.

The Fed made slight alterations to Reg E, which requires consumers' affirmative consent (opt-in) before institutions could charge overdraft fees for ATM and one-time debit card transactions.

The Fed has clarified that institutions "cannot assess a fee for the payment of ATM and one-time debit card overdrafts" if consumers do not opt-in to their overdraft programs, "even if the institution has a policy and practice of declining ATM and one-time debit card transactions upon a reasonable belief that an account has insufficient funds."

"The final rule does not provide any exceptions for allowing overdraft fees for ATM and one-time debit card transactions to be imposed without consumer consent," the Fed added. According to the Fed, "adopting exceptions to the fee prohibition would undermine the consumer's ability to understand the institution's overdraft practices and to make an informed choice." This prohibition applies to all financial institutions, the Fed release said.

The Fed release also addressed opt-in confirmation, stating that institutions must provide their consumers or members with written documentation of their opt-in choice in written form. These disclosures may not be made orally, the Fed said.

Overall, the Fed said that its Regulation E final rule applies "solely to overdraft fees imposed in connection with ATM and one-time debit card transactions," not overdraft fees that are related to check, ACH, and recurring debit card transactions.

Addressing Reg DD, the Fed clarified that section 230.11(c) of that rule does not require institutions "to exclude from the consumer's balance funds that may be transferred from another account" under retail sweep programs. Consumers that take part in retail sweep programs "may reasonably expect to see a single balance combining the funds in the transaction subaccount and the savings subaccount when they request an account balance."

The Fed also amended the effective date of Section 230.11(a)(1)(i), which requires financial institutions to use the term "total overdraft fees" on their periodic statements, pushing it back to October 1. The remainder of the rule will come into effect on July 1. For the Fed releases in full, use the resource links Fed Reg DD clarifications and Fed Reg E clarifications.

Reprinted with permission from the Credit Union Association of Rhode Island.