[Federal Register Volume 75, Number 39 (Monday, March 1, 2010)]
[Proposed Rules]
[Pages 9120-9125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-3720]


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FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-1343]


Electronic Fund Transfers

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; request for public comment.

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SUMMARY: On November 17, 2009, the Board published final rules amending 
Regulation E, which implements the Electronic Fund Transfer Act, and 
the official staff commentary to the regulation. The final rule limited 
the ability of financial institutions to assess overdraft fees for 
paying automated teller machine (ATM) and one-time debit card 
transactions that overdraw a consumer's account, unless the consumer 
affirmatively consents, or opts in, to the institution's payment of 
overdrafts for those transactions. The Board proposes to amend 
Regulation E and the official staff commentary to clarify certain 
aspects of the final rule.

DATES: Comments must be received on or before March 31, 2010.

ADDRESSES: You may submit comments, identified by Docket No. R-1343, by 
any of the following methods:
    <bullet> Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#a8dacdcfdb86cbc7c5c5cdc6dcdbe8cecdcccddac9c4dacddbcddadecd86cfc7de"><span class="__cf_email__" data-cfemail="1b697e7c6835787476767e756f685b7d7e7f7e697a77697e687e696d7e357c746d">[email protected]</span></a>. Include the 
docket number in the subject line of the message.
    <bullet> Fax: (202) 452-3819 or (202) 452-3102.
    <bullet> Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in

[[Page 9121]]

paper form in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Dana E. Miller or Vivian W. Wong, 
Senior Attorneys, or Ky Tran-Trong, Counsel, Division of Consumer and 
Community Affairs, at (202) 452-3667 or (202) 452-2412, Board of 
Governors of the Federal Reserve System, 20th and C Streets, NW., 
Washington, DC 20551. For users of Telecommunications Device for the 
Deaf (TDD) only, contact (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

I. Background

    In November 2009, the Board adopted a final rule under Regulation 
E, which implements the Electronic Fund Transfer Act, limiting a 
financial institution's ability to assess fees for paying ATM and one-
time debit card transactions pursuant to the institution's 
discretionary overdraft service without the consumer's affirmative 
consent to such payment. The rule was published in the Federal Register 
on November 17, 2009 and has a mandatory compliance date of July 1, 
2010. See 74 FR 59033 (Regulation E final rule).
    Since publication of the Regulation E final rule, institutions have 
requested clarification of particular aspects of the rule and further 
guidance regarding compliance with the rule. In addition, certain 
technical corrections are necessary. Accordingly, the Board is 
proposing to amend certain provisions of Regulation E and the official 
staff commentary, as discussed in Section III of this SUPPLEMENTARY 
INFORMATION. Separately, the Board is also proposing elsewhere in 
today's Federal Register to amend Regulation DD to make certain 
clarifications and conforming amendments in light of particular 
provisions adopted in the Regulation E final rule.
    Although comment is requested on the proposed amendments, the Board 
emphasizes that the purpose of this rulemaking is to clarify and 
facilitate compliance with the final rule, not to reconsider the need 
for--or the extent of--the protections that the rule affords consumers. 
Thus, commenters are encouraged to limit their submissions accordingly.
    In addition, because the Board does not intend to extend the 
mandatory compliance date for the Regulation E final rule, any 
amendments must be adopted in final form promptly to give institutions 
sufficient time to implement the amended rule by July 1, 2010. In order 
to ensure that final clarifications can be provided as soon as 
possible, comments on this proposal must be submitted within 30 days 
from publication in the Federal Register.

II. Statutory Authority

    The Electronic Fund Transfer Act, 15 U.S.C. 1693 et seq., is 
implemented by the Board's Regulation E (12 CFR part 205). The purpose 
of the act and regulation is to provide a framework establishing the 
rights, liabilities, and responsibilities of participants in electronic 
fund transfer systems. An official staff commentary interprets the 
requirements of Regulation E (12 CFR part 205 (Supp. I)). In the 
SUPPLEMENTARY INFORMATION to the Regulation E final rule, the Board 
described its statutory authority and applied that authority to the 
requirements of the rule. For purposes of this rulemaking, the Board 
continues to rely on the description of its legal authority and 
analysis in the Regulation E final rule.

III. Section-by-Section Analysis

A. Section 205.17(a)--Definition

    Section 205.17(a) of the Regulation E final rule defines the term 
``overdraft service'' for purposes of Sec.  205.17. In particular, 
Sec.  205.17(a)(3) of the final rule explains that the term does not 
include payments of overdrafts pursuant to a line of credit or other 
credit exempt from Regulation Z pursuant to 12 CFR 226.3(d)--that is, 
credit secured by margin securities in brokerage accounts extended by 
Securities and Exchange Commission or Commodity Futures Trading 
Commission-registered broker-dealers. Comment 17(a)-1 provided further 
guidance on this exception. However, comment 17(a)-1 inadvertently 
stated that ``Sec.  205.17(a)(3) does not apply'' to margin credit 
transactions. As drafted, this would mean that the Sec.  205.17(a)(3) 
exception to the definition of ``overdraft service'' does not apply to 
margin credit. The proposed rule revises comment 17(a)-1 to eliminate 
the incorrect reference.

B. Section 205.17(b)--Opt-In Requirement

17(b)(1), 17(b)(4)--General Rule and Scope of Opt-In; Notice and Opt-In 
Requirements
    Section 205.17(b)(1) of the Regulation E final rule sets forth the 
general rule prohibiting an account-holding financial institution from 
assessing a fee or charge on a consumer's account held at the 
institution for paying an ATM or one-time debit card transaction 
pursuant to the institution's overdraft service, unless the institution 
satisfies several requirements, including providing consumers notice 
and obtaining the consumer's affirmative consent to the overdraft 
service. Section 205.17(b)(4) includes an exception from the notice and 
opt-in requirements of Sec.  205.17(b)(1) for institutions that have a 
policy and practice of declining ATM and one-time debit card 
transactions for which authorization is requested, when the institution 
has a reasonable belief that the consumer's account has insufficient 
funds at the time of the authorization request.
    Since the issuance of the final rule, questions have been raised 
whether the Sec.  205.17(b)(4) exception would permit institutions with 
such a policy and practice to assess an overdraft fee without the 
consumer's affirmative consent if an authorized transaction settles on 
insufficient funds. To clarify the scope of this provision, the Board 
is proposing to amend Sec. Sec.  205.17(b)(1), (b)(4), and the related 
commentary to explain that the fee prohibition of Sec.  205.17(b)(1) 
applies to all institutions, and that Sec.  205.17(b)(4) provides 
relief only from the requirements of Sec. Sec.  205.17(b)(1)(i)-(iv), 
including the notice and opt-in requirements, when no overdraft fees 
are assessed. The proposal thus clarifies the Board's intent that 
institutions cannot assess a fee for the payment of ATM and one-time 
debit card overdrafts if the consumer does not opt in, 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.
    An institution may not be able to avoid paying certain ATM or one-
time debit card transactions that overdraw a consumer's account, even 
if a consumer does not opt in. This can occur in limited circumstances. 
For example, an institution may authorize a debit card transaction on 
the reasonable belief that there are sufficient funds in the account, 
but intervening transactions, such as checks, may reduce the available 
funds in the checking account before the debit card transaction is 
presented for settlement, causing an overdraft. Or, a merchant may 
request authorization of an amount that is less than the amount later 
submitted for settlement, or not request authorization at all. The 
proposal clarifies that in such circumstances, an institution may not 
assess an overdraft fee for paying the debit card transaction into 
overdraft.
    In the January 2009 proposed rule, the Board proposed two limited 
exceptions to the fee prohibition under proposed Sec.  205.17(b)(5), 
including one which would have permitted an institution to assess 
overdraft fees, even if the

[[Page 9122]]

consumer had not opted in, if the institution had a reasonable belief 
that there were sufficient funds available in the consumer's account at 
the time it authorized an ATM or one-time debit card transaction. This 
exception did not extend to transactions for which the merchant did not 
request authorization.
    The Board declined to adopt the proposed exceptions to the fee 
prohibition under Sec.  205.17(b)(5). See 74 FR 59033, 59046 (Nov. 17, 
2009). As explained in the SUPPLEMENTARY INFORMATION to the Regulation 
E final rule, consumers who choose not to opt in may reasonably expect 
that an ATM or one-time debit card transaction will be declined if 
there are insufficient funds in their account, and that they will not 
be assessed overdraft fees. Adopting exceptions to the fee prohibition 
would undermine the consumer's ability to understand the institution's 
overdraft practices and make an informed choice. While the Board 
recognized that both financial institutions and consumers can have 
imperfect account balance information, the Board stated that financial 
institutions are in a better position to mitigate the information gap 
than consumers, such as through improvements to payment processing 
systems.
    By contrast, the exception adopted by the Board in Sec.  
205.17(b)(4) of the Regulation E final rule was intended to provide 
relief from the requirements of Sec. Sec.  205.17(b)(1)(i)-(iv), 
including but not limited to the requirement to provide an opt-in 
notice.\1\ The exception was not intended to permit institutions to 
assess fees for paying overdrafts absent consumer consent.
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    \1\ See 74 FR 59045 (noting that the proposed rule ``created an 
exception to the notice and opt-in requirement for institutions that 
have a policy and practice of declining to pay any ATM withdrawals 
or one-time debit card transactions for which authorization is 
requested, when the institution has a reasonable belief that the 
consumer's account does not have sufficient funds available to cover 
the transaction at the time of the authorization request'' (emphasis 
added)).
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    If Sec.  205.17(b)(4) were read to permit an exception from the fee 
prohibition, consumers with accounts at institutions that do not offer 
discretionary overdraft programs would be treated differently and 
provided fewer protections than consumers at institutions that do offer 
such programs, where an institution cannot prevent paying overdrafts 
resulting from ATM and one-time debit card transactions. Specifically, 
consumers with accounts at institutions that do not offer discretionary 
overdraft services could be assessed an overdraft fee without 
consenting to the payment of overdrafts. In contrast, consumers with 
accounts at institutions that do offer discretionary overdraft services 
and who did not opt in could not be assessed such fees. Such a result 
would not promote transparency or benefit consumers overall.
    Nonetheless, the Board understands that the Sec.  205.17(b)(4) 
exception could be read to permit institutions to assess overdraft 
fees, even if the consumer did not opt in. Accordingly, the Board is 
proposing to revise Sec.  205.17(b)(4) and the related commentary to 
clarify that the prohibition on assessing overdraft fees under Sec.  
205.17(b)(1) applies to all institutions, including those institutions 
that have a policy and practice of declining to authorize and pay any 
ATM or one-time debit card transactions when the institution has a 
reasonable belief at the time of the authorization request that the 
consumer does not have sufficient funds available to cover the 
transaction.\2\ The proposal adds new comment 17(b)(4)-1 to explain 
that, assuming a consumer has not opted in, if an institution with such 
a policy and practice authorizes an ATM or one-time debit card 
transaction on the reasonable belief that the consumer has sufficient 
funds in the account to cover the transaction, but at settlement the 
consumer has insufficient funds in the account (for instance, due to 
intervening transactions that post to the consumer's account), the 
institution may not assess an overdraft fee or charge for paying that 
transaction.\3\ However, institutions that have such a policy and 
practice are not required to comply with the requirements of Sec. Sec.  
205.17(b)(1)(i)-(iv), including the notice and opt-in requirements, if 
no fees are assessed.\4\
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    \2\ The Board is also proposing conforming revisions to Sec.  
205.17(b)(1).
    \3\ The proposal also revises comment 17(b)(4)-1, redesignated 
as comment 17(b)(4)-2, to address the application of the final rule 
when institutions follow different practices for different types of 
accounts. The proposed comment is also revised to eliminate text now 
reflected in proposed new comment 17(b)(4)-1.
    \4\ Some institutions have asked whether they may provide 
supplemental materials with the opt-in notices that describe their 
overdraft services. In footnote 39 to the Regulation E final rule, 
the Board explained that institutions may provide consumers other 
information about their overdraft services and other overdraft 
protection plans in a separate document outside of the opt-in 
notice. See 74 FR at 59047. However, institutions are reminded that, 
to the extent such additional materials promote the payment of 
overdrafts under Regulation DD, those materials may be subject to 
additional disclosure requirements under 12 CFR 230.11(b).
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17(b)(1)(iv)--Written Confirmation
    Section 205.17(b)(1)(iv) states that an institution must provide 
the consumer a written confirmation of his or her opt-in choice before 
charging overdraft fees. The written confirmation helps ensure that a 
consumer intended to opt into an institution's overdraft service by 
providing the consumer with a written record of that choice. Written 
confirmation is particularly appropriate to evidence the consumer's 
choice where a consumer opts in by telephone. Some institutions have 
asked whether the written confirmation required by Sec.  
205.17(b)(1)(iv) must be sent to the consumer before the institution 
may assess overdraft fees.
    The requirement to provide the confirmation before charging 
overdraft fees balances the interest in ensuring that consumers 
understand their choice, with the interest in providing consumers 
access to overdraft services expeditiously when requested. The 
requirement ensures that institutions send out the written confirmation 
promptly, which minimizes the time until consumers receive the 
confirmation, while recognizing that a consumer may not opt into an 
institution's overdraft service until the time the service is needed. 
Permitting fees to be assessed once the written confirmation has been 
sent permits institutions to pay the transaction with minimal delay to 
the consumer. Consumers who did not intend to opt in would be able to 
revoke the opt-in at any time.
    To provide additional clarity, the Board is proposing to revise 
comment 17(b)-7 to clarify that an institution may not assess any 
overdraft fees or charges on the consumer's account until the 
institution has sent the written confirmation. To address concerns 
about operational and litigation risks related to tracking compliance 
with the requirements for charging overdraft fees, the proposed comment 
also states that an institution complies with Sec.  205.17(b)(1)(iv) if 
it has adopted reasonable procedures designed to ensure that the 
written confirmation is sent before fees are assessed.
Comment 17(b)-8--Outstanding Negative Balance
    While many institutions charge the same per-item overdraft fee 
amount regardless of the amount of the consumer's negative balance, 
some institutions impose tiered fees based on the amount of the 
consumer's outstanding negative balance at the end of the day. For 
example, an institution may impose a $10 per-item overdraft fee if the 
consumer's account is overdrawn by less than $20, and a $25 per-item 
overdraft fee if the account is overdrawn by $20 or more. Questions 
have been raised as to how overdraft fees may be assessed in these 
circumstances.

[[Page 9123]]

    To the extent institutions impose tiered fees based on the amount 
of the consumer's outstanding negative balance, proposed new comment 
17(b)-8 clarifies that the fee or charge must be based on the amount of 
the negative balance attributable solely to check, ACH, or other 
transactions not subject to the fee prohibition. For instance, if a 
consumer's negative balance of $30 is attributable in part to a debit 
card transaction that initially overdrew the account, and in part to a 
$10 check that the bank subsequently paid, the institution should base 
any overdraft fees solely on an outstanding negative balance of $10.
Comment 17(b)-9--Daily or Sustained Overdraft, Negative Balance, or 
Similar Fees or Charges
    Some institutions assess daily or sustained overdraft, negative 
balance, or similar fees or charges when a consumer has overdrawn an 
account and has not repaid the amount overdrawn within a specified 
period of time. For example, today, if a consumer overdraws his or her 
account by $30, the institution may assess an overdraft fee of $20. If 
the resulting negative $50 balance is not paid back on the fifth day, 
the institution may assess an additional $20 sustained overdraft fee.
    In certain circumstances, an ATM or one-time debit card transaction 
may overdraw a consumer's account, even if the consumer has not opted 
in, as discussed above. The Board has been asked whether the 
prohibition in Sec.  205.17(b)(1) against assessing overdraft fees on 
ATM and one-time debit card transactions where the consumer has not 
opted in also extends to daily or sustained overdraft, negative 
balance, or similar fees or charges.
    In addition, a consumer who has not opted in may sometimes overdraw 
his or her account as a consequence of the payment both of ATM or one-
time debit card transactions and of check, ACH, or other transactions 
not subject to the fee prohibition in Sec.  205.17(b)(1). The Board has 
also been asked to clarify whether a daily or sustained overdraft, 
negative balance, or similar fee or charge may be assessed if an 
account is overdrawn based in part on an ATM or one-time debit card 
transaction and in part to a check, ACH or other type of transaction 
not subject to the final rule. The proposed clarifications would 
address both questions.
    Under the final rule, consumers who do not opt in may not be 
assessed any overdraft fees for paying ATM or one-time debit card 
transactions, including daily or sustained overdraft, negative balance, 
or similar fees or charges. As noted above, consumers who do not opt in 
may reasonably expect not to incur per-item overdraft fees for ATM and 
one-time debit card transactions, even if such transactions overdraw 
their account. Similarly, such consumers would reasonably expect not to 
incur daily or sustained overdraft, negative balance, or similar fees 
or charges due to these transactions. For clarity, proposed comment 
17(b)-9.i explains that if a consumer has not opted in, the prohibition 
on assessing overdraft fees and charges in Sec.  205.17(b)(1) applies 
to all overdraft fees or charges, including but not limited to daily or 
sustained overdraft, negative balance, or similar fees or charges, 
assessed for paying an ATM or one-time debit card transaction. Thus, 
where a consumer's negative balance is attributable solely to an ATM or 
one-time debit card transaction, the rule prohibits the assessment of 
such sustained overdraft fees if the consumer has not opted in. For 
example, if a consumer who has not opted in has a $50 account balance, 
and the institution nonetheless pays a $60 debit card transaction (and 
no other transactions occur), the institution may not charge any 
overdraft fees, including a daily or sustained overdraft, negative 
balance, or similar fee or charge, for paying that debit card 
transaction.
    The Regulation E final rule applies solely to ATM and one-time 
debit card transactions. That is, the final rule does not apply to 
overdraft fees imposed in connection with other types of transactions, 
including check, ACH or recurring debit card transactions. As a result, 
institutions may impose daily or sustained overdraft, negative balance, 
or similar fees or charges associated with paying overdrafts for such 
transactions. For example, where a consumer has a $50 account balance, 
and the institution pays a $60 check, the institution may charge a per-
item overdraft fee, as well as a daily or sustained, negative balance, 
or similar fee or charge if a negative balance remains outstanding.
    Similarly, proposed comment 17(b)-9.i clarifies that where the 
consumer's negative balance is attributable in part to a check, ACH or 
other transaction not subject to the fee prohibition of Sec.  
205.17(b)(1), an institution is not prohibited from assessing a daily 
or sustained overdraft, negative balance, or sustained fee, even if the 
negative balance is also attributable in part to an ATM or one-time 
debit card transaction. The Board believes this result is consistent 
with the general scope of the Regulation E final rule, which prohibits 
fees only with respect to ATM and one-time debit card transactions. For 
example, if a consumer has a $50 account balance, and the institution 
posts a one-time debit card transaction of $60 and a check transaction 
of $40 that same day, the institution may charge a per-item fee for the 
check overdraft (but cannot assess any overdraft fees for the debit 
card transaction because the consumer has not opted in). Likewise, 
assuming no other transactions occur or deposits are made to the 
account, because the consumer's negative balance is attributable in 
part to the $40 check, the institution may charge a sustained overdraft 
fee when permitted by the account agreement.
    The proposal also provides guidance on the date on which such a fee 
may be assessed. Specifically, proposed comment 17(b)-9.i states that 
the date is determined by the date on which the check, ACH, or other 
transaction is paid into overdraft. Because the rule does not cover 
checks, ACH, or other transactions, the Board believes institutions may 
charge per-item overdraft fees, or sustained or other similar fees. 
Nonetheless, the Board believes it is appropriate to base the date on 
which fees may be charged on the date that the transaction not subject 
to the rule is paid.
    Proposed comment 17(b)-9.ii includes three examples illustrating 
how fees may be applied when a negative balance is attributable in part 
to a check, ACH, or other transaction not subject to Sec.  
205.17(b)(1). The first example demonstrates the general application of 
the rule. The second example addresses the result when a consumer with 
an outstanding negative balance makes a deposit that diminishes the 
negative balance, but does not bring the account current. The third 
example demonstrates how to determine the date when fees may apply when 
the check, ACH or other transaction is paid on a different date than 
the ATM or one-time debit card transaction that overdraws the account.
    The examples are based on certain assumptions. Among them are that 
the institution posts ATM and debit card transactions before it posts 
other transactions, and that it allocates deposits to debits in the 
same order in which it posts debits. Thus, the examples assume that 
deposits made to the account are allocated first to debit card 
transactions, then to checks. The proposed rule does not, however, 
require transactions to be posted or deposits to be allocated in the 
manner set forth in the example. Institutions may post transactions or 
allocate deposits as permitted by applicable law.
    The Board recognizes that programming systems to conform to the

[[Page 9124]]

proposed rule may raise operational and cost concerns, and could be 
challenging to implement by July 1, 2010. Institutions that do not make 
the necessary systems changes could not assess daily or sustained, 
negative balance or similar overdraft fees or charges, even on checks 
and other transactions not subject to the opt-in requirement, after the 
final rule's mandatory compliance date of July 1, 2010.
17(b)(3)--Same Account Terms, Conditions, and Features
    Comment 17(b)(3)-2 provides guidance on limited-feature deposit 
account products in light of the requirement under Sec.  205.17(b)(3) 
to offer consumers the same account terms, conditions, and features 
regardless of their opt-in choice. This comment inadvertently included 
an incorrect cross-reference. The proposal revises the comment to omit 
the cross-reference.

IV. Regulatory Analysis

    Sections VII and VIII of the SUPPLEMENTARY INFORMATION to the 
Regulation E final rule set forth the Board's analyses under the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.) and the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3506; 5 CFR part 1320 Appendix A.1). 
See 74 FR 59050-59052. Because the proposed amendments are 
clarifications and would not, if adopted, alter the substance of the 
analyses and determinations accompanying the Regulation E final rule, 
the Board continues to rely on those analyses and determinations for 
purposes of this rulemaking.

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
revisions. New language is shown inside [rtrif]bold-type arrows[ltrif] 
while language that would be deleted is set off with [lsqbb]bold-type 
brackets[rsqbb].

List of Subjects in 12 CFR Part 205

    Consumer protection, Electronic fund transfers, Federal Reserve 
System, Reporting and recordkeeping requirements.

Authority and Issuance

    For the reasons discussed in the preamble, the Board proposes to 
amend 12 CFR part 205 and the Official Staff Commentary, as follows:

PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)

    1. The authority citation for part 205 continues to read as 
follows:

    Authority:  15 U.S.C. 1693b.
    2. Section 205.17 is amended by revising paragraphs (b)(1) 
introductory text and (b)(4) to read as follows:
* * * * *
    (b) Opt-in requirement. (1) General. Except as provided under 
paragraph[lsqbb]s (b)(4) and[rsqbb] (c) of this section, a financial 
institution holding a consumer's account shall not assess a fee or 
charge on a consumer's account for paying an ATM or one-time debit card 
transaction pursuant to the institution's overdraft service, unless the 
institution:
* * * * *
    (4) [lsqbb]Exception to[rsqbb][rtrif]Application to certain 
financial institutions;[ltrif] notice and opt-in requirements. 
[lsqbb]The requirements of Sec.  205.17(b)(1) do not apply to an 
institution that has[rsqbb][rtrif]The prohibition on assessing 
overdraft fees under Sec.  205.17(b)(1) applies to all institutions, 
including an institution that has[ltrif] a policy and practice of 
declining to authorize and pay any ATM or one-time debit card 
transactions when the institution has a reasonable belief at the time 
of the authorization request that the consumer does not have sufficient 
funds available to cover the transaction.[rtrif] However, such an 
institution is not required to comply with the requirements of 
Sec. Sec.  205.17(b)(1)(i)-(iv), including the notice and opt-in 
requirements, if it does not assess overdraft fees.[ltrif] Financial 
institutions may [rtrif] rely on[ltrif][lsqbb]apply[rsqbb] this 
[rtrif]provision[ltrif][lsqbb]exception[rsqbb] on an account[rtrif] 
type[ltrif]-by-account[rtrif] type[ltrif] basis.
* * * * *
    3. In Supplement I to part 205,
    a. In Section 205.17(a), paragraph 1. is revised.
    b. In Section 205.17(b), paragraph 7. is revised.
    c. In Section 205.17(b), new paragraphs 8. and 9. are added.
    d. In Section 205.17(b), paragraph 17(b)(3)-2. is revised.
    e. In Section 205.17(b), paragraph 17(b)(4)-1. is redesignated as 
17(b)(4)-2. and revised, and new paragraph 17(b)(4)-1. is added.

Supplement I to Part 205--Official Staff Interpretations

* * * * *
    Section 205.17(a)--Requirements for Overdraft Services
    17(a) Definition
    1. Exempt securities- and commodities-related lines of credit. 
[lsqbb]Section 205.17(a)(3)[rsqbb][rtrif]The definition of ``overdraft 
service''[ltrif] does not [lsqbb]apply to[rsqbb][rtrif]include the 
payment of[ltrif] transactions in a securities or commodities account 
pursuant to which credit is extended by a broker-dealer registered with 
the Securities and Exchange Commission or the Commodity Futures Trading 
Commission.
    17(b) Opt-In Requirement
* * * * *
    7. Written confirmation. A financial institution may comply with 
the requirement in Sec.  205.17(b)(1)(iv) by providing to the consumer 
a copy of the consumer's completed opt-in form or by sending a letter 
or notice to the consumer acknowledging that the consumer has elected 
to opt into the institution's service. The written confirmation notice 
must include a statement informing the consumer of his or her right to 
revoke the opt-in at any time. To the extent the institution complies 
with the written confirmation requirement by providing a copy of the 
completed opt-in form, the institution may include the statement about 
revocation on the initial opt-in notice.[rtrif] An institution may not 
assess any overdraft fees or charges on the consumer's account until 
the institution has sent the written confirmation. An institution 
complies with this requirement if it has adopted reasonable procedures 
designed to ensure that the written confirmation is sent before fees 
are charged.
    8. Outstanding Negative Balance. For a consumer who has not opted 
in, to the extent that a fee or charge is based on the amount of the 
outstanding negative balance, the fee or charge must be based on the 
amount of the negative balance attributable solely to check, ACH, or 
other transactions not subject to the fee prohibition. For instance, if 
a consumer's negative balance of $30 is attributable in part to a debit 
card transaction that overdrew the account, and in part to a $10 check 
subsequently paid by the institution, the institution should base any 
overdraft fees solely on an outstanding negative balance of $10.
    9. Daily or Sustained Overdraft, Negative Balance, or Similar Fee 
or Charge
    i. Daily or sustained overdraft, negative balance, or similar fees 
or charges. If a consumer has not opted into the institution's 
overdraft service, the prohibition on assessing overdraft fees or 
charges in Sec.  205.17(b)(1) applies to all overdraft fees or charges, 
including but not limited to daily or sustained overdraft, negative 
balance, or similar fees or charges. Thus, where a consumer's negative 
balance is solely attributable to an ATM or one-time debit card 
transaction, the rule prohibits the assessment of such fees unless the 
consumer has opted in. However, the

[[Page 9125]]

rule does not prohibit an institution from assessing daily or sustained 
overdraft, negative balance, or similar fees or charges if a negative 
balance is attributable in whole or in part to a check, ACH, or other 
transaction not subject to the fee prohibition of Sec.  205.17(b)(1). 
In such case, the date on which such a fee may be assessed is 
determined by the date on which the check, ACH, or other transaction is 
paid into overdraft.
    ii. Examples. The following examples illustrate the application of 
the rule. For each example, assume the following: (a) The debit card 
transactions are paid into overdraft, even though the consumer has not 
opted in, because the amount of the transaction at settlement exceeded 
the amount authorized or the amount was not submitted for 
authorization; (b) under the terms of the account agreement, the 
institution may charge a one-time sustained overdraft fee of $20 on the 
fifth consecutive day the consumer's account remains overdrawn; (c) the 
institution posts ATM and debit card transactions before other 
transactions; and (d) the allocates deposits to account debits in the 
same order in which it posts debits.
    a. Assume that a consumer has a $50 account balance on March 1. 
That day, the institution posts a one-time debit card transaction of 
$60 and a check transaction of $40. The institution charges an 
overdraft fee of $20 for the check overdraft but cannot assess any 
overdraft fees for the debit card transaction because the consumer has 
not opted in. At the end of the day, the consumer has an account 
balance of negative $70. The consumer does not make any deposits to the 
account, and no other transactions occur between March 2 and March 6. 
Because the consumer's negative balance is attributable in part to the 
$40 check (and associated overdraft fee), the institution may charge a 
sustained overdraft fee on March 6.
    b. Same facts as in a., except that on March 3, the consumer 
deposits $40 in the account. The institution allocates the $40 to the 
debit card transaction first, consistent with its posting order policy. 
At the end of the day on March 3, the consumer has an account balance 
of negative $30, which is attributable to the check transaction (and 
associated overdraft fee). The consumer does not make any further 
deposits to the account, and no other transactions occur between March 
4 and March 6. Because the remaining negative balance is attributable 
to the March 1 check transaction, the institution may charge a 
sustained overdraft fee on March 6.
    c. Assume that a consumer has a $50 account balance on March 1. 
That day, the institution posts a one-time debit card transaction of 
$60. At the end of the day on March 1, the consumer has an account 
balance of negative $10. Because the consumer did not opt in, the 
institution may not assess an overdraft fee for the debit card 
transaction. On March 3, the institution pays a check transaction of 
$100 and charges an overdraft fee of $20. At the end of the day on 
March 3, the consumer has an account balance of negative $130. The 
consumer does not make any further deposits to the account, and no 
other transactions occur between March 4 and March 8. Because the 
consumer's negative balance is attributable in part to the check, the 
institution may assess a $20 sustained overdraft fee. However, because 
the check was paid on March 3, the institution must use March 3 as the 
start date for determining the date on which the sustained overdraft 
fee may be assessed under the terms of the account agreement. Thus, the 
institution may charge a $20 sustained overdraft fee on March 8.[ltrif]
* * * * *
    Paragraph 17(b)(3)--Same Account Terms, Conditions, and Features
* * * * *
    2. Limited-feature bank accounts. Section 205.17(b)(3) does not 
prohibit institutions from offering deposit account products with 
limited features, provided that a consumer is not required to open such 
an account because the consumer did not opt in [lsqbb](see comment 
17(b)(3)-2)[rsqbb]. For example, Sec.  205.17(b)(3) does not prohibit 
an institution from offering a checking account designed to comply with 
state basic banking laws, or designed for consumers who are not 
eligible for a checking account because of their credit or checking 
account history, which may include features limiting the payment of 
overdrafts. However, a consumer who applies, and is otherwise eligible, 
for a full-service or other particular deposit account product may not 
be provided instead with the account with more limited features because 
the consumer has declined to opt in.
* * * * *
    Paragraph 17(b)(4)--[lsqbb]Exception to[rsqbb][rtrif]Application to 
certain financial institutions;[ltrif] notice and opt-in requirements.
    [rtrif]1. Application of fee prohibition. Although the fee 
prohibition in Sec.  205.17(b)(1) applies to all institutions, an 
institution that has a policy and practice of declining to authorize 
and pay ATM or one-time debit card transactions when it has a 
reasonable belief that the consumer does not have sufficient funds to 
cover the transaction is not required to provide an opt-in notice or 
comply with the other requirements of Sec. Sec.  205.17(b)(1)(i)-(iv). 
Nonetheless, the prohibition against assessing overdraft fees or 
charges in Sec.  205.17(b)(1) still applies. For example, if an 
institution with such a policy and practice authorizes an ATM or one-
time debit card transaction on the reasonable belief that the consumer 
has sufficient funds in the account to cover the transaction, but at 
settlement, the consumer has insufficient funds in the account (for 
example, due to intervening transactions that post to the consumer's 
account), the institution may not assess an overdraft fee or charge for 
paying that transaction, and it is not required to provide an opt-in 
notice.
    2[ltrif][lsqbb]1[rsqbb]. Account[rtrif]type[ltrif]-by-account 
[rtrif]type application[ltrif][lsqbb]exception[rsqbb]. [lsqbb]If a 
financial institution has a policy and practice of declining to 
authorize and pay any ATM or one-time debit card transactions with 
respect to one type of deposit account offered by the institution, when 
the institution has a reasonable belief at the time of the 
authorization request that the consumer does not have sufficient funds 
available to cover the transaction, that account is not subject to 
Sec.  205.17(b)(1), even if other accounts that the institution offers 
are subject to the rule. For example, if the institution[rsqbb] 
[rtrif]If a financial institution [ltrif]offers three types of checking 
accounts, and the institution has [lsqbb]such[rsqbb] a policy and 
practice [rtrif]of declining to authorize and pay any ATM or one-time 
debit card transactions when it has a reasonable belief that the 
consumer does not have sufficient funds to cover the transaction 
[ltrif]with respect to only one of the three types of accounts, that 
[lsqbb]one[rsqbb] type of account is not subject to the notice 
[rtrif]and opt-in [ltrif]requirement[rtrif]s, assuming no fees are 
charged[ltrif]. However, the other two types of accounts offered by the 
institution remain subject to the notice [rtrif]and opt-in 
[ltrif]requirement[rtrif]s[ltrif].
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, February 18, 2010.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2010-3720 Filed 2-26-10; 8:45 am]
BILLING CODE 6210-01-P


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