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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.

SUMMARY: The Board is proposing to amend Regulation E, which implements the 

Electronic Fund Transfer Act, and the official staff commentary to the regulation, which

interprets the requirements of Regulation E. The proposal would limit the ability of a 

financial institution to assess an overdraft fee for paying automated teller machine (ATM)

withdrawals and one-time debit card transactions that overdraw a consumer’s account,

unless the consumer is given notice of the right to opt out of the payment of such 

overdrafts, and the consumer does not opt out. As an alternative approach, the proposal 

would limit the ability of a financial institution to assess an overdraft fee for paying ATM 

withdrawals 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 these transactions. In addition, the proposal would prohibit financial 

institutions from assessing an overdraft fee if the overdraft would not have occurred but 

for a debit hold placed on funds in the consumer’s account that exceeds the actual amount 

of the transaction.

DATES: Comments must be received on or before [INSERT DATE 60 DAYS AFTER 

THE DATE OF PUBLICATION IN THE FEDERAL REGISTER].
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ADDRESSES: You may submit comments, identified by Docket No. R-1343, by any of 

the following methods:

• Agency Web Site: http://www.federalreserve.gov. Follow the instructions for 

submitting comments at 

http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions 

for submitting comments.

• E-mail: regs.comments@federalreserve.gov. Include the docket number in the 

subject line of the message.

• FAX: (202) 452-3819 or (202) 452-3102.

• Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve 

System, 20th Street and Constitution Avenue, N.W., 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 paper form in Room MP-500 of the Board’s Martin Building (20th 

and C Streets, N.W.) between 9:00 a.m. and 5:00 p.m. on weekdays. 

FOR FURTHER INFORMATION CONTACT: Ky Tran-Trong, Counsel, Dana 

Miller, Attorney, or Vivian Wong, Senior Attorney, Division of Consumer and 

Community Affairs, Board of Governors of the Federal Reserve System, Washington, 

D.C. 20551, at (202) 452-2412 or (202) 452-3667. For users of Telecommunications 

Device for the Deaf (TDD) only, contact (202) 263-4869. 
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SUPPLEMENTARY INFORMATION: 

I. Statutory Background

The Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.) (EFTA or Act), 

enacted in 1978, provides a basic framework establishing the rights, liabilities, and 

responsibilities of participants in electronic fund transfer (EFT) systems. The EFTA is 

implemented by the Board’s Regulation E (12 CFR part 205). Examples of the types of 

transactions covered by the Act and regulation include transfers initiated through an 

ATM, point-of-sale (POS) terminal, automated clearinghouse (ACH), telephone billpayment plan, or remote banking service. The Act and regulation provide for the 

disclosure of terms and conditions of an EFT service; documentation of EFTs by means 

of terminal receipts and periodic account activity statements; limitations on consumer 

liability for unauthorized transfers; procedures for error resolution; and certain rights 

related to preauthorized EFTs. Further, the Act and regulation restrict the unsolicited 

issuance of ATM cards and other access devices. 

The official staff commentary (12 CFR part 205 (Supp. I)) interprets the 

requirements of Regulation E to facilitate compliance and provides protection from 

liability under Sections 915 and 916 of the EFTA for financial institutions and other 

persons subject to the Act. 15 U.S.C. 1693m(d)(1). The commentary is updated 

periodically to address significant questions that arise. 

II. Background

Historically, if a consumer sought to engage in a transaction that would overdraw 

his or her deposit account, the consumer’s financial institution used its discretion on an 

Overview of overdraft services
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ad hoc basis to determine whether to pay the overdraft. If an overdraft was paid, the 

institution usually imposed a fee on the consumer’s account. In recent years, many 

institutions have largely automated the overdraft payment process. Automation is used to 

apply specific criteria for determining whether to honor overdrafts and to set limits on the 

amount of coverage provided. 

Overdraft services vary among institutions but often share certain common 

characteristics. In most cases, consumers that meet a depository institution’s criteria are 

automatically enrolled in overdraft services. While institutions generally do not 

underwrite on an individual account basis when enrolling the consumer in an overdraft

service, most institutions will review individual accounts periodically to determine 

whether the consumer continues to qualify for the service and the amount of overdraft 

coverage provided. Most institutions disclose that the payment of overdrafts is 

discretionary, and that the institution has no legal obligation to pay any overdraft.1

transactions.

 

In the past, institutions generally provided overdraft coverage only for check 

transactions. In recent years, however, the service has been extended to cover overdrafts 

resulting from non-check transactions, including ATM withdrawals, debit card 

transactions at POS, online transactions, preauthorized transfers, and ACH

2

 1

 These transactions are generally not covered under Regulation Z (Truth in Lending) if there is no written 

agreement between the consumer and institution to pay an overdraft and impose a fee. See 12 

CFR 226.4(c)(3). 

 

2

 According to the FDIC’s Study of Bank Overdraft Programs, nearly 70 percent of banks surveyed 

implemented their automated overdraft program after 2001. In addition, 81 percent of banks surveyed that 

operate automated programs allow overdrafts to be paid at ATMs and POS debit card terminals. See FDIC 

Study of Bank Overdraft Programs 8, 10 (November 2008) (hereinafter, FDIC Study) (available at: 

http://www.fdic.gov/bank/analytical/overdraft/FDIC138_Report_FinalTOC.pdf). See also Overdraft 

Protection: Fair Practices for Consumers: Hearing before the House Subcomm. on Financial Institutions 

and Consumer Credit, House Comm. on Financial Services, 110th Cong., at 72 (2007) (hereinafter, 

Overdraft Protection Hearing) (available at 
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A flat fee is charged each time an overdraft is paid, regardless of the amount of 

the overdraft. Institutions commonly charge the same amount for paying the overdraft as 

they would if they returned the item unpaid. Some institutions may also impose a fee for 

each day the account remains overdrawn.

According to a recent report from the Government Accountability Office (GAO), 

the average cost of overdraft and insufficient funds fees was just over $26 per item in 

2007.

3

 The GAO also reported that large institutions on average charged between $4 and 

$5 more for overdraft and insufficient fund fees compared to smaller institutions.4 In 

addition, the GAO noted that a small number of institutions (primarily large banks) apply 

tiered fees to overdrafts, charging higher fees as the number of overdrafts in the account 

increases.5

From the industry’s perspective, automated overdraft services enable institutions 

to reduce the cost of manually reviewing individual items, and also ensure that all 

Industry and consumer group perspectives

 

http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr0705072.shtml) (stating that as recently as 

2004, 80 percent of banks still declined ATM and debit card transactions without charging a fee when 

account holders did not have sufficient funds in their account).

3 See Bank Fees: Federal Banking Regulators Could Better Ensure That Consumers Have Required

Disclosure Documents Prior to Opening Checking or Savings Accounts, GAO Report 08-281, at 14 

(January 2008) (hereinafter, GAO Bank Fees Report). See also Bankrate 2008 Checking Account Study, 

posted October 27, 2008 (available at: http://www.bankrate.com/brm/news/chk/chkstudy/20081027-

bounced-check-fees-a1.asp?caret=2) (reporting an average overdraft fee of approximately $29 per item).

4

 See GAO Bank Fees Report at 16. A recent survey suggests that the cost difference in overdraft fees 

between small and large institutions may be larger than reported by the GAO, however. See also

“Disparities in Checking Overdraft Fees by Geography and Size,” Press release, Moeb$ Services (October 

25, 2008) (Moeb$ 2008 Pricing Survey Press Release) (available at: 

http://moebs.com/AboutUs/Pressreleases/tabid/58/ctl/Details/mid/380/ItemID/29/Default.aspx) (reporting 

that banks with more than $20 billion in assets charged on average $33.43 per overdrawn check compared 

to $24.28 per overdrawn check for banks and credit unions with less than $100 million in assets).

5

 According to the GAO, of the financial institutions that applied up to three tiers of fees in 2006, the 

average overdraft fees were $26.74, $32.53 and $34.74, respectively. See GAO Bank Fees Report at 14. 
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consumers are treated consistently with respect to overdraft payment decisions. Industry 

representatives observe that whether an overdrawn check is paid or returned, the 

consumer will be charged the same amount by the consumer’s financial institution. 

Industry representatives also assert, however, that when an overdrawn check is paid, 

consumers receive significant benefits because they can avoid additional fees that would 

be charged by the merchant if the item was returned unpaid, and other adverse 

consequences, such as the furnishing of negative information to a consumer reporting 

agency.6

In contrast, consumer groups assert that overdraft transactions are a high-cost 

form of lending that trap low- and moderate-income consumers into paying high fees. 

Consumer groups also state that consumers are often enrolled in overdraft services 

automatically without their request or consent. In addition, consumer groups believe that 

by honoring overdrafts, institutions encourage consumer reliance on the service and 

therefore, consumers incur greater costs in the long run than they would if the 

transactions were not honored. Consumer groups note, for example, that historically, 

institutions declined a consumer’s request for an ATM withdrawal or debit card

transaction if the consumer did not have sufficient funds in his or her account.

7

 Today, 

however, institutions are more likely to cover those overdrafts and assess a fee on the 

consumer’s account for doing so.

8

 6

 See, e.g., Overdraft Protection Hearing at 44.

7 See, e.g., Overdraft Protection Hearing at 72 (stating that as recently as 2004, 80 percent of banks still 

declined ATM and debit card transactions without charging a fee when account holders did not have 

sufficient funds in their account).

8

 See, e.g., FDIC Study at 10 (reporting that 81 percent of banks surveyed that operate automated programs 

allow overdrafts to be paid at ATMs and POS debit card terminals). 

 According to consumer groups, this practice can be 
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particularly costly in connection with debit card overdrafts because the dollar amount of 

the fee is likely to considerably exceed the dollar amount of the overdraft.9

 In addition, 

multiple fees may be assessed in a single day for a series of small-dollar transactions. 

Because of these costs, consumer groups assert that most consumers would prefer that 

their bank decline debit card transactions if the transactions would overdraw their 

account.

10

In February 2005, the Board, Federal Deposit Insurance Commission (FDIC), 

Office of the Comptroller of the Currency (OCC), and National Credit Union 

Administration (NCUA) (collectively, the federal banking agencies) issued guidance on 

overdraft protection programs in response to the increased availability and customer use 

of overdraft protection services (Joint Guidance).

Previous agency actions

11 The Joint Guidance addresses three 

primary areas – safety and soundness considerations, legal risks, and best practices. The 

Office of Thrift Supervision (OTS) issued separate guidance (OTS Guidance) that 

focuses on safety and soundness considerations and best practices.12

 9 See, e.g., Overdraft Protection Hearing at 72. 

10 See Leslie Parrish, Consumers Want Informed Choice on Overdraft Fees and Banking Options, Ctr. for 

Responsible Lending (April 16, 2008) (reporting the results of a survey indicating that 80 percent of 

consumers would prefer that a debit card transaction be declined if a $5 purchase would result in an 

overdraft and an accompanying $34 fee) (available at: http://www.responsiblelending.org/pdfs/finalcaravan-survey-4-16-08.pdf). But see 80 Percent of Consumers Have Not Paid Overdraft Fees in Past 

Year, Says ABA Survey, Press Release, American Bankers Association (August 30, 2007) (reporting 

survey results indicating that of those consumers who had paid an overdraft fee in the past 12 months, 88 

percent had wanted the payment covered) (available at: 

http://www.aba.com/Press+Room/083007ABASurvey.htm). 

11 See Interagency Guidance on Overdraft Protection Programs, 70 FR 9127, Feb. 24, 2005.

12 See OTS Guidance on Overdraft Protection Programs, 70 FR 8428, Feb. 18, 2005.

 The best practices 

described in the Joint Guidance and the OTS Guidance address the marketing and 
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communications that accompany the offering of overdraft services, as well as the 

disclosure and operation of program features, including the provision of consumer choice 

to opt out of the overdraft service.13

In May 2005, the Board revised Regulation DD and the staff commentary 

pursuant to its authority under the Truth in Savings Act (TISA) to address concerns about 

institutions’ disclosure of overdraft fees generally, and the advertisement of overdraft 

services.

14 The goal of the Regulation DD revisions was to improve the uniformity and 

adequacy of disclosures provided to consumers about overdraft and returned-item fees to 

assist consumers in better understanding the costs associated with the payment of 

overdrafts. In addition, the final rule addressed some of the Board’s concerns about 

institutions’ marketing practices with respect to overdraft services.

In May 2008, the Board, along with the OTS and the NCUA (collectively, the 

Agencies), proposed to exercise their authority under the Federal Trade Commission Act 

(FTC Act) to prohibit institutions from assessing any fees on a consumer’s account in 

connection with an overdraft service, unless the consumer is given notice and the right to 

opt out of the institution’s overdraft service, and the consumer does not opt out. 73 FR

28904, May 19, 2008. The proposed opt-out right would have applied to overdrafts 

resulting from all methods of payment, including checks, ACH transactions, ATM 

withdrawals, recurring payments, and POS debit card transactions. The proposal also 

May 2008 FTC Act and Regulation DD Proposals

 13 The federal banking agencies have also published a consumer brochure on overdraft services. The

brochure, entitled “Protecting Yourself from Overdraft and Bounced-Check Fees,” can be found at: 

http://www.federalreserve.gov/pubs/bounce/default.htm.

14 70 FR 29582, May 24, 2005. A substantively similar rule applying to credit unions was issued separately 

by the NCUA. 71 FR 24568, Apr. 26, 2006. 
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would have required institutions to provide consumers with the option of opting out only 

of the payment of overdrafts for ATM withdrawals and debit card transactions at POS. In 

addition, the proposal would have prohibited institutions from assessing overdraft fees 

where the overdraft would not have occurred but for a debit hold placed on funds in the 

consumer’s account in excess of the actual transaction amount.

Concurrent with the issuance of the May 2008 FTC Act Proposal, the Board

separately issued a proposal under Regulation DD (Truth in Savings), which set forth 

proposed form, content, and timing requirements for providing the opt-out notice. 73 FR

28730, May 19, 2008. To facilitate compliance, the Regulation DD proposal contained a 

model form that institutions could use to satisfy the opt-out notice requirement. 

Collectively, the two proposals on overdraft services were intended to ensure that 

consumers understand how overdraft services operate generally and have the opportunity 

to avoid the associated costs where such services do not meet their needs. 

In addition to the proposed requirements regarding the form and content of the 

opt-out notice, the Regulation DD proposal set forth proposed revisions that would 

require all institutions to provide aggregate totals for overdraft fees and for returned item 

fees for the statement period and the year-to-date. Currently, only institutions that 

promote the payment of overdrafts are subject to this requirement. The Regulation DD 

proposal also addressed balance disclosures provided to consumers through automated 

systems, such as ATMs and online banking services. These provisions are adopted in 

final form under Regulation DD elsewhere in today’s Federal Register.
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Overview of comments received

Industry commenters also asserted that consumers may not fully understand the 

implications of opting out, and that those who elect to do so might unintentionally incur 

significant costs. In this regard, industry commenters and the OCC stated that if the optout right applied to check transactions, more checks would be returned unpaid. Industry 

The Agencies received approximately 1,500 comment letters on the proposed optout right for overdraft services under the May 2008 FTC Act Proposal. Consumer 

groups, members of Congress, the FDIC, and individual consumers supported the 

Agencies’ proposal, but urged the Agencies to require institutions to obtain a consumer’s 

affirmative consent (that is, an opt-in) before any fees could be charged for paying an 

overdraft. Some of these commenters also argued that overdraft services provide 

extensions of credit that should be subject to the Truth in Lending Act (TILA) so that 

consumers would be better able to compare the cost of overdraft services to the cost of 

other credit alternatives. 

In contrast, the majority of industry commenters opposed the proposed rule. 

Industry commenters asserted that consumers derive substantial benefit from overdraft 

services, particularly in connection with check transactions. While institutions generally 

assess the same fee whether a check is paid or returned, industry commenters observed 

that the payment of overdrafts for checks enables consumers to avoid other adverse 

consequences, such as merchant fees, the furnishing of negative information for credit 

reports, and violations of bad check laws. Some industry commenters urged the Board to 

instead use other regulatory authority, such as Regulations DD or E, to address concerns 

about overdraft services.
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commenters and the OCC also noted a potential unintended consequence of the proposal 

could be that institutions would lengthen their availability schedules to the extent 

permitted by the Board’s Regulation CC, 12 CFR part 229, to ensure that there are 

sufficient funds in the payor’s account to cover a deposited check. As a result, they 

argued, consumers may experience a longer waiting period before gaining access to 

deposited funds than currently is the case today. 

With respect to implementing the proposed opt-out requirement, industry 

commenters raised a number of operational issues. These commenters were most

concerned about the feasibility of limiting the opt-out right only to overdrafts paid in 

connection with ATM withdrawals and POS debit card transactions. Some industry 

commenters, however, argued that if the Agencies deemed it necessary to create a 

consumer opt-out right, it should be limited to ATM withdrawals and POS debit card 

transactions. These commenters noted that the majority of complaints about overdraft 

services arise in connection with debit card transactions in which the amount of the 

overdraft fee is substantially higher than the amount of the overdraft. Industry 

commenters also questioned the merits of requiring institutions to provide an opt-out 

notice following the assessment of an overdraft fee in light of the costs of printing and 

mailing additional opt-out notices. 

With respect to the debit hold provision, individual consumers and consumer 

groups generally supported the Agencies’ proposal. Industry commenters, in contrast,

expressed concern about the operational burdens associated with the proposal because it 

could require institutions to retroactively monitor, and adjust, overdraft fees that have 

been assessed to a consumer’s account. Industry commenters also urged the Agencies to 
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instead adopt a disclosure-based rule applying to merchants that are responsible for 

placing the hold.

The Board also received over 600 comments in response to the Regulation DD 

proposal regarding the timing, format and content of the opt-out notice. Most of the

comments came from individual consumers, who supported the proposed rule. The 

remaining comments came from financial institutions, industry trade associations, 

consumer groups, members of Congress, other federal banking agencies, state and local 

governments, and others. 

Consumer groups supported the proposed content and model form for notifying 

consumers of their right to opt out of an overdraft service, but urged the Board to enhance 

the model form in various ways, including making the opt-out notice more prominent. 

Several industry commenters argued that the proposed model form was unduly biased 

towards encouraging consumers to opt out, and did not sufficiently explain that the 

payment of overdrafts was discretionary. Some industry commenters also urged the 

Board to eliminate the requirement to provide notice of the opt-out right following the 

assessment of an overdraft fee, stating that an initial notice was sufficient to apprise 

consumers of that right.

In addition to reviewing the comments received on the two proposals, the Board 

worked with a testing consultant, Macro International, Inc. (Macro), to revise the 

proposed model opt-out notice and conduct consumer testing of the revised notice. Two 

rounds of one-on-one interviews with a diverse group of consumers were completed in 

the fall of 2008. In general, after reviewing the model disclosures, test participants 

Consumer testing
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generally understood the concept of overdraft coverage, and that they would be charged 

fees if their institution paid their overdrafts. Participants also appeared to understand that 

if they opted out of overdraft coverage, this meant their checks would not be paid and 

they could be charged fees by both their institution and by the merchant. 

During the first round of testing, Macro tested an opt-out form that allowed 

consumers to opt out of the payment of overdrafts for all transaction types, including 

checks and recurring debits. In the second round of testing, Macro tested an opt-out form 

that limited the opt-out right to ATM withdrawals and one-time debit card transactions 

made at POS and online. The majority of participants during both rounds indicated that 

they likely would not opt out if the opt-out also applied to checks. However, when asked 

if they would opt out if the choice was limited to opting out of overdrafts in connection 

with ATM withdrawals and one-time debit card purchases, half of the participants 

indicated that they would consider doing so.15 

III. Summary of Proposal

The Board is proposing amendments to Regulation E and the staff commentary to 

assist consumers in understanding how overdraft services provided by their institutions

operate and to ensure that consumers have the opportunity to limit the overdraft costs 

associated with ATM withdrawals and one-time debit card transactions where such 

services do not meet their needs. The Board is proposing two alternative approaches in 

proposed § 205.17 of Regulation E. In addition, as stated elsewhere in today’s Federal 

Register, the Board is not taking action on the May 2008 FTC Act (Regulation AA) and 

Regulation DD Proposals regarding consumers’ right to opt out of overdraft services.

Overdrafts

 15 See Review and Testing of Overdraft Notices, Macro International, December 8, 2008. 
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Under the first approach, institutions would be required to provide consumers 

with notice of the right to opt out of the institution’s overdraft service for ATM 

withdrawals and one-time debit card transactions. The notice must be provided to the 

consumer before the institution may assess any fees or charges to a consumer’s account

for paying such overdrafts. Under this approach, the opt-out notice would generally be 

given at account opening (or any time before any overdraft fees are assessed) and 

subsequently for each periodic statement cycle in which the institution assesses a fee or 

charge to the consumer’s account for paying an overdraft. 

Under the second approach, institutions would be required to provide consumers 

with notice of the right to opt in, or affirmatively consent, to the institution’s overdraft 

service for ATM withdrawals and one-time debit card transactions. The notice must be 

provided, and the consumer’s affirmative consent obtained, before the institution could 

assess a fee or charge on the consumer’s account for paying such overdrafts. Under this

approach, additional notices following the assessment of a fee or charge for paying an 

ATM or one-time debit card overdraft would not be required once the consumer has 

opted in to the overdraft service. 

Both approaches would permit institutions to implement the consumer’s choice by 

providing an account that would not permit the payment of overdrafts for ATM 

withdrawals and one-time debit card transactions. The proposal provides two alternatives 

for implementing the consumer’s choice for both of the opt-out and opt-in approaches. 

Under one alternative, the proposal would require an institution to provide an account 

that has the same terms, conditions, or features that are provided for consumers who do 

not opt out, except for features that limit the institution’s payment of such overdrafts. 
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Under another alternative, the proposal would allow institutions to vary the terms, 

conditions, or features for the account that does not permit the payment of ATM and onetime debit card overdrafts, provided that the differences are not so substantial that they

discourage a reasonable consumer from exercising his or her right to opt out of the 

payment of such overdrafts (or compel a reasonable consumer to opt in).

To facilitate compliance, the proposal provides model forms that institutions may 

use to satisfy their disclosure obligations. The Board intends to conduct additional 

consumer testing of the proposed model forms following issuance of this proposal.

The Board is issuing the proposed opt-out (and opt-in) and debit hold provisions 

of this proposal pursuant to its authority under Sections 904(a) and 904(c) of the EFTA 

(15 U.S.C. 1693b). Section 904(a) of the EFTA authorizes the Board to prescribe 

Debit holds

The Board is also proposing to prohibit institutions from assessing an overdraft 

fee where the overdraft would not have occurred but for a debit hold placed on funds in 

an amount that exceeds the actual transaction amount and where the merchant can 

determine the actual transaction amount within a short period of time after authorization 

of the transaction (for example, fuel purchases at a gas station). The prohibition, set forth 

in proposed § 205.19, would not apply if the institution adopts procedures designed to 

release the hold within a reasonable period of time. 

In light of this proposal, and as discussed elsewhere in today’s Federal Register, 

the Board is not taking action on the proposed FTC Act (Regulation AA) amendments

regarding debit holds.

IV. Legal Authority
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regulations necessary to carry out the purposes of the title. The express purposes of the 

EFTA are to establish “the rights, liabilities, and responsibilities of participants in 

electronic fund transfer systems” and to provide “individual consumer rights.” See

The legislative history of the EFTA makes clear that the Board has broad

regulatory authority. The Senate Report states that section 904 of the EFTA “authorizes 

the Federal Reserve Board to promulgate regulations to carry out the act’s purposes” and 

notes that the Senate Committee on Banking, Housing, and Urban Affairs “regards 

regulations as essential to the act’s effectiveness.”

EFTA Section 902(b); 15 U.S.C. 1693. In addition, Section 904(c) of the EFTA provides 

that regulations prescribed by the Board may contain any classifications, differentiations, 

or other provisions, and may provide for such adjustments or exceptions for any class of 

electronic fund transfers, that the Board deems necessary or proper to effectuate the 

purposes of the title, to prevent circumvention or evasion, or to facilitate compliance.

16 According to the Senate Report, 

such regulations “will add flexibility to the act by permitting the Board to modify the 

act’s requirements to suit the characteristics of individual EFT services. Moreover, since 

no one can foresee EFT developments in the future, regulations would keep pace with 

new services and assure that the act’s basic protections continue to apply.”17 The Senate 

Report states that the intent was to give the Board “flexibility in determining whether 

new or developing electronic services should be covered by the act and, if so, to what 

extent.”18

 16 S. Rep. No. 95-1273, 95th Cong., 2d Sess., at 26 (Oct. 4, 1978).

17 S. Rep. No. 95-1273, at 26.

18 S. Rep. No. 95-1273, at 25.

 “This delegation of authority to the Board is an important aspect of this 
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legislation as it would enable the Board to examine new services on a case-by-case basis 

and would contribute substantially to the act’s overall effectiveness.”19

 19 S. Rep. No. 95-1273, at 26.

The proposed opt-out (and opt-in) rules are intended to carry out the express 

purposes of the EFTA by: (a) establishing notice requirements to help consumers better 

understand the cost of overdraft services for certain EFTs; and (b) providing consumers 

with a choice as to whether they want overdraft services for ATM withdrawals and onetime debit card transactions in light of the costs associated with those services. The 

proposed opt-out (and opt-in) rules include provisions designed to prevent circumvention 

or evasion of the requirement to provide the consumer with choice regarding these 

overdraft services. These rules also include provisions, including exceptions, designed to 

facilitate compliance by financial institutions in light of certain operational constraints.

The proposed debit hold rule is intended to carry out the express purposes of the 

EFTA by ensuring that consumers generally are not assessed fees for overdrafts that 

would not have occurred but for the placement of the hold. The proposed debit hold rule 

contains classifications, differentiations, and other provisions, including adjustments and 

exceptions, designed to facilitate compliance by financial institutions in light of certain 

operational constraints.

The proposed disclosures that would implement the proposed opt-out (and opt-in) 

requirements are issued pursuant to the Board’s authority under Sections 904, 905 and 

906(b) of the EFTA. 15 USC 1693b, 1693c and 1693d(c).
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V. Section-by-Section Analysis

Section 205.12 Relation to Other Laws

Section 205.12(a) explains the relationship between Regulation E and Regulation 

Z when an access device permits a consumer to obtain an extension of credit incident to 

an EFT. In general, Regulation E governs the issuance of access devices and the addition 

of an EFT service to an accepted credit card, and Regulation Z governs the issuance of a 

combined credit card and access device and the addition of a credit feature to an accepted 

credit card. See

When the rule was originally adopted, the primary means of covering overdrafts 

incurred in connection with EFTs was through an overdraft line of credit linked to a debit 

card or other access device. Today, however, consumers are more likely to have these 

overdrafts covered by their institution’s overdraft service, rather than by a separate 

§ 205.12(a). The proposal would amend Regulation E to clarify that 

both the issuance of an access device with an overdraft service and the addition of an 

overdraft service to an accepted access device are governed by Regulation E.

Currently, § 205.12(a)(1)(ii) states that the EFTA and Regulation E govern the 

“issuance of an access device that permits credit extensions (under a preexisting 

agreement between a consumer and a financial institution) only when the consumer’s 

account is overdrawn or to maintain a specified minimum balance in the consumer’s 

account.” As the Board stated in the original March 1979 final rule, this provision was

intended to clarify that Regulation E, rather than Regulation Z, applies to the issuance of 

“access devices that are also credit cards solely by virtue of their capacity to access an 

existing overdraft credit line attached to the consumer’s account.” 61 FR 18468, 18472,

March 28, 1979 (adopting § 205.4(c) where this provision originally appeared).
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overdraft line of credit. In both cases, the Board believes that Regulation E should apply 

to ensure consistent treatment. 

Accordingly, the Board is proposing to amend § 205.12(a)(1)(ii) to provide that

Regulation E governs the issuance of an access device that permits extensions of funds

under an overdraft service (as defined below under proposed § 205.17) when the 

consumer’s account is overdrawn. Proposed § 205.12(a)(1)(iii) provides that Regulation 

E also covers the addition of an overdraft service to a previously accepted access device. 

See also comment 12(a)-2, as proposed to be revised. Proposed comment 12(a)-3 

clarifies that the addition of an overdraft service to an accepted access device does not 

constitute the addition of a credit feature under Regulation Z. 

In addition, the Board is also proposing to amend § 205.12(a)(1)(i) to conform the 

regulation to reflect the redesignation of the definition of the term “accepted credit card”

under Regulation Z, adopted elsewhere in today’s Federal Register. See 12 CFR 

226.12, comment 2. Current § 205.12(a)(1)(iii), which provides that Regulation E’s 

liability limits and error resolution rules also apply to extensions of credit under an 

overdraft line of credit, would be redesignated as § 205.12(a)(1)(iv) and revised to 

include a reference to overdraft services.

Section 205.17 Requirements for Overdraft Services

In the February 2005 Joint Guidance on overdraft protection services, the federal 

banking agencies recommended as a best practice that institutions obtain a consumer’s 

affirmative consent to receive overdraft protection. Alternatively, the Joint Guidance

stated that where overdraft protection is automatically provided, institutions should 

Background
DRAFT

20

provide consumers the opportunity to “opt out” of the overdraft program and provide 

consumers with a clear disclosure of this option. 70 FR at 9132.20

Although it appears that most institutions provide consumers the right to opt out 

of overdraft services, this practice is not uniform across all institutions.

 

21 Moreover, even 

where an opt-out right is provided, this right may not be clearly disclosed to consumers. 

For example, some institutions may disclose the opt-out right in a clause in their deposit 

agreement, which many consumers may not notice or may not consider relevant because 

they do not expect to overdraw their accounts. In other cases, the clause may not be 

written in clearly understandable language. Accordingly, to ensure that all consumers are 

given a meaningful choice regarding overdraft services, the May 2008 FTC Act Proposal 

would have established notice and opt-out requirements for institutions providing such 

services. The content and format of the opt-out notice were set forth in the Board’s 

Regulation DD Proposal. 

 20 The OTS made similar recommendations in its separate guidance. See 70 FR at 8431.

21 According to the FDIC’s Study of Bank Overdraft Programs, 75.1% of institutions surveyed permit 

consumers to opt out of their automated overdraft program, while 11.1% of institutions require consumers 

to opt in. According to the FDIC, banks that do not promote automated programs were less likely to give 

consumers either the option to opt in or to opt out of the automated overdraft program. See FDIC Study at 

27. See also Moeb$ 2008 Pricing Survey Press Release (reporting that 89.9% of institutions offer some 

form of a consumer opt-out).

Discussion 

Based on the comments received in response to the May 2008 FTC Act and 

Regulation DD Proposals, the results of limited consumer testing, and its own analysis, 

the Board believes that concerns about overdraft services can be appropriately addressed 

under its rulemaking authority under the EFTA and Regulation E. The Board has a 

number of reasons for reaching this conclusion.
DRAFT

21

First, the Board has considered the benefits to consumers of covering check 

transactions under an overdraft service. In particular, while a consumer will generally be 

charged the same fee by the financial institution whether or not a check is paid, if the 

institution covers an overdrawn check, the consumer may avoid other adverse 

consequences, such as the imposition of additional merchant returned item fees.

22

Second, the Board has considered the cost impact to consumers from overdraft 

fees assessed in connection with ATM and debit card overdrafts.

 Such 

benefits are not evident, however, with regard to the payment of overdrafts for certain

types of EFTs, specifically ATM withdrawals and one-time debit card transactions. For

those types of transactions, if the transaction is declined because of insufficient funds in 

the consumer’s account, the consumer would not incur any merchant returned item fees

and typically would avoid any fees assessed by the financial institution. Accordingly, the 

Board believes it is unnecessary to apply an opt-out (or opt-in) rule to check transactions 

in the proposed rule and that a more targeted rule covering overdraft services is

appropriate.

23

 22 According to one survey, the average merchant fee for a returned check is $27.78. See Moeb$ 2008 

Pricing Survey Press Release. See also FDIC Study at 16 n.18 (stating that the fee amounts for paying an 

overdraft and for returning an item unpaid were the same for 98.1 of the surveyed institutions operating 

automated overdraft programs that reported the two fees).

23 According to the FDIC’s Study of Bank Overdraft Programs, the median dollar amount for debit card 

transactions resulting in an overdraft is $20. The FDIC’s study also reported that POS/ debit overdraft 

transactions accounted for the largest share of all insufficient funds transactions (41.0 %). See FDIC Study

at 78-79. This compares to the average cost of overdraft and insufficient funds fees of over $26 per item in 

2007, as reported by the GAO. See Bank Fees: Federal Banking Regulators Could Better Ensure That 

Consumers Have Required Disclosure Documents Prior to Opening Checking or Savings Accounts, GAO 

Report 08-281, at 14 (January 2008). See also FDIC Study at 15, 18 (reporting a median per item overdraft 

fee of $27 for banks surveyed); Eric Halperin, Lisa James and Peter Smith, Debit Card Danger: Banks 

Offer Little Warning and Few Choices as Customers Pay a High Price for Debit Card Overdrafts, Ctr. for

Responsible Lending at 8 (January 25, 2007) (estimating that the median amount by which a consumer 

overdraws his or her account for a debit card purchase is $17). 

 For one-time debit 

card transactions in particular, the amount of the fee assessed may substantially exceed 
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22

the amount overdrawn.24

 24 See Overdraft Protection Hearing at 72 (stating that consumers pay $1.94 in fees for every one dollar 

borrowed to cover a debit card POS overdraft). 

 Given the costs associated with overdraft services in these 

circumstances, consumers may prefer not to have these overdrafts paid. In the Board’s 

limited consumer testing, some participants stated that they would prefer to have ATM 

withdrawals and debit card transactions declined if they had insufficient funds, rather 

than incur an overdraft fee. 

Third, the Board notes that addressing overdrafts under its authority under the 

EFTA and Regulation E would ensure that if finalized, the rule would apply to all 

depository institutions, including state-chartered credit unions which would not have 

been covered by the NCUA’s FTC Act authority.

Thus, for the reasons discussed above, the Board is proposing to prohibit accountholding financial institutions from assessing overdraft fees or charges on a consumer’s 

account for paying an overdraft on an ATM withdrawal or one-time debit card 

transaction (whether at POS, online or by telephone), unless the consumer is given notice 

and a reasonable opportunity to opt out of the institution’s overdraft service in connection 

with those transactions, and the consumer does not opt out. As discussed below, the 

Board is also proposing an alternative approach that would prohibit an account-holding 

financial institution from assessing any fees on a consumer’s account for paying an ATM 

withdrawal or one-time debit card transaction that overdraws the account, unless the 

consumer opts in, or affirmatively consents, to the service.
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23

1. First alternative approach – Opt-out requirement

A. Definition – § 205.17(a)

Proposed § 205.17(a) defines “overdraft service” to mean a service under which a 

financial institution assesses a fee or charge on a consumer’s account held by the 

institution for paying a transaction (including a check or other item) when the consumer 

has insufficient or unavailable funds in the account. The term is intended to cover 

circumstances when an institution assesses a fee for paying an overdraft pursuant to any 

automated program or service, whether promoted or not, or as a non-automated, ad hoc 

accommodation. The term does not include an institution’s payment of overdrafts

pursuant to a line of credit subject to the Board’s Regulation Z, including transfers from a 

credit card account, a home equity line of credit, or an overdraft line of credit. The term 

also does not include any overdrafts paid pursuant to a service that transfers funds from 

another account of the consumer (including any account that may be jointly held by the 

consumer and another person) held at the institution. The Board is not proposing to

include these methods of covering overdrafts under this proposal because they require the 

express agreement of the consumer.

B. Opt-Out Requirement – § 205.17(b)

General rule and scope of opt-out. Proposed § 205.17(b)(1) sets forth the general

rule prohibiting an account-holding institution from assessing a fee or charge on a 

consumer’s account for paying an overdraft on an ATM withdrawal or a one-time debit 

card transaction pursuant to the institution’s overdraft service, unless the consumer is 

given notice and a reasonable opportunity to opt out of the service, and the consumer 
DRAFT

24

does not opt out.25

The proposed opt-out would not apply to other types of transactions, including 

check transactions and preauthorized EFTs.

 The proposed opt-out would apply to any ATM withdrawal, including 

withdrawals made at proprietary or foreign ATMs. The proposed opt-out would also 

apply to any one-time debit card transaction, regardless of whether the consumer uses a 

debit card at a point-of-sale (for example, at a merchant or a store), in an online 

transaction, or in a telephone transaction. 

Proposed comment 17(b)-1 clarifies that a consumer’s election to opt out of a 

financial institution’s overdraft service does not prohibit the institution from paying any 

overdrafts for ATM withdrawals or one-time debit card transactions. If the institution 

pays an overdraft for these transactions, however, it would generally be prohibited from 

assessing an overdraft fee or charge, except as permitted under the exceptions set forth in 

proposed § 205.17(b)(5), discussed below. The rule would not, however, limit the 

institution’s ability to debit the consumer’s account for the amount of the overdraft, if the 

institution is permitted to do so under applicable law.

26

 25 As further discussed below under proposed § 205.17(c), notice must be provided both before the 

institution’s assessment of any fees or charges for paying an overdraft, and subsequently after the consumer 

has incurred any such fees or charges.

26 The EFTA and Regulation E generally do not apply to check transactions. See § 205.3(c).

 As discussed above with respect to checks, 

the payment of overdrafts for these transactions may enable consumers to avoid other 

possible adverse consequences that might result if such items are returned unpaid, such as 

merchant returned item fees. Consumers may also be more likely to use checks and 

preauthorized EFTs to pay for significant household expenses, such as utilities and rent. 

In the Board’s limited consumer testing, participants indicated that they were more likely 
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25

to pay important bills using checks and preauthorized EFTs, and to use debit cards for 

their discretionary purchases. 

The opt-out also generally would not apply to ACH transactions. For example, if 

the consumer provides his or her checking account number to authorize an ACH transfer 

online or by telephone, the institution would be permitted to pay the item if it overdraws 

the consumer’s account and assess a fee for doing so. The Board notes that in many 

cases, ACH transactions serve as a replacement for check transactions, such as where a 

check is converted to a one-time ACH debit to the consumer’s account.27 In addition, the 

payment of an overdraft for an ACH transaction could enable consumers to avoid 

merchant returned item fees.

Operational considerations. As discussed above, the May 2008 FTC Act Proposal 

would have required institutions to offer consumers the option of opting out of the 

payment of overdrafts only for ATM withdrawals and POS debit card transactions in 

addition to the option to opt out of the payment of overdrafts for all transaction types. In 

response, industry commenters stated that many processors do not currently have systems 

set up to distinguish paying overdrafts for some, but not all, payment channels, and that 

the reprogramming costs would be significant. Specifically, industry commenters stated 

that most systems today could either pay overdrafts for all transaction types or pay 

overdrafts for none; however, these systems were not set up to pay overdrafts for certain 

transaction types (e.g., checks and ACH), but not others (e.g., 

 27 See Geoffrey Gerdes, “Recent Payment Trends in the United States,” Federal Reserve Bulletin at A79 

(October 2008) (noting that the number of checks converted to electronic payments in 2006 was 2.6 billion 

up from 0.3 billion in 2003).

ATM and POS debit card 

transactions). Some industry commenters also asserted that most systems today are 

unable to readily differentiate between POS debit card transactions and other types of 
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26

debit card transactions, such as a preauthorized transfer. A few industry commenters, 

however, argued that any opt-out right should be limited to ATM withdrawals and POS

debit card transactions because the majority of complaints about overdraft services arise 

in connection with these transactions.

Notwithstanding the programming changes that would be required by the 

proposed rule, the benefits of enabling consumers to have a choice regarding the payment 

of overdrafts for ATM withdrawals and one-time debit card transactions may outweigh

the associated reprogramming costs. From a consumer’s perspective, any benefits from 

overdrawing the consumer’s account for ATM withdrawals and one-time debit card 

transactions may be substantially outweighed by the costs associated with the overdraft. 

Unlike for check and ACH transactions where the consumer could be assessed fees by 

both the institution and the merchant or other payee, the consequence of not having 

overdraft services for ATM and one-time debit card transactions is to have a transaction 

denied with no fees assessed. If a one-time debit card transaction is denied, the consumer 

can provide another form of payment, such as cash or a credit card. For ATM 

transactions, consumers may reasonably expect that their withdrawal request will be 

denied if they do not have sufficient funds in their accounts. 

For these reasons, the Board is proposing to limit the scope of the opt-out to ATM 

withdrawals and one-time debit card transactions. To minimize the cost impact on 

institutions, however, the Board anticipates allowing substantial lead time for institutions 

to implement the necessary programming changes. Comment is requested on whether the 

proposed opt-out should also apply to recurring debit card transactions and ACH 
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27

transactions. Comment is also solicited on an appropriate implementation period for the 

proposed rule. 

Reasonable opportunity for opt-out

Proposed comment 17(b)-2.i contains an example of a reasonable method of 

opting out when the institution provides a written form that the consumer can fill out and 

mail to opt out. 

. Proposed § 205.17(b)(1)(ii) provides that 

once a consumer has received an opt-out notice, the consumer must be given a reasonable 

opportunity to opt out of an institution’s overdraft service for ATM withdrawals and onetime debit card transactions. Proposed comment 17(b)-2 provides examples to illustrate 

what would constitute a reasonable opportunity to opt out, including reasonable methods 

for opting out. 

The first three examples provide a generally applicable safe harbor for opt-out 

periods of 30 days after the consumer is provided an initial notice informing the 

consumer of the opt-out right. During this period, an institution generally would be 

prohibited from assessing any fees or charges for paying an overdraft for an ATM 

withdrawal or a one-time debit card transaction. Although 30 days would be a safe 

harbor, an institution may decide that a shorter waiting period could be adequate 

depending on the circumstances. Comment is requested regarding whether a shorter time 

frame, such as 15 or 20 days, may be more appropriate.

See proposed Model Form A-9(A) in Appendix A, discussed below. 

Proposed comment 17(b)-2.ii provides that an institution could also provide a toll-free 

telephone number that the consumer may call to exercise the opt-out. Proposed comment 

17(b)-2.iii provides that an institution may provide an electronic means to opt out, such as 

a form that can be accessed and processed at an Internet Web site, provided that the 
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28

institution directs the consumer to the specific website address where the form may be 

located, rather than solely referring to the institution’s home page. 

The fourth example provides that an institution may provide an opt-out notice 

prior to or at account-opening and require the consumer to decide whether to opt out as a 

necessary step to opening the account. See proposed comment 17(b)-2.iv. For

operational reasons, an institution may not want to set up an account for the consumer 

with overdraft services, only to have to implement a consumer’s opt-out a short time later 

when the consumer opts out within 30 days after receiving an initial opt-out notice. 

Comment is requested whether the Board should require institutions to provide a 

toll-free telephone number to ensure that consumers can easily opt out. Participants in 

the Board’s consumer testing indicated that even if the institution provided a form with a 

check-off box for the consumer’s convenience, participants would still prefer to call their 

institution to opt out. Comment is also requested regarding whether the Board should 

add examples of methods of opting out that would not satisfy the requirement to provide 

a reasonable opportunity to opt out, such as requiring the consumer to write a letter to opt 

out.

Conditioning the opt-out. Proposed § 205.17(b)(2) provides that a financial

institution shall not condition a consumer’s right to opt out of the institution’s payment of

ATM withdrawals and one-time debit card transactions pursuant to the institution’s 

overdraft service on the consumer also opting out of the institution’s overdraft service 

with respect to checks, ACH transactions or other types of transactions (such as 

preauthorized EFTs). The Board is concerned that consumers may be discouraged from 

exercising their opt-out rights with respect to the institution’s payment of ATM and debit 
DRAFT

29

card overdrafts if the consumer’s opt-out choice would also preclude the consumer from 

having overdrafts paid for checks, ACH transactions, and other types of transactions.

28

This provision is not intended to create a contractual requirement for the 

institution to pay overdrafts on checks, ACH transactions, or other types of transactions. 

Comment is requested on whether there are other, more effective means of ensuring that 

consumers are not discouraged from opting out of an institution’s overdraft service for 

ATM withdrawals and one-time debit card transactions.

 

To prevent circumvention of the opt-out right, the proposed rule also would 

prohibit an institution from declining to pay checks, ACH transactions, or other types of 

transactions that overdraw the consumer’s account because the consumer has opted out of

the institution’s overdraft service for ATM and one-time debit card transactions. 

Although the payment of overdrafts is generally at the discretion of the institution, the 

Board is concerned that some institutions may exercise that discretion in a manner that 

effectively prevents consumers from exercising a meaningful choice regarding overdraft 

services. Thus, the proposed rule generally would require an institution to apply the same 

criteria for deciding whether to pay overdrafts on checks, ACH transactions, or other 

types of transactions regardless of the consumer’s opt-out choice with respect to ATM 

and one-time debit card overdrafts. For example, if an institution’s internal criteria

would lead the institution to pay a check overdraft if the consumer had not opted out of 

the institution’s overdraft service, it must also apply that same criteria in a consistent 

manner in determining to pay the check overdraft if the consumer has opted out. 

 28 In the Board’s limited consumer testing, participants indicated that they would likely not opt out if 

checks and preauthorized EFTs would be returned because they used these methods of payment to pay 

important household bills, such as rent and utilities. In contrast, several participants stated that they would 

prefer that their institution decline their ATM withdrawals and one-time debit card transactions if they did 

not have sufficient funds in their accounts in order to avoid overdraft fees.
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30

Notwithstanding the Board’s concerns about potential chilling effects, the Board 

is also proposing a modified version of proposed § 205.17(b)(2) that would expressly

permit institutions to condition the consumer’s ability to opt out of an institution’s 

overdraft service for ATM withdrawals and one-time debit card transactions on the 

consumer also opting out of the institution’s overdraft service for checks and other 

transaction types. Under this alternative approach, an institution could also decline 

checks, ACH transactions, and other types of transactions because the consumer has

opted out of the service for ATM withdrawals and one-time debit card transactions. This 

alternative would address the potential operational issues associated with implementing a 

partial opt-out rule. 

The Board solicits comment on the merits of both alternatives. The Board also 

seeks comment on other approaches that may sufficiently balance concerns about the 

potential chilling effects from institutions declining to pay overdrafts for checks and other 

transactions if a consumer opts out of the payment of overdrafts for ATM withdrawals 

and one-time debit card transactions against the operational difficulties of implementing a 

partial opt-out rule.

Implementation of opt-out. Some institutions may choose to implement a 

consumer’s decision to opt out at the account level and decline to pay overdrafts for 

ATM withdrawals and one-time debit card transactions for those consumers that have 

opted out. Other institutions for operational reasons may prefer to implement the 

consumer’s choice at the product level and offer two different accounts, one account that 

allows the institution to pay overdrafts for ATM withdrawals and one-time debit card 

transactions, and another that is specifically designed for consumers who opt out (“opt-
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31

out” account). Proposed § 205.17(b)(3) is intended to provide operational flexibility to 

financial institutions to implement an opt-out using either approach. 

This provision would not, however, permit an institution to discourage, or chill, a 

reasonable consumer’s exercise of the right to opt out. The Board is concerned that 

institutions may circumvent the proposed opt-out requirement and discourage consumers 

from opting out by, for example, imposing higher fees, paying lower interest rates, or 

limiting the features of the opt-out account. Thus, the proposal sets forth two alternative 

approaches to address this concern.

Under the first alternative, if the institution is providing an opt-out account that 

does not permit the payment of ATM and one-time debit card overdrafts, the account 

must have the same terms, conditions, and features, including interest rates paid and fees 

assessed, as an account that permits the payment of such overdrafts, except for features 

that limit the institution’s payment of such overdrafts.

29

Under the second alternative, an institution may alter some of the terms, 

conditions, or features of an account that does not permit the payment of overdrafts on 

ATM withdrawals and one-time debit card transactions. For example, the institution may 

wish to price some account services differently for the opt-out account. In light of the 

Board’s concern about possible chilling effects, however, the second alternative permits 

an institution to vary the terms, conditions, or features of the opt-out account, provided 

that the differences in the terms, conditions, or features are not so substantial that they 

would discourage a reasonable consumer from exercising his or her right to opt out of the 

 

 29 As discussed in proposed comment 17(b)-1, a consumer’s election to opt out of an institution’s overdraft 

service for ATM and one-time debit card transactions does not prohibit the institution from paying 

overdrafts in such cases. However, the institution generally would not be permitted to assess a fee or 

charge for paying the overdraft.
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32

payment of overdrafts on ATM withdrawals and one-time debit card transactions.30 For 

example, an institution may not decline to provide ATM and debit card services 

altogether because the consumer has opted out of the institution’s overdraft service for 

ATM withdrawals and one-time debit card transactions. See proposed comment 

17(b)(3)-1 to this second alternative.

The Board requests comment on both approaches. Specifically, the Board 

requests comment on whether institutions that currently offer an opt-out implement an

opt-out at the account level (i.e., within the same type of account) or at the product level 

(i.e., by placing the consumer in a separate opt-out account). The Board also requests 

comment on whether institutions that currently offer an opt-out vary any other terms, 

conditions, or features of a separate opt-out account, and if so, which terms, conditions, 

or features are varied and why.

Exceptions to the notice and opt-out requirements

In addition, some institutions may have a policy and practice of declining any 

ATM withdrawals or debit card transactions when the institution has a reasonable belief 

that the consumer does not have sufficient funds available in his or her account to cover 

. In response to the May 2008 

FTC Act Proposal, several commenters urged the Agencies to exclude institutions that 

require consumers to opt in to the institution’s overdraft service from the requirement to 

provide opt-out notices to consumers. These commenters stated that the Agencies’ 

proposed rule would impose unnecessary costs on such institutions. Moreover, these 

commenters stated that consumers would likely be confused by notices informing them of 

their right to opt out of a service that they have affirmatively requested.

 30 An institution that varies a term, condition, or feature of an account if a consumer opts out of the 

institution’s overdraft service would have to comply with the change-in-terms notice requirements in 

§ 205.8 and 12 CFR 230.5, as applicable.
DRAFT

33

the requested transaction at the time of authorization. An opt-out requirement would 

serve little purpose in these circumstances, and could lead to potential consumer 

confusion. 

The Board is proposing to create exceptions to the notice and opt-out 

requirements in the circumstances described above. Proposed § 205.17(b)(4) contains the 

two proposed exceptions. First, institutions that have a policy and practice of declining to 

pay ATM withdrawals or one-time debit card transactions for which authorization is 

requested if the institution has a reasonable belief that the consumer does not have 

sufficient funds available to cover the transaction at the time of the authorization request 

would not have to provide consumers with notice and the right to opt out of overdraft 

services. Second, institutions that require the consumer’s affirmative consent, or opt-in, 

before assessing any fees or charges for paying an ATM or one-time debit card overdraft 

also would not be subject to § 205.17.

31 

Proposed comment 17(b)(4)-1 states that institutions that qualify for either of the 

exceptions in § 205.17(b)(4) would not be required to provide consumers notice and a 

reasonable opportunity to opt out of the institution’s payment of overdrafts for ATM 

withdrawals and one-time debit card transactions. Proposed comment 17(b)(4)-2 clarifies 

that an institution is not required to obtain the consumer’s affirmative consent prior to 

each transaction that may overdraw the consumer’s account to qualify for the opt-in

exception in § 205.17(b)(4)(ii). 

Exceptions allowing assessment of overdraft fees when a consumer opts out

 31 This exception assumes that the Board adopts a rule requiring consumer opt-out, rather than opt-in, as is 

proposed under the second alternative approach discussed below.

. In 

limited circumstances, an institution may be unable to avoid paying a transaction that 
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34

would overdraw a consumer’s account. The proposal sets forth two exceptions that 

would permit an institution to assess a fee or charge to a consumer’s account for paying 

an overdraft for an ATM withdrawal or one-time debit card transaction, even if the 

consumer has opted out of the institution’s overdraft service. 

FTC Act Proposal. The May 2008 FTC Act Proposal would have permitted fees 

to be charged for an overdraft in two circumstances, notwithstanding the consumer’s 

decision to opt out. The first circumstance was where the purchase amount presented at 

settlement by a merchant for a debit card transaction exceeded the amount originally 

requested for pre-authorization. The second circumstance was where a merchant or other 

payee presented a debit card transaction for payment by paper-based means, rather than 

electronically using a card terminal, and where the payee did not obtain authorization 

from the card-issuing financial institution at the time of the transaction.

In the supplementary information accompanying the May 2008 FTC Act 

Proposal, the Agencies stated that they had considered, but did not propose, an exception 

that would allow an institution to impose an overdraft fee despite a consumer’s opt-out 

election as long as the institution did not “knowingly” authorize a transaction that 

resulted in an overdraft. The Agencies expressed concern that given the difficulty in 

determining a consumer’s real-time account balance, such an exception could undercut 

the protections provided by a consumer’s election to opt out. Nonetheless, the Agencies 

sought comment on other circumstances in which an exception may be appropriate to 

allow an institution to impose a fee or charge for paying an overdraft even if the 

consumer has opted out of the institution’s overdraft service.
DRAFT

35

Industry commenters urged the Board to consider additional exceptions. Some 

industry commenters urged the Board to adopt a broad principles-based exception 

allowing fees to be charged when overdrafts are paid despite a consumer’s decision to opt 

out. These commenters suggested the following principles-based exceptions: if an 

institution does not “knowingly” authorize the transaction that would overdraw the 

consumer’s account; or if the institution authorizes a transaction on the “good faith 

belief” that there are sufficient funds in the consumer’s account. 

Other industry commenters listed specific exceptions that the Agencies should 

consider. Several commenters urged the Agencies to allow fees to be assessed if an 

overdraft was paid when the institution used a stand-in processor to authorize the 

transaction because the card network was temporarily off-line. Industry commenters also 

stated that the rule should permit fees to be assessed for “force-post” or “must pay” debit 

card transactions where an institution authorizes payment at the time of the transaction 

based on a determination that the consumer had sufficient funds. Under these 

circumstances, card network rules require institutions to honor or pay the transaction 

even if intervening transactions (for example, checks that are presented for payment or 

ATM withdrawals) causes the consumer to have insufficient funds when the transaction 

is presented for settlement. In addition, industry commenters supported exceptions 

permitting fees to be charged where a consumer subsequently has a deposited item 

returned, and where the transaction is not submitted for authorization by the merchant.

Reasonable belief exception. Proposed § 205.17(b)(5)(i) would permit a financial 

institution to assess an overdraft fee or charge for paying an ATM withdrawal or onetime debit card transaction, notwithstanding the consumer’s opt-out, if the institution has 
DRAFT

36

a reasonable belief that there are sufficient funds available in the consumer’s account at 

the time the institution authorizes the transaction. Thus, an institution could assess an 

overdraft fee if the institution has authorized a transaction on the reasonable belief that 

there were sufficient funds available to cover the transaction, but sufficient funds were 

not, in fact, available at settlement. 

This could occur, for instance, where an authorization balance is not updated in 

real-time. For example, some institutions use a daily batch balance method for 

authorizing transactions and authorization decisions may be based upon a balance which 

is not updated during the day to reflect other account activity that occurred before the 

authorization request. In such cases, the institution may authorize a debit card transaction 

even though prior transactions that have posted or otherwise taken place during the day

may cause the consumer’s account to have insufficient funds for the debit card

transaction. The proposed exception would permit the institution to pay the debit card 

transaction and assess an overdraft fee on the consumer’s account because the institution 

authorized the transaction on the reasonable belief that there were sufficient available 

funds in the account to cover the transaction.

An institution could also assess an overdraft fee if it authorizes a transaction on 

the reasonable belief that a previously deposited check or other item was deposited on 

good funds, and the item is subsequently returned, causing the transaction to overdraw 

the consumer’s account. For example, an institution may provide immediate availability 

for a $100 check that a consumer has deposited, and subsequently authorize a $75 debit 

card transaction on the belief that the check was written on sufficient funds. However, if 

the check is later returned due to insufficient funds in the check writer’s account, the 
DRAFT

37

institution could permissibly charge the account of the consumer that had deposited that 

check if the debit card transaction overdraws the account because of the returned deposit.

The proposed exception would also apply where the settlement amount exceeds 

the amount submitted for pre-authorization. For example, a consumer may use his or her

debit card at a pay-at-the-pump fuel dispenser to purchase $50 of fuel. At the time of 

authorization, the gas station may request a pre-authorization hold of $1 to verify the 

validity of the card. Assuming the card-issuing financial institution does not increase the 

amount of the hold, if the consumer has less than $50 in his or her account when the 

transaction is presented for settlement, the institution would be permitted to pay the 

transaction and assess a fee, even if the consumer has opted out of the institution’s 

overdraft service.

Finally, an institution could assess an overdraft fee or charge in connection with 

force-post, or must-pay, debit card transactions that the institution is required to honor 

even if, at settlement, intervening transactions by the consumer have reduced the 

consumer’s available balance below the authorized amount of the transaction. For 

example, a consumer may use his debit card to make a $50 purchase, which the 

institution authorizes based on the consumer’s available balance at the time of 

authorization. However, because settlement may not occur for some period of time after 

completion of the transaction, intervening transactions may post to the consumer’s 

account before the $50 transaction is presented for settlement. If there are insufficient 

funds in the consumer’s account at the time of settlement, this exception would allow the 

institution to assess a fee to the consumer’s account for paying the overdraft even if the 
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consumer has opted out of the institution’s overdraft service. Proposed comment 

17(b)(5)-1 sets forth examples illustrating this exception.

The proposed exception in § 205.17(b)(5)(i) is not intended to permit an 

institution to assess an overdraft fee where a merchant has not submitted the transaction 

to the institution for authorization. A transaction may not be submitted for authorization, 

for example, because it is below the floor limits established by card network rules 

requiring authorization. Similarly, a merchant may decide not to submit the transaction 

for authorization because the small dollar amount of the transaction does not pose 

significant payment risk to the merchant. In either case, the consumer’s financial 

institution would be unable to decline the transaction if the consumer did not have 

sufficient funds in the consumer’s account. Nevertheless, the Board believes that 

institutions should not be permitted to assess a fee on the consumer’s account in these 

cases when the consumer has opted out. From the perspective of a consumer who has 

opted out, it is reasonable to expect that the transaction would be declined if he or she did 

not have sufficient funds in the account. The merchant’s decision not to seek 

authorization for small dollar transactions generally is not transparent to the consumer. 

In addition, because small-dollar transactions are those most frequently not submitted for 

authorization, prohibiting institutions from assessing overdraft fees in these 

circumstances would reduce the possibility that the consumer will incur overdraft fees 

that exceed the amount of the overdraft. An institution may, however, debit the 

consumer’s account for the amount of the overdraft if permitted to do so under applicable 

law. 
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Similarly, the proposal would not permit the institution to assess a fee if the 

institution uses a stand-in processor to authorize the transaction and an overdraft was paid 

as a result. A stand-in processor may be used by an institution when the debit card 

network is temporarily unavailable. In such cases, the authorization decision may be 

made by the processor based on the institution’s pre-determined amount, rather than the 

consumer’s account balance. The Board is concerned about the appropriateness of 

permitting an institution to assess an overdraft fee on the consumer’s account in these 

rare circumstances because a consumer who has opted out would reasonably expect the 

transaction to be declined if he or she did not have sufficient funds in the account. The 

institution may, however, debit the consumer’s account for the amount of the overdraft if 

permitted to do so under applicable law. Proposed comment 17(b)(5)-2 provides 

examples of circumstances where an institution would not be permitted to assess a fee for 

paying an overdraft if the consumer has opted out because a transaction was never 

submitted to the institution for authorization. 

Paper-based debit card transaction exception

The Board believes this circumstance is analogous to a check transaction that is 

later returned for insufficient funds. In this case, the institution cannot authorize the 

. Proposed § 205.17(b)(5)(ii) would 

permit an institution to assess an overdraft fee or charge, notwithstanding the consumer’s 

opt-out election, where a merchant or other payee presents a debit card transaction for 

payment by paper-based means, rather than electronically using a card terminal, and the 

institution has not previously authorized the transaction. For example, the merchant may 

use a card imprinter to take an imprint of the consumer’s card and later submit the sales 

slip to its acquirer for payment. 
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transaction because of the way in which the transaction is processed. The consumer 

should be aware that the merchant is not obtaining authorization from the financial 

institution when the merchant takes an imprint of the consumer’s card. Thus, the 

consumer could reasonably expect that he or she would be charged a fee if there are not 

sufficient available funds to pay for the transaction. In contrast, where a merchant swipes 

a consumer’s card to capture the card information, but chooses not to submit the 

transaction for authorization, the merchant’s decision not to seek authorization is not 

transparent to the consumer. Therefore, in the latter circumstance, the consumer may 

reasonably expect that if he or she did not have sufficient funds in his or her account that 

the transaction would be declined. Proposed comment 17(b)(5)-3 illustrates this 

exception.

In response to the May 2008 FTC Act and Regulation DD Proposals, the majority 

of industry commenters stated that the rule should only require notices to be provided at 

account opening. These commenters argued that the subsequent notice requirement 

C. Timing – § 205.17(c)

The May 2008 FTC Act and Regulation DD Proposals would have required 

institutions to provide notice of the opt-out both before the institution’s assessment of any 

fees or charges for paying an overdraft, and subsequently after the consumer has incurred 

any such fees or charges. The subsequent notice could be given on each periodic 

statement reflecting any fees or charges imposed in connection with an overdraft service, 

or at least once per statement cycle on any notice sent promptly after the institution’s 

payment of an overdraft under an overdraft service. Proposed § 205.17(c) sets forth

essentially the same requirements under Regulation E.
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would impose unnecessary costs on institutions based on the expense of producing and 

mailing the additional notices. In the alternative, industry commenters recommended that 

the Board permit institutions to provide a shorter opt-out notice on periodic statements to 

limit statement costs. 

Consumer groups urged the Board to require institutions to provide initial opt-out 

notices at account opening, segregated from other account documents, to ensure that the 

notice would be noticeable. In addition, consumer groups urged the Board to require 

institutions to provide subsequent notice of the opt-out right both on the periodic 

statement as well as on any notices the institution may send immediately after an 

overdraft so that if the consumer failed to read the opt-out language on the notice sent 

after an overdraft, it would also appear on the periodic statement.

Proposed § 205.17(c)(1) would require an institution to provide an opt-out notice 

before the institution assesses a fee or charge for paying an ATM withdrawal or one-time 

debit card transaction pursuant to the institution’s overdraft service for accounts opened 

after the effective date of the final rule. For example, notice may be given at account 

opening, either within the deposit account agreement or in a stand-alone document. 

Institutions may also choose to provide the opt-out notice closer to the time the overdraft 

service is available, so long as the notice is provided before the institution assesses any 

fees or charges for paying an ATM withdrawal or one-time debit card transaction that 

overdraws the consumer’s account. Proposed § 205.17(c)(1) also provides that the 

consumer must be given a reasonable opportunity to exercise the opt-out right after 

receiving the notice before such fees or charges may be assessed to the consumer’s 

account. See proposed comment 17(b)-2 (providing that a consumer has a reasonable 
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opportunity to opt out if the consumer is given 30 days after receiving an opt-out notice 

before an overdraft fee is assessed). Comment is requested whether institutions should be 

required to segregate the opt-out notice from other account disclosures to help ensure that

the notice can be seen by the consumer.

Under the proposal, initial opt-out notices would not have to be provided to 

accounts that are opened prior to the effective date of the final rule. In response to the 

May 2008 Regulation DD proposal, consumer groups urged the Board to require 

institutions to provide initial opt-out notices to existing accountholders. The Board is 

concerned, however, that the costs of mailing initial opt-out notices to the millions of 

existing accountholders may exceed any consumer benefit. As further discussed below, 

existing consumers will still be alerted to their right to opt out of the overdraft service 

because they will receive an opt-out notice if and when they are assessed a fee or charge 

by their financial institution for paying an ATM or debit card overdraft. 

If a consumer has not opted out (in the case of a joint account, where no joint 

account holder has opted out) or the consumer has revoked a prior opt-out election, 

proposed § 205.17(c)(2) would require institutions to provide an opt-out notice following 

the assessment of any overdraft fees or charges for paying an ATM withdrawal or onetime debit card transaction. The subsequent notice requirement would apply to all 

accounts, including existing accounts as of the effective date of the final rule. 

The requirement to provide an opt-out notice following the assessment of an 

overdraft fee or charge is designed to ensure that consumers are given notice of their right 

to opt out at a time that may be most relevant to them, that is, after they have been 

assessed fees or other charges for the service. Consumers receiving an opt-out notice 
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only at account opening may not focus on the significance of the information at that time 

because they may assume that they will not overdraw the account. Or, consumers may 

not notice the opt-out information provided with other account-opening documents. 

Under the proposal, institutions would have the option of placing an opt-out 

notice on the periodic statement reflecting an overdraft fee or charge assessed to the 

consumer’s account or on any notice sent promptly after the ATM or debit card overdraft. 

If the subsequent notice is included on the periodic statement, proposed § 205.17(c)(2)(i)

would require the notice to be placed in close proximity to any aggregate totals for 

overdraft and returned item fees required to be disclosed by 12 CFR 230.11(a), as 

adopted under the Board’s final rules under Regulation DD, published elsewhere in 

today’s Federal Register. During consumer testing, a version of the opt-out form was 

placed directly below the cost totals associated with overdrawing the account. This 

placement enabled consumers to easily notice the information about their opt-out right.

The requirement to provide subsequent notice of the opt-out terminates once the 

consumer has opted out. That is, once the consumer has opted out, an institution need not 

provide notice of the opt-out right following the assessment of any overdraft fees or 

charges to the consumer’s account (for example, under one of the exceptions in 

§ 205.17(b)(5)). Of course, if the consumer opts out after having incurred an overdraft 

fee, the opt-out applies only to subsequent transactions and the institution could 

permissibly assess an overdraft fee without violating the general rule in § 205.17(b). 

Similarly, if the consumer has opted out but incurs an overdraft before the opt-out has 

been implemented, the institution would be permitted to assess a fee for paying the 

overdraft. See also proposed comment 17(g)-1 (stating that a consumer’s subsequent 
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opt-out does not require the institution to waive or reverse any overdraft fees assessed to 

the consumer’s account prior to the institution’s implementation of the opt-out). 

Comment is requested as to whether the rule should permit institutions to include 

the opt-out notice on periodic statements in any cycle in which the consumer has been 

assessed an overdraft fee or charge, even if that fee or charge was not incurred in 

connection with an ATM withdrawal or a one-time debit card transaction. For example, 

the rule could permit institutions to provide an opt-out notice on a periodic statement if 

the consumer incurred an overdraft fee in connection with a check transaction. Comment 

is also requested as to whether institutions should be permitted to include the opt-out 

notice on the periodic statement if the consumer did not incur any overdraft fees or 

charges during the statement cycle. Prohibiting institutions from including the opt-out 

notice on each periodic statement where no fee has been assessed could impose

additional costs on institutions because it would require a dynamic statement process that 

only permits the opt-out notice to appear on statements that reflect an overdraft fee. The 

Board is concerned, however, that consumers may dismiss the opt-out notice as 

boilerplate language if the opt-out notice were included on every periodic statement.

Proposed comment 17(c)(1)-1 contains guidance regarding the applicability of the 

notice requirements in § 205.17(c) to existing consumers. As discussed above, the 

requirement to provide notice before overdraft fees are assessed would apply only to 

accounts opened on or after the effective date of the final rule, that is, on or after the

mandatory compliance date. However, the requirement to provide subsequent notice of 

the opt-out right after the consumer has overdrawn the account and assessed a fee or 
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charge on the account would apply to all accounts on or after the effective date of the 

final rule, including existing accounts. 

Two different notices are set forth in the proposal. First, the proposal contains a 

detailed notice about the institution’s overdraft service and the consumer’s opt-out right

that would be provided before an institution can assess any fees or charges for paying an 

ATM or one-time debit card transaction that overdraws the consumer’s account. Second,

the proposal includes a shorter notice which could be provided to the consumer after an 

overdraft fee has been assessed (for example, on a periodic statement) that generally 

informs the consumer of his or her opt-out right and instructs the consumer to contact the 

institution for more information.

D. Content and format – § 205.17(d)

Proposed § 205.17(d) specifies the information that an institution would be 

required to include in its opt-out notices. In general, the proposal includes information 

similar to what would have been required under the May 2008 Regulation DD proposal, 

with certain revisions to reflect industry and consumer group comments, as well as the 

Board’s consumer testing. 

32 Model forms that institutions may use to comply with 

the rule are also included in this proposal. See proposed Model Forms A-9(A) and A9(B) in Appendix A.

Initial notice content

 32 Alternatively, after assessing an overdraft fee or charge to the consumer’s account, the institution could 

provide a notice containing the same content as the initial notice.

. Proposed § 205.17(d)(1) sets forth the information that 

must be included in the initial opt-out notice provided to consumers before an institution 

may assess any fees or charges for paying an overdraft. Proposed § 205.17(d)(1) would 
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also require that the initial opt-out notice be in a form substantially similar to Model 

Form A-9(A) in Appendix A. 

Proposed § 205.17(d)(1)(i) would require the institution to provide a general 

description of the financial institution’s overdraft services and the types of EFTs for 

which an overdraft fee may be imposed, including ATM withdrawals and one-time debit 

card transactions. 

Proposed § 205.17(d)(1)(ii) would require the initial notice to include information 

about the dollar amount of any fees or charges assessed on the consumer’s account for 

paying an ATM withdrawal or a one-time debit card transaction pursuant to the 

institution’s overdraft service. Some institutions may vary the fee amount that may be 

imposed based upon the number of times the consumer has overdrawn his or her account, 

the amount of the overdraft, or other factors. Under these circumstances, the institution 

must disclose the maximum fee that may be imposed or a range of fees. Proposed 

comment 17(d)(1)-1 provides that the institution may indicate that the consumer may be 

assessed a fee “up to” the maximum fee or provide the range of fees. Comment is 

requested whether additional guidance is necessary if an overdraft fee is determined by 

other means, such as a percentage of the overdraft or the transaction that caused the 

overdraft.

Proposed § 205.17(d)(1)(iii) would require institutions to disclose any daily dollar 

limits on the amount of overdraft fees or charges that may be assessed. If the institution 

does not limit the amount of fees that can be imposed, it must disclose this fact. The May 

2008 Regulation DD Proposal contained a similar disclosure, but also would have 

required institutions to state any dollar limits on the amount of fees that may be imposed 
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in a statement period. Upon further analysis, however, a requirement to state any limits 

on the amount of fees that may be imposed in a statement cycle is not included in this 

proposal because the Board believes that this information is unlikely to be relevant or 

helpful to consumers. 

Proposed § 205.17(d)(1)(iv) would require institutions to inform consumers of the 

right to opt out of the institution’s payment of overdrafts for ATM and one-time debit 

card transactions, including the method(s) that the consumer may use to exercise the optout right and how to contact the institution for more information. See also proposed 

§ 205.17(b)(1)(ii); comment 17(b)-2. An institution may also include an explanation 

regarding the type of transactions that would not be covered by the opt-out. See proposed 

comment 17(d)(1)-2, discussed below.

Several industry commenters in response to the Regulation DD proposed model 

forms urged the Board to add language to the forms stating that the payment of overdrafts 

is discretionary even if the consumer does not opt out. In addition, industry commenters 

urged the Board to include language stating that the consumer’s decision to opt out would 

not ensure that overdrafts would not be paid. The proposed model form does not include 

specific language regarding the discretionary nature of overdraft services. However, 

institutions would be permitted to include in their opt-out notices language indicating that 

the payment of overdrafts is at their discretion. See

Proposed § 205.17(d)(1)(v) provides that institutions must state whether they 

offer any alternatives for the payment of overdrafts. Specifically, if an institution offers 

an overdraft line of credit or a service that transfers funds from another account of the 

consumer held at the institution to cover the overdraft (including an account held jointly 

proposed comment 17(d)(1)-2.
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with another consumer), the institution must state that fact and how to obtain more 

information about these alternatives. Institutions may also, but are not required to, list 

any additional alternatives they may offer to overdraft services. This provision 

incorporates a recommendation from the February 2005 Joint Guidance that institutions 

should inform consumers generally of other overdraft services and credit products, if any, 

that are available when describing an overdraft protection program.33

In some cases, these alternatives for paying overdrafts may be less costly than the 

overdraft service offered by the institution.

 

34

Some institutions may wish to explain to consumers the consequences of opting 

out of overdraft services. Proposed comment 17(d)(1)-2 provides that institutions may

briefly describe these consequences. For example, the institution may state that if a 

consumer opts out of the institution’s overdraft service for ATM withdrawals and onetime debit card transactions, the institution may decline such transactions if the 

consumer’s account does not have sufficient funds. Institutions that include an 

explanation of the consequences of opting out, the type of transactions that would not 

 Consequently, requiring disclosures

regarding these alternatives may enable consumers to make an informed decision about 

the merits of the overdraft service or whether other alternatives would be more 

appropriate to their needs. Consumer testing indicated that participants found 

information about alternatives helpful. Participants also generally understood that they 

would have to qualify for an overdraft line of credit, without a reference in the notice to 

any qualification requirements.

 33 See 70 FR at 9131.

34 The FDIC Study on Bank Overdraft Programs indicated that the median per usage fee charged by banks 

for automated overdraft programs was $27. In contrast, the median per usage fee for linked-account 

programs and overdraft lines of credit was $5. FDIC Study at 15, 20 and 23.
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covered by the opt-out, or that the payment of overdrafts is at the institution’s discretion, 

would not violate the requirement that opt-out notices be substantially similar to Model 

Forms A-9(A) or A-9(B), as applicable. But see proposed § 205.17(b)(3) (prohibiting 

institutions from declining to pay checks, ACH transactions, or other types of 

transactions that overdraw a consumer’s account because the consumer opted out of the 

institution’s overdraft service for ATM withdrawals and one-time debit card 

transactions). Comment is requested regarding whether the rule should permit or require 

any other information to be included in the overdraft notice.

Notice following assessment of overdraft fee. Proposed § 205.17(d)(2) sets forth 

the content requirements for the short form notice that institutions may provide to 

consumers following an institution’s assessment of a fee or charge to the consumer’s 

account for paying an ATM withdrawal or one-time debit card transaction pursuant to the 

institution’s overdraft service (assuming that the consumer has not opted out). 

The May 2008 Regulation DD Proposal would have required both the initial 

notice and subsequent notice of the opt-out right to contain the same content. Industry 

commenters urged that the Board to eliminate the subsequent notice requirement to 

reduce compliance burdens and costs. Alternatively, industry commenters urged the 

Board to permit institutions to provide an abbreviated notice on periodic statements that 

would generally remind consumers of their opt-out right and instruct them to contact the 

institution for additional information. Consumer group commenters supported the 

Board’s proposal to require the same content on all notices informing consumers of their 

opt-out right to ensure that consumers can make an informed decision at the time they 

review the opt-out notice.
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Upon further analysis, the Board believes that permitting institutions to provide a 

short-form opt-out notice may strike an appropriate balance between including sufficient 

information to inform consumers of their options regarding overdraft services and

keeping such notices short, simple, and cost-effective. The Board recognizes that 

requiring institutions to provide the same amount of detail in the subsequent notice as 

provided in the initial notice could impose significant statement production and mailing 

costs. In addition, participants during consumer testing indicated that it was sufficient for 

them to receive all of the required information about the institution’s overdraft service at 

account opening. Nevertheless, test participants indicated that it would be helpful to 

receive a concise reminder of their right to opt out after they were assessed an overdraft 

fee or charge. 

Thus, proposed § 205.17(d)(2) provides institutions with the flexibility to provide 

either a notice containing the same content as the initial opt-out notice or an abbreviated 

notice that is substantially similar to Model Form A-9(B) in Appendix A. The proposed 

abbreviated model notice generally states the consumer’s right to opt out, the availability 

of alternatives to the institution’s overdraft service, and how to contact the institution for 

more information. 

Model forms. As noted above, proposed § 205.17(d)(1) would require the initial 

opt-out notice to be substantially similar to Model Form A-9(A) in Appendix A. The 

model form has been revised from the model form in the May 2008 Regulation DD 

proposal to reflect the more limited opt-out right and to highlight near the top of the 

notice key information about the consumer’s opt-out right, including the information 

about alternatives to the institution’s overdraft service. To comply with the subsequent 
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notice requirement, proposed § 205.17(d)(2) permits institutions to use a notice 

substantially similar to proposed Model Form A-9(A) or an abbreviated notice 

substantially similar to proposed Model Form A-9(B). The Board expects to conduct 

additional consumer testing of both proposed model forms following issuance of this 

proposal.

E. Additional provisions addressing consumer opt-out right – § 205.17(e)-(h)

Joint accounts. Proposed § 205.17(e) would require a financial institution to treat 

an opt-out direction by any joint holder of an account as an opt-out for the account from 

all of the joint consumers. This provision takes into account recognizes the operational 

difficulties that would otherwise arise if an institution had to determine which account 

holder was responsible for a particular transaction and then decide whether to authorize 

that transaction based on that account holder’s opt-out choice. Thus, if one joint 

consumer notifies the institution that he or she wishes to opt out of the institution’s 

overdraft service, the institution must treat the choice as applying to all overdrafts 

triggered by an ATM withdrawal or debit card transaction for that account.

Continuing right to opt-out and time to implement opt-out. Proposed § 205.17(f) 

provides that a consumer may opt out of an institution’s overdraft service at any time in 

the manner described in the institution’s opt-out notice. Proposed § 205.17(g) provides 

that institutions must comply with a consumer’s opt-out request as soon as reasonably 

practicable after the institution receives it. Comment is requested regarding the need for

additional guidance on the “as soon as reasonably practicable” standard. Proposed 

comment 17(g)-1 would clarify that an institution is not required to waive or reverse any 
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overdraft fees or charges assessed to the consumer’s account prior to the institution’s 

implementation of the consumer’s opt-out request.

Duration of opt-out. Proposed § 205.17(h) provides that once a consumer opts 

out, the opt-out remains in effect until revoked by the consumer in writing or 

electronically. Comment is requested on whether consumers should also be permitted to 

revoke prior opt-out elections orally, whether by telephone or in-person.

F. Request for comment

The Board requests comment on all aspects of the opt-out proposal, including the 

various alternatives set forth in the proposal. Comment is also requested on the costs and 

benefits of the proposed opt-out rule to consumers and financial institutions.

Under an opt-out approach, consumers who may prefer to have ATM and debit 

card transactions declined if they would result in an overdraft may nonetheless incur 

2. Second alternative approach – Opt-in requirement

The Board is also soliciting comment on an alternative – an opt-in approach. An 

opt-in requirement may be appropriate where the rule is limited to the payment of 

overdrafts for ATM withdrawals and one-time debit card transactions, and would not 

apply to the payment of overdrafts for other types of transactions, including checks and 

ACH transactions. While a check or ACH transaction that is returned for insufficient 

funds may cause the consumer to incur possible merchant fee(s) for the returned item or 

late payment penalties, as well as an insufficient funds fee assessed by the consumer’s 

financial institution, a declined ATM or debit card transaction does not result in the same

adverse consequences. 
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overdraft fees simply because they fail to act on the notice.35

However, for consumers who rarely, if ever, overdraw their accounts, the 

occasional coverage of overdrafts by their institutions may be a positive benefit.

For such consumers, 

establishing an opt-in rule that generally does not allow institutions to impose fees for 

paying these overdrafts unless a consumer affirmatively consents to the overdraft service

would enable consumers to avoid fees for a service that they did not request or were 

unaware they had. An opt-in rule would also provide an incentive for institutions to 

persuade consumers of the benefits of the overdraft service and enable the consumer to 

make an informed choice about the merits of the service before he or she incurs any 

overdraft fees.

36

 35 Various studies suggest that consumers are likely to adhere to the established default rule, that is, the 

outcome that would apply if the consumer takes no action, even if the default rule may not always be in 

their best interest. For example, studies of automatic enrollment in 401(k) savings plans indicate a 

significant increase in employee participation if the default rule provides that a consumer is automatically 

enrolled in the plan unless they opt out, instead of requiring employees to affirmatively agree to participate 

in the plan. See, e.g., Brigette Madrian and Dennis Shea, The Power of Suggestion: Inertia in 401(k) 

Participation and Savings Behavior, 116 Quarterly Journal of Economics 1149 (2001). 

36 Available data indicates that the majority of account holders do not overdraw their accounts in a given 

year. In its Study of Bank Overdraft Programs, the FDIC reported that almost 75 percent of consumer 

accounts for banks that had an automated overdraft program had no overdrafts during the 12-month period 

examined. See FDIC Study at 76. See also 80 Percent of Consumers Have Not Paid Overdraft Fees in Past 

Year, Says ABA Survey, Press Release, American Bankers Association (August 30, 2007) (available at 

http://www.aba.com/Press+Room/083007ABASurvey.htm). 

 For 

such consumers, an opt-in regime may result in more declined transactions even though 

the consumer may have preferred to have the overdraft paid, despite the overdraft fee that 

may be charged by the consumer’s financial institution. Such a consumer could be 

precluded from completing an important transaction when there are insufficient funds in 

the consumer’s account and the consumer does not have another means of payment. For 

example, a consumer may need emergency funds and attempt to withdraw such funds 

from an ATM using a debit card. Or, the consumer may use a debit card to purchase 
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essential groceries or medicine and have no other means of payment. In such cases, if the 

consumer has not opted in, the consumer would not be able to complete the transaction if 

the consumer does not have another form of payment. 

Thus, while an opt-in approach may benefit some consumers, it may not be the 

optimal outcome for others. In addition, an opt-in rule could result in greater inefficiency 

for processing systems due to the potential increase in transactions that are declined. 

Accordingly, because there are both benefits and costs associated with the opt-in and optout approaches, the Board is soliciting comment on both approaches. 

The proposed definition of “overdraft service” is the same under both the opt-out 

and the opt-in approaches, and means a service under which a financial institution 

assesses a fee or charge on a consumer’s account held by the institution for paying a 

transaction (including a check or other item) when the consumer has insufficient or 

unavailable funds in the account. 

A. Definition – § 205.17(a)

See § 205.17(a). The term would cover circumstances 

when an institution assesses a fee for paying an overdraft pursuant to any automated 

program or service, whether promoted or not, or as a non-automated, ad hoc 

accommodation. The term does not include an institution’s payment of overdrafts 

pursuant to a line of credit subject to the Board’s Regulation Z, including transfers from a 

credit card account, a home equity line of credit, or an overdraft line of credit. The term 

also does not include any overdrafts paid pursuant to a service that transfers funds from 

another account of the consumer (including any account that may be jointly held by the 

consumer and another person) held at the institution. The Board is not proposing to 
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include these methods of covering overdrafts in this proposal because they require the 

express agreement of the consumer.

B. Opt-In Requirement – § 205.17(b)

General rule and scope of opt-in

Proposed comment 17(b)-1 clarifies that a financial institution may pay overdrafts 

for ATM withdrawals and one-time debit card transactions even if a consumer has not 

affirmatively consented or opted in to the institution’s overdraft service. If an institution 

pays an overdraft for these transactions and the consumer has not opted in to the service, 

however, the financial institution would generally be prohibited from assessing a fee or 

charge for doing so, except as permitted under the exceptions set forth in proposed 

§ 205.17(b)(5). The rule would not, however, limit the institution’s ability to debit the 

. Proposed § 205.17(b)(1) sets forth the general 

rule prohibiting an account-holding institution from assessing a fee or charge on a 

consumer’s account held at the institution for paying an ATM withdrawal or a one-time 

debit card transaction pursuant to the institution’s overdraft service, unless the consumer 

is provided with notice explaining the institution’s overdraft service for such transactions

and a reasonable opportunity to affirmatively consent, or opt in, to the service, and the 

consumer affirmatively consents, or opts in, to the service. If the consumer opts in, the 

institution must provide written confirmation of the consumer’s consent. 

The proposed opt-in would apply to any ATM withdrawal, including withdrawals 

made at proprietary or foreign ATMs. The proposed opt-in would also apply to any onetime debit card transaction, regardless of whether the consumer uses a debit card at a 

point-of-sale (for example, at a merchant or a store), in an online transaction, or in a 

telephone transaction. 
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consumer’s account for the amount of the overdraft, provided that the institution is 

permitted to do so by applicable law.

Proposed comment 17(b)-2 clarifies that § 205.17 does not require an institution 

to pay or honor any overdrafts on an ATM withdrawal or a one-time debit card 

transaction even if a consumer affirmatively consents to the institution’s overdraft service

for such transactions.

Similar to the opt-out approach, the proposed rule requiring consumer opt-in 

would not apply to other types of transactions, such as checks, ACH transactions or 

preauthorized EFTs. In many of these cases, the institution would assess the same fee 

amount whether the item is paid or returned, but payment pursuant to the overdraft 

service would enable the consumer to avoid other adverse consequences, such as 

merchant returned item fees. In contrast, if a consumer does not opt in to the payment of 

overdrafts for ATM withdrawals or one-time debit card transactions, the transaction 

would generally be declined and the consumer would not be assessed any fees either by 

the financial institution or the merchant.

To enable consumers to make an informed choice about an institution’s overdraft 

service, proposed § 205.17(b)(1)(i) would require the institution to provide a consumer a 

notice explaining the institution’s overdraft service for ATM withdrawals and one-time 

debit card transactions that is segregated from everything else, including other account 

disclosures. In addition, the proposal would provide that the notice may not contain any 

information that is not specified or otherwise permitted by this section (see proposed 

§ 205.17(d) and comment 17(d)-2, discussed below). The separate notice requirement is 

designed to ensure that this information is not buried within other account documents and
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overlooked by the consumer. Otherwise, institutions could include information about the 

overdraft service in preprinted language in an account-opening disclosure, and a 

consumer might inadvertently consent to the institution’s overdraft service merely by 

signing a signature card or other account-opening document acknowledging acceptance 

of the account terms. 

Reasonable opportunity to opt in. Proposed § 205.17(b)(1)(ii) requires an 

institution to provide a reasonable opportunity for the consumer to affirmatively consent 

to the institution’s overdraft service for ATM withdrawals and one-time debit card 

transactions. Proposed comment 17(b)-3 contains examples to illustrate what would 

constitute a reasonable opportunity to affirmatively consent, including the provision of 

reasonable method(s) to provide affirmative consent.

Proposed comment 17(b)-3.i contains an example of a reasonable method of 

opting in when the institution provides a written form that the consumer can fill out and 

mail to opt in. See

Proposed comment 17(b)-3.ii illustrates that an institution could also provide a 

toll-free telephone number that the consumer may call to provide affirmative consent. 

proposed § 205.17(b)(1)(i) and proposed Model Form A-9 in 

Appendix A, discussed below. The institution may not, however, obtain a consumer’s 

affirmative consent in writing by including preprinted language about the overdraft 

service in an account disclosure provided with a signature card or contract that the 

consumer must sign to open the account and that acknowledges the consumer’s 

acceptance of the account terms. Nor may an institution obtain a consumer’s affirmative 

consent by providing a signature card that contains a pre-selected check box indicating 

that the consumer is requesting the service. 
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Proposed 17(b)-3.iii illustrates that an institution may provide an electronic means for the 

consumer to affirmatively consent, such as a form that can be accessed and processed at 

an Internet web site, provided that the institution directs the consumer to the specific 

website address where the form is located, rather than solely referring to the institution’s 

home page. 

Proposed comment 205.17(b)-4 states that an institution may provide an opt-in 

notice prior to or at account opening and require the consumer to decide whether to opt in 

to the payment of ATM withdrawals or one-time debit card transactions pursuant to the 

institution’s overdraft service as a necessary step to opening an account. For example, 

the institution could require the consumer prior to or at account opening to choose 

between an account that does not permit the payment of ATM withdrawals or one-time 

debit card transactions pursuant to the institution’s overdraft service or an account that 

permits the payment of such overdrafts.

Written confirmation. Proposed § 205.17(b)(1)(iii) requires that upon obtaining 

the consumer’s affirmative consent to the institution’s overdraft service, the institution 

must provide the consumer with written confirmation documenting the consumer’s 

choice, to help ensure that the consumer intended to opt in to the service. An institution 

could comply with the proposed written confirmation requirement, for example, by 

providing a copy of a consumer’s completed opt-in form or sending a letter to the 

consumer acknowledging that the consumer has elected to opt in to the institution’s 

service if the consumer has opted out by telephone or in person.

Conditioning payment of overdrafts on consumer’s affirmative consent. Proposed 

§ 205.17(b)(2) of the opt-in approach provides that an institution shall not condition the 
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payment of any overdrafts for checks, ACH transactions, or other types of transactions on 

the consumer also affirmatively consenting to the institution’s payment of overdrafts for

ATM withdrawals and one-time debit card transactions. The Board is concerned that 

some institutions may seek to tie the ability of a consumer to have overdrafts paid for 

checks, ACH transactions, and other types of transactions to the consumer affirmatively 

consenting to the institution’s payment of ATM and debit card overdrafts. As discussed 

above, many consumers may prefer that their account-holding financial institution cover 

overdrafts by check. These consumers may elect to opt in to an institution’s overdraft 

service if not doing so would mean that checks would be returned unpaid. 

To prevent circumvention of the opt-out right, the proposed rule also would 

prohibit an institution from declining to pay checks, ACH transactions, or other types of 

transactions because the consumer has not also affirmatively consented to the 

institution’s overdraft service for ATM and one-time debit card transactions. The 

proposed provision is designed to ensure that institutions do not exercise their discretion 

regarding the payment of overdrafts in such a manner as to prevent consumers from 

exercising a meaningful choice regarding overdraft services. Thus, the proposed rule

generally would require an institution to apply the same criteria for deciding when to pay

overdrafts for checks, ACH transactions, and other types of transactions, whether or not 

the consumer has affirmatively consented to the institution’s overdraft service with 

respect to ATM and one-time debit card overdrafts. For example, if an institution’s 

internal criteria would lead the institution to pay a check overdraft if the consumer had 

affirmatively consented to the institution’s overdraft service, it must also apply that same 

criteria in a consistent manner in determining to pay the check overdraft if the consumer 
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has not opted in. This provision is not intended to create a contractual requirement for 

the institution to pay overdrafts on checks, ACH transactions, or other types of 

transactions in any circumstances. See also proposed comment 17(b)-2. Comment is 

requested on whether there are other, more effective means of ensuring that consumers 

are not effectively compelled to opt in to an institution’s overdraft service for ATM 

withdrawals and one-time debit card transactions.

Notwithstanding the Board’s concerns about potential consumer compulsion to 

opt in, the Board is proposing a modified version of proposed § 205.17(b)(2) that would 

expressly permit institutions to condition the payment of any overdrafts for checks, ACH 

transactions, and other types of transactions on the consumer also affirmatively 

consenting to the institution’s payment of ATM withdrawals and one-time debit card 

transactions pursuant to the institution’s overdraft service. Under the alternative 

approach, an institution could also decline checks, ACH transactions, and other types of 

transactions because the consumer has not affirmatively consented to the institution’s 

overdraft service for ATM withdrawals and one-time debit card transactions. See

The Board solicits comment on the merits of both alternatives. The Board also 

seeks comment on other approaches that may sufficiently balance concerns about 

consumers being effectively compelled to opt in to an institution’s overdraft service for 

ATM withdrawals and one-time debit card transactions in order to have overdrafts paid 

for checks and other transactions against the operational difficulties of implementing a 

proposed § 205.17(b)(2). This alternative would address the potential operational issues 

associated with implementing an opt-in that would apply to ATM withdrawals and onetime debit card transactions, but not to other types of transactions. 
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rule that enables consumers to decide whether to have overdrafts paid for some but not all 

types of transactions.

Implementation of opt-in. Some institutions may choose to implement a 

consumer’s affirmative consent at the account level and pay overdrafts for ATM 

withdrawals and one-time debit card transactions for those consumers that have opted in. 

Other institutions for operational reasons may prefer to implement the consumer’s choice 

at the product level and open different accounts for consumers depending on whether the 

consumer has provided affirmative consent to the institution’s overdraft service for ATM 

withdrawals and one-time debit card transactions (“opt-in” account) or not (“no opt-in” 

account). Proposed § 205.17(b)(3) is intended to provide operational flexibility to 

institutions to implement a consumer’s affirmative consent using either approach.

The Board is concerned, however, that institutions could circumvent the proposed 

opt-in right and effectively compel the consumer to affirmatively consent to the 

institution’s payment of overdrafts for ATM withdrawals and one-time debit card 

transactions by providing a “no opt-in” account with significantly less favorable terms, 

conditions, or features compared to the opt-in account. Thus, the proposal sets forth two 

alternative approaches to address this concern. 

Under the first alternative, an institution must provide to consumers who do not 

affirmatively consent to the institution’s overdraft service for ATM withdrawals and onetime debit card transactions an account with the same terms, conditions, and features, 

including interest rates paid and fees assessed, as it provides to consumers who do 

affirmatively consent, except for the features that limit the institution’s payment of such 

overdrafts. 
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Under the second alternative, an institution may wish to alter some of the terms, 

conditions, or features of the account that does not permit the payment of overdrafts on 

ATM withdrawals and one-time debit card transactions. For example, the institution may 

wish to price some account services differently for the “no opt-in” account. In light of 

the Board’s concern about possible chilling effects, however, the second alternative 

permits an institution to vary the terms, conditions, or features of the “no opt-in” account

only if the differences in the terms, conditions, or features are not so substantial as to 

effectively compel a reasonable consumer to affirmatively consent to the institution’s 

payment of overdrafts on ATM withdrawals and one-time debit card transactions. For 

example, an institution may not decline to provide ATM and debit card services 

altogether if the consumer has not affirmatively consented to the institution’s overdraft 

service for ATM withdrawals and one-time debit card transactions. See proposed 

comment 17(b)(3)-1 of this second alternative.

The Board requests comment on both approaches. For institutions that require

consumers to opt in to the institution’s overdraft service, the Board requests comment on

whether the consumer’s choice is implemented at the account level (i.e., within the same 

type of account) or at the product level (i.e., by placing the consumer in a different type 

of account). The Board also requests comment on whether institutions that currently 

require an opt-in for overdraft services, or that offer accounts to certain subsets of 

consumers (such as high-risk consumers) that limit the consumer’s ability to overdraw 

the account, vary any other terms, conditions, or features of the account depending upon 

whether the consumer opts in or not. If so, comment is solicited on which terms, 

conditions or features are varied and why.
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Exception to the notice and opt-in requirements. Proposed § 205.17(b)(4) creates 

an exception to the proposed notice and opt-in requirement. Specifically, no notice 

would be required (nor affirmative consent obtained) when the institution has a policy 

and practice of declining to pay any ATM withdrawals or one-time debit card 

transactions for which authorization is requested if the institution has a reasonable belief 

that if the consumer’s account does not have sufficient funds available to cover the

transaction at the time of the authorization request. 

Exceptions to the fee prohibition

Under the first exception, an institution would be permitted to assess an overdraft 

fee or charge for paying an ATM withdrawal or one-time debit card transaction, 

notwithstanding the absence of the consumer’s affirmative consent, if the institution has a

reasonable belief that there are sufficient funds available in the consumer’s account at the 

time it authorizes a transaction. 

. Proposed § 205.17(b)(5) contains two 

exceptions to the fee prohibition that are identical to the exceptions proposed under the 

opt-out approach. These exceptions would allow institutions to assess a fee or charge for 

paying an ATM or debit card overdraft in certain circumstances even if the consumer has 

not affirmatively consented to the overdraft service. 

See proposed § 205.17(b)(5)(i). Under the second

exception, an institution would be permitted to assess an overdraft fee or charge, 

notwithstanding the absence of the consumer’s affirmative consent, where a merchant or 

payee presents a debit card transaction for payment by paper-based means, rather than

electronically using a card terminal, and the institution has not previously authorized the 

transaction. See proposed § 205.17(b)(5)(ii). These exceptions, and the reasons for 

proposing them, are discussed in greater detail in the section regarding the proposed opt-
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out approach. Proposed comments 17(b)(5)-1 through -3 contain examples illustrating 

the proposed exceptions for the opt-in approach.

In contrast to the opt-out approach, the opt-in rule would not require institutions 

to provide a notice after a consumer has been assessed an overdraft fee or charge. Thus, 

existing consumers may be unaware of their right to determine whether to enroll in their

institution’s overdraft service for ATM withdrawals and one-time debit card transactions, 

absent being given an “initial” opt-in notice. Accordingly, the proposed opt-in approach 

C. Timing – § 205.17(c)

Proposed § 205.17(c) would generally require that a financial institution provide 

an opt-in notice to the consumer about the institution’s overdraft service before the 

institution assesses any fee or charge on the consumer’s account for paying an ATM 

withdrawal or one-time debit card transaction pursuant to the institution’s overdraft 

service. However, once a consumer has opted in, financial institutions would not be 

required to provide a notice regarding the institution’s overdraft service following the 

assessment of any overdraft fees or charges to the consumer’s account. The Board 

believes such a requirement is not necessary when the consumer has affirmatively elected 

to enroll in the overdraft service.

The proposed provision would apply differently depending on when the account 

is opened. For new accounts opened on or after the effective date of the final rule, the 

opt-in notice must be provided prior to the assessment of any fee or charge on the 

consumer’s account for paying an ATM withdrawal or one-time debit card transaction 

pursuant to the institution’s overdraft service. 
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would require institutions to provide notices regarding their opt-in right to existing 

customers.

For existing accounts, that is, accounts opened prior to the effective date of the 

final rule, an institution may elect to provide an opt-in notice to all of its account holders 

on or with the first periodic statement sent after the effective date of the final rule. 

Alternatively, the institution may provide an opt-out notice to existing consumers 

following the first assessment of an overdraft fee or charge to the consumer’s account on 

or after the effective date of the final rule. 

The notice requirements for existing accounts would apply only for accounts for 

which overdraft services are provided as of the effective date of the final rule. Thus, 

institutions would not be required to provide notices to consumers that have previously

opted out of, or, for those institutions that require an opt-in, to consumers that have not 

affirmatively consented to, the service. Institutions that elect to provide notices to 

consumers prior to the effective date of the final rule also would not be required to 

provide new notices once the rule becomes effective for consumers that have not 

affirmatively consented to the service (provided that the consumer was given a 

reasonable amount of time to opt in).

As discussed below under proposed § 205.17(g), if an existing consumer has not 

opted in within 60 days of receiving the opt-in notice, the institution must cease assessing 

any fees or charges to existing consumer accounts for paying an ATM withdrawal or onetime debit card transaction pursuant to the institution’s overdraft service, except for fees 

that are permitted by the exceptions in § 205.17(b)(5). 
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The Board solicits comment on whether another approach may be more 

appropriate for existing customers. Specifically, the Board requests comment on whether 

it should adopt a hybrid approach consisting of an opt-out rule for existing accounts and 

an opt-in rule for new accounts. Under this approach, an institution could continue to pay 

overdrafts (and assess fees) for ATM withdrawals and one-time debit card transactions 

for existing consumers who have not opted out, but would be prohibited from paying 

such overdrafts and assessing an overdraft fee or charge on new consumers who have not 

affirmatively consented to the institution’s overdraft service. 

D. Content and format – § 205.17(d)

Proposed § 205.17(d) sets forth content requirements for the notice that must be 

provided to the consumer before the consumer may affirmatively consent to the 

institution’s overdraft service. In addition, proposed § 205.17(d) requires that the opt-in 

notice be in a form substantially similar to Model Form A-9 in Appendix A. The content 

requirements are discussed in greater detail in the section regarding the proposed opt-out 

approach. However, the Board has modified these content requirements (and the 

accompanying proposed commentary) from the proposed opt-out approach to reflect the 

requirement to obtain the consumer’s affirmative consent. See proposed § 205.17(d) and 

proposed comments 17(d)-1 and -2. 

The Board expects to conduct consumer testing of this proposed model form (and 

the proposed model forms for the opt-out) following issuance of this proposal.

E. Additional provisions addressing consumer opt-in right – § 205.17(e)-(g)

Joint accounts. Proposed § 205.17(e) requires a financial institution to treat 

affirmative consent provided by any joint consumer of an account as affirmative consent 
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for the account from all of the joint consumers. As also discussed above with regard to 

the opt-out approach, this provision takes into account the operational difficulties that 

would otherwise arise if an institution had to determine which account holder was 

responsible for a particular transaction and then make an authorization decision based on 

whether the consumer had affirmatively consented to the institution’s overdraft service. 

Thus, if one joint consumer opts in to the institution’s overdraft service, the institution 

must treat the consent as applying to all overdrafts triggered by an ATM withdrawal or 

debit card transaction for that account. 

Continuing right to opt-in. Proposed § 205.17(f) provides that a consumer may 

affirmatively consent to a financial institution’s overdraft service at any time in the 

manner described in the opt-in notice. This provision allows consumers to decide later in 

the account relationship that they wish to have overdrafts paid for ATM withdrawals and 

one-time debit card transactions. 

Time to comply for existing customers. As discussed above under § 205.17(c), 

institutions would have the option of implementing the opt-in requirement for existing 

accounts either by providing a notice to all existing accounts on or with the first periodic 

statement sent on or after the effective date of the final rule. Alternatively, an institution 

could provide an opt-in notice to existing accounts after the first assessment of an 

overdraft fee or charge for an ATM or one-time debit card overdraft on or after the 

effective date of the final rule. In either case, under proposed § 205.17(g), if a consumer

has not affirmatively consented to the service within 60 days after the institution sends 

the opt-in notice, the institution shall cease assessing any fees or charges on the 
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consumer’s account for paying such overdrafts, except if permitted by the exceptions in 

§ 205.17(b)(5).

The 60-day period is intended to provide sufficient time for the consumer to 

respond to the opt-in notice, and for the institution to implement the consumer’s decision. 

During this time, an institution may continue to assess overdraft fees for paying ATM 

withdrawals and one-time debit card transactions. Comment is requested on the 60-day 

period, and whether the period should be longer or shorter. 

Duration of opt-in. Proposed § 205.17(h) provides that a consumer’s affirmative 

consent to the institution’s overdraft service is generally effective until revoked by the 

consumer. An institution may also terminate the consumer’s access to the overdraft 

service at its discretion, for example, if the institution determines that there is excessive 

usage of the service by the consumer. 

F. Request for comment

The Board requests comment on all aspects of the opt-in proposal, including the 

various alternatives set forth in the proposal. Comment is requested on the costs and 

benefits of the proposed opt-in rule to consumers and financial institutions. Comment is 

also solicited on which approach (opt-out or opt-in) may be optimal for both consumers, 

and whether one approach may present unique operational or cost issues that would not 

be associated with the other approach.

Section 205.19 Debit Holds

When a consumer uses a debit card to make a purchase, a block, or hold, may be 

placed on funds in the consumer’s account to ensure that the consumer has sufficient 

Background
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funds in his or her account when the transaction is presented for settlement. This type of 

block or hold is commonly referred to as a “debit hold.” During the time the debit hold 

remains in place, which may be up to three days after authorization, those funds may be 

unavailable for the consumer’s use in other transactions. 

In some cases, the actual purchase amount is not known at the time the transaction 

is authorized, such as when a consumer uses a debit card to pay for gas at the pump, 

check into a hotel room, or pay for a meal at a restaurant. Consequently, the debit hold 

may be placed for an estimated amount that exceeds the actual transaction amount. The 

consumer may engage in subsequent transactions reasonably assuming that his or her 

account has only been debited for the actual transaction amount. Or, prior transactions 

may be presented for settlement after the hold is placed. Because of the excess hold, 

however, the consumer may incur overdraft fees for those transactions.

For example, a consumer with $100 in a deposit account may swipe his or her 

debit card at a pay-at-the-pump dispenser to purchase $20 worth of fuel. When this

transaction is authorized, the consumer’s financial institution may increase the 

merchant’s $1 pre-authorization hold37 to $75 to cover the maximum amount the 

institution guarantees to pay the gas station under card network rules.

38

 37 Pre-authorization describes the dollar amount of funds that are held on a consumer’s account when a card 

is swiped to initiate a transaction. 

38 In a signature-based debit card transaction at a pay-at-the-pump dispenser, the merchant typically obtains 

a $1 pre-authorization to activate the pump. The card issuer may increase this amount to the maximum 

amount guaranteed to the merchant (currently $75 in most cases under card network rules) to protect itself 

against risk of loss. In contrast, in a PIN-based debit card transaction where the cardholder enters his or her 

personal identification number (PIN) to complete the transaction, the merchant obtains pre-authorization 

for an estimated transaction amount, which under current card network rules generally may not exceed $75.

 Because the final 

$20 transaction amount is not settled immediately, the $75 debit hold amount may remain 

in place for some period of time, up to three days for signature-based debit card 
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transactions.

39 However, the consumer would be unaware that $55 more than the 

purchase amount has been temporarily made unavailable for use until the merchant 

presents the transaction for settlement. Thus, prior to settlement of the transaction, the 

consumer may make subsequent purchases assuming that his or her account has been 

debited by only $20, and inadvertently spend more than the available amount in his or her 

account. As a result, the consumer could be charged an overdraft fee even though the 

account contained sufficient funds to pay for all of the consumer’s purchases. 

May 2008 FTC Act Proposal

Several industry commenters asserted the rule would require banks to monitor 

retroactively, and manually adjust, transactions and fees that have posted to the account. 

A few of these commenters believed that the proposal would have a disproportionate cost 

impact on smaller institutions that do not have the systems or staff to handle the research 

and manual adjustments necessary to correct the consumer’s account. Alternatively, 

institutions would have to stop placing debit holds altogether which, industry commenters

argued, would raise potential safety and soundness concerns. Nonetheless, a few 

financial institution commenters stated that they either do not currently place holds on 

authorizations from gas stations, hotels, or rental car companies, or do not increase the $1 

merchant pre-authorization amount in connection with fuel purchases.

. The Agencies proposed in the May 2008 FTC Act 

Proposal to prohibit institutions from assessing an overdraft fee where the overdraft 

would not have occurred but for the placement of an excess debit hold. While consumer 

groups endorsed the Agencies’ proposal, industry commenters expressed strong 

opposition, stating that it would present significant operational difficulties. 

 39 Unlike signature-based debit card transactions, PIN-based debit card transactions that take place before 

the processing cut-off time for that day will typically settle soon after completion of the transaction. 
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Rather than adopting a substantive FTC Act rule, industry commenters urged the 

Agencies to use other existing regulatory authority. For example, industry commenters 

recommended that the Board exercise its authority under Regulation E to require 

merchants to disclose at the point-of-sale when holds may be placed on debit card 

transactions. Many industry commenters also stated that the Agencies’ concerns were 

already largely addressed by recent card network initiatives intended to reduce the length 

of the hold time for debit holds. For example, one payment card network has recently 

implemented changes intended to reduce the hold times for pay-at-the-pump fuel 

dispensers. Under these new rules, fuel merchants would be encouraged to transmit a 

transaction for settlement within two hours of authorization. If the merchant does so, the 

card-issuing institution will be required to drop the hold within the two-hour time frame, 

thus reducing the hold times to a matter of hours, instead of days. 

Discussion

After reviewing the comments received on the May 2008 FTC Act Proposal and 

based on its own analysis, the Board is proposing to address debit holds under the EFTA 

and Regulation E. Proposed § 205.19(a) generally would prohibit financial institutions

from assessing a fee or charge for paying an overdraft pursuant to the institution’s 

overdraft service if the overdraft would not have occurred but for a debit hold placed in a 

consumer’s account if the amount of the hold exceeds the actual transaction amount. The 

proposed rule would not apply to transactions in which the amount of the hold equals or 

is less than the actual amount of the transaction. Similarly, the proposed rule would not 

A. General rule – § 205.19(a)
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apply if the actual amount of the transaction would also have caused the overdraft to 

occur. 

Under the proposal, the scope of the debit hold provision would be limited to 

debit card transactions in which the actual transaction amount generally can be 

determined by the merchant or other payee within a short period of time after the 

institution authorizes the transaction. For example, in pay-at-the-pump fuel purchases, 

the actual transaction amount can be calculated once the consumer has finished pumping 

fuel. Similarly, when a consumer uses a debit card to pay a restaurant bill, the actual 

transaction amount can be determined once the consumer has signed the receipt and 

added a service tip. According to data submitted by one card network on the Board’s 

May 2008 FTC Act Proposal, restaurant and fuel purchases comprise over 95 percent of 

all transactions in which the settlement amount typically does not match the authorization 

amount.40

The proposed rule would not apply, however, to debit holds in other retail 

environments where the actual transaction amount generally cannot be determined for a 

considerable period of time after the merchant has submitted a transaction for 

authorization. For example, when a consumer provides his or her debit card at check-in 

for a multi-night hotel stay, the transaction will not be submitted for settlement until the 

end of the consumer’s stay. In this case, a hold may be placed on funds in the 

consumer’s account at check-in, but will not be released until the consumer completes his 

or her stay (or when the hold is required to be released under card network rules, 

whichever comes first). Similarly, if a consumer uses his or her debit card to reserve or 

pick up a rental car, the actual amount of the transaction will not be known until the car is 

 40 See Visa comment letter at 8.
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returned. In these circumstances, the general rule would not apply because the actual 

amount of the transaction generally cannot be determined within a short period of time 

after. It seems impracticable to craft a rule in such cases because it would be impossible 

to determine a reasonable hold period in all such circumstances. 

Moreover, the Board believes that overdraft fees are less likely to occur for hotel 

and car rental transactions because consumers tend to use credit cards for these 

transactions. In addition, data provided by one commenter indicates that even where 

debit cards are used in hotel and car rental transactions, they comprise a very small 

proportion of transactions overall involving a debit hold. The Board has received few 

complaints regarding overdraft fees incurred as a result of debit holds placed in 

connection with hotel and car rental transactions.

For these reasons, the Board is proposing a targeted rule for debit holds that 

would apply only in circumstances when the actual transaction amount can be determined 

within a short period of time after the institution authorizes the transaction. As stated 

above, the proposed rule would appear to cover approximately 95 percent of all 

transactions (pay-at-the-pump and restaurants) in which the actual transaction amount 

and the authorization amount do not match. Thus, the proposed rule would cover the 

areas of greatest concern regarding overdraft fees incurred because of a debit hold. 

Proposed comment 19(a)-1 provides examples of transactions covered by the proposed 

rule.

The prohibition against assessing an overdraft fee in connection with a debit hold 

applies only if the overdraft is caused solely by the existence of the hold. Proposed 

comment 19(a)-2 provides that an institution may assess an overdraft fee or charge if the 
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consumer’s account is overdrawn for other reasons. These reasons may include prior

debit card transactions that may have been authorized but not yet presented for

settlement, or when a deposited check in the consumer’s account is returned.

Proposed comment 19(a)-3 clarifies that a financial institution does not violate the 

prohibition in § 205.19 if it promptly waives or refunds any overdraft fees assessed on a 

consumer’s account caused by a debit hold placed on funds in the consumer’s account 

that is in excess of the actual amount of the transaction. However, the institution may not 

require the consumer to provide notice or other information that an overdraft fee was 

caused by a debit hold on funds in the consumer’s account before waiving or refunding

the fee. Proposed comment 19(a)-3 includes an example illustrating this provision.

Proposed comments 19(a)-4 through -7 set forth examples to illustrate application 

of the rule. 

The proposed rule provides a safe harbor that would allow a financial institution 

to assess a fee or charge for paying an overdraft that is caused solely by a debit hold in 

certain cases. Specifically, proposed § 205.19(b) permits an institution to assess an 

overdraft fee or charge to the consumer’s account in connection with a debit hold if the 

institution has adopted procedures and practices designed to remove the hold within a 

reasonable period of time. This safe harbor is intended to mitigate the potential 

compliance burden on institutions. Thus, an institution would not be required to 

recalculate each transaction which may appear to be overdrawn due to an excess hold to 

determine whether an overdraft fee was properly assessed if the hold is removed within a 

reasonable period of time following authorization. Proposed § 205.19(b) provides that an 

B. Safe harbor – § 205.19(b)
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institution has procedures and practices designed to release the hold within a reasonable 

period of time if the institution releases debit holds for the transactions covered by the 

proposed rule within two hours of authorization.41

The Board recognizes that the proposed safe harbor in § 205.19(b) would not 

prevent in all cases the assessment of overdraft fees caused by a debit hold even though 

the consumer had sufficient funds in the account. For example, a consumer may use his 

or her debit card to purchase groceries an hour after completing a fuel purchase. The 

proposed safe harbor would not preclude the consumer’s financial institution from 

assessing an overdraft fee or charge for the grocery purchase where an excess hold placed 

in connection with the fuel purchase causes the consumer to have insufficient funds at the 

 Proposed comment 19(b)-1 illustrates

the safe harbor.

The two-hour time period for removing a hold is consistent with industry efforts 

to minimize current hold times in certain retail environments. As discussed above, one 

payment card network has recently implemented changes designed to significantly reduce 

the hold times at pay-at-the-pump fuel dispensers. This industry initiative, however, is 

voluntary and, by itself, may not be sufficient to protect consumers from being assessed 

overdraft fees caused by an excess hold. In addition, this initiative is currently limited to 

pay-at-the-pump debit card transactions, and would not apply in other circumstances in 

which the actual transaction amount can be determined within a short period of time after

authorization was obtained, such as at restaurants. Nonetheless, the introduction of a 

two-hour hold period, even on a voluntary basis, suggests that such a standard is feasible. 

 41 Where an institution has released a debit hold before the transaction is presented for payment in order to 

take advantage of the safe harbor, it would be permitted to assess an overdraft fee if the actual transaction 

amount presented for settlement causes the consumer to overdraw his or her account.
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time of authorization for the grocery purchase. (However, if the consumer has opted out 

under § 205.17 (or not opted in), the institution would not be permitted to assess a fee or 

charge for paying the debit card overdraft. See proposed comment 19(b)-2, discussed 

below.) The Board nonetheless believes that in the vast majority of cases, consumers 

would not be assessed a fee for an overdraft that was caused by an excess debit hold in 

light of the short time period (2 hours) that the hold would be in place before it would be

released by institutions that follow the safe harbor. However, the Board solicits comment 

on this approach.

Proposed comment 19(b)-2 illustrates the interaction between the debit hold

provision in § 205.19 and the opt-out (or opt-in) requirements in § 205.17. Specifically, 

if a consumer is not enrolled in the institution’s overdraft service for ATM withdrawals

and one-time debit card transactions (because the consumer has opted out or not opted 

in), the institution may not assess any overdraft fees incurred in connection with a debit 

hold even if the institution otherwise is not prohibited from doing so by the debit hold

provision. For example, assume a consumer has $100 in his or her deposit account and 

has opted out of the institution’s overdraft service. The consumer uses his or her debit 

card to purchase $30 of fuel at a pay-at-the-pump fuel dispenser. At the time of 

authorization, the financial institution increased the gas station’s $1 preauthorization hold 

to $75. One hour after completing the fuel purchase, the consumer makes a $60 debit 

card purchase at a grocery store. Notwithstanding the fact that the consumer made the 

purchase within the two-hour safe harbor, the institution would not be permitted to assess 

an overdraft fee because the consumer had opted out of (or not opted in to) the 

institution’s overdraft service.
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C. Other potential approaches

The proposal does not require merchants to disclose debit holds as a substitute for 

a substantive rule, as some industry commenters had suggested. The Board does not 

believe that a disclosure-based approach would be effective in pay-at-the-pump and 

restaurant transactions. For example, a notice posted at a gas pump or in a restaurant is 

unlikely to be noticed by the consumer. Even if the consumer were to notice a point-ofsale disclosure about debit holds, the consumer would not know how long the hold will 

remain in place. Moreover, for signature-based pay-at-the-pump debit card purchases, 

the merchant does not know whether the financial institution will increase the $1 preauthorization hold. Therefore, merchant disclosures at point-of-sale regarding debit holds

do not appear to provide a workable solution in most circumstances.

In addition, comment is requested whether the Board should exercise its authority 

under Section 904 of the EFTA to also require merchants (or their acquirers or 

D. Request for comment

The Board requests comment on all aspects of the debit hold proposal, including 

whether additional guidance is necessary regarding transactions in which the actual 

purchase amount is determined within “a short period of time.” Comment is also 

requested on the costs and benefits of the proposed rule to consumers and financial 

institutions. 

Comment is requested on the appropriateness of the proposed safe harbor, 

including whether other time periods may be more appropriate in light of operational 

constraints at smaller institutions which may only receive authorization and settlement 

information periodically during the day.
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processors) to promptly submit transactions covered by this rule for settlement. 

Specifically, the Board seeks comment on whether the final rule should also require 

merchants (or their acquirers or processors) to submit such transactions for settlement 

within the safe harbor period.

VI. Initial Regulatory Flexibility Analysis

The Regulatory Flexibility Act (5 U.S.C. 601 et seq

1. 

.) (RFA) generally requires an 

agency to perform an assessment of the impact a rule is expected to have on small 

entities. 

However, under section 605(b) of the RFA, 5 U.S.C. 605(b), the regulatory 

flexibility analysis otherwise required under section 604 of the RFA is not required if an 

agency certifies, along with a statement providing the factual basis for such certification, 

that the rule will not have a significant economic impact on a substantial number of small 

entities. Based on its analysis and for the reasons stated below, the Board believes that 

this proposed rule is likely to have a significant economic impact on a substantial number 

of small entities. A final regulatory flexibility analysis will be conducted after 

consideration of comments received during the public comment period.

Statement of the need for, and objectives of, the proposed rule. The Board is 

proposing revisions to Regulation E to prohibit financial institutions that hold a 

consumer’s account from assessing a fee or charge for paying ATM withdrawals and 

one-time debit card transactions pursuant to the institution’s overdraft service, unless the 

consumer is given the right to opt out of the service, and the consumer does not opt out. 

The proposal also sets forth an alternative approach that would require that a consumer 

affirmatively consent to the institution’s overdraft service before overdraft fees could be 
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assessed for these transactions. Under the proposal, financial institutions would be 

prohibited from assessing a fee or charge for certain debit card transactions that overdraw 

the consumer’s account if the overdraft would not have occurred but for a hold placed on 

funds in the consumer’s account in excess of the actual transaction, unless the institution 

has adopted procedures and practices designed to release the hold within a reasonable 

period of time. A safe harbor is provided if an institution has adopted procedures to 

release the hold within two hours after the institution authorized the transaction. 

The EFTA was enacted to provide a basic framework establishing the rights, 

liabilities, and responsibilities of participants in electronic fund transfer systems. The 

primary objective of the EFTA is the provision of individual consumer rights. 15 U.S.C. 

1693. The EFTA authorizes the Board to prescribe regulations to carry out the purpose 

and provisions of the statute. 15 U.S.C. 1693b(a). The Act expressly states that the 

Board’s regulations may contain “such classifications, differentiations, or other 

provisions, . . . as, in the judgment of the Board, are necessary or proper to effectuate the 

purposes of [the Act], to prevent circumvention or evasion [of the Act], or to facilitate 

compliance [with the Act].” 15 U.S.C. 1693b(c). The Board believes that the revisions 

to Regulation E discussed above are within Congress’s broad grant of authority to the 

Board to adopt provisions that carry out the purposes of the statute. These revisions 

facilitate a consumer’s ability to avoid overdrawing his or her account in connection with 

an electronic fund transfer the consumer has requested. 

2. Small entities affected by the proposed rule. The number of small entities 

affected by this proposal is unknown. Account-holding institutions would be required to 

provide consumers with a notice of their right to opt out of the payment of overdrafts at 
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ATMs and for one-time debit transactions, and a reasonable opportunity to opt out, 

before assessing any overdraft fee. These institutions would also be required to provide 

notice of the opt-out right subsequent to any overdraft fee assessment, whether on the 

consumer’s periodic statement or on a notice provided promptly after the occurrence of 

the overdraft. Under the alternative proposed approach, account-holding institutions 

would be required to obtain affirmative consent to the institution’s overdraft service 

before assessing overdraft fees for ATM withdrawals and one-time debit card 

transactions. According to the FDIC’s Study of Bank Overdraft Programs, 75.1 percent 

of banks with an automated overdraft program currently provide some form of an opt-out 

right to consumers, and 11.1 percent provide an opt-in right.42 Thus, institutions that 

already have an opt-out or an opt-in process in place would have to reprogram their 

systems to provide the notices required by the proposal. Institutions would also have to 

reprogram their systems to differentiate between overdrafts for different transaction 

types. As some industry commenters noted, some systems are not currently set up to pay 

overdrafts for certain transaction types (e.g., checks and ACH), but not others (e.g.

The Board is aware that some small institutions do not pay overdrafts at ATMs or 

for one-time debit card transactions.

, ATM 

and one-time debit card transactions). 

43

 42 See FDIC Study at 27.

43 See FDIC Study at 10 (reporting that 81 percent of institutions surveyed provide overdraft services for 

ATM and POS/ debit card transactions).

 These institutions would not be subject to the 

proposed opt-out (or opt-in) requirements. With respect to the opt-out approach, the 

Board believes that many institutions are already providing customers a method to opt 

out of their overdraft service, or an affirmative opt-in. These institutions would need to 
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conform their opt-out (or opt-in) procedures to the proposal. Also, those institutions that 

currently provide a form of opt-out or opt-in notice would need to review and revise this 

disclosure. Further, the Board believes that many institutions currently notify consumers 

who have incurred overdrafts promptly following an overdraft. Under the proposed optout approach, these institutions may need to review and perhaps revise this notification to 

add the opt-out notice. 

In addition, financial institutions would be prohibited from assessing a fee or 

charge for certain debit card transactions that overdraw the consumer’s account if the 

overdraft would not have occurred but for a hold placed on funds in the consumer’s 

account in excess of the actual transaction, unless they have adopted procedures designed 

to release the hold within a reasonable period of time. A safe harbor is provided if an 

institution has adopted procedures to release the hold within two hours after the 

institution authorized the transaction. The Board believes the proposed safe harbor will 

significantly decrease the burden of compliance with the rule.

3. Other federal rules. The Board has not identified any federal rules that 

duplicate, overlap, or conflict with the proposed revisions to Regulation E.

4. Significant alternatives to the proposed revisions

5 CFR 1320 Appendix A.1), the Board reviewed the rule under the authority delegated to 

the Board by the Office of Management and Budget (OMB). The collection of 

. The Board solicits comment 

on any significant alternatives that would reduce regulatory burden associated with this 

proposed rule on small entities. 

VII. Paperwork Reduction Act

In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3506; 
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information that is subject to the PRA by this proposed rule is found in 12 CFR part 205. 

The Federal Reserve may not conduct or sponsor, and an organization is not required to 

respond to, this information collection unless the information collection displays a 

currently valid OMB control number. The OMB control number is 7100-0200. 

This information collection is required to provide benefits for consumers and is 

mandatory (15 U.S.C. 1693 et seq

Regulation E applies to all financial institutions, not just state member banks 

(SMBs). In addition, certain provisions in Regulation E apply to entities that are not 

financial institutions, including those that act as service providers or ATM operators, as 

well as merchants and other payees that engage in electronic check conversion 

transactions, the electronic collection of returned item fees, or preauthorized transfers. 

The Federal Reserve accounts for the paperwork burden associated with Regulation E 

.). Since the Board does not collect any information, 

no issue of confidentiality arises. The respondents/recordkeepers are for-profit financial 

institutions, including small businesses. Institutions are required to retain records for 24 

months, but this regulation does not specify types of records that must be retained. 

The EFTA and Regulation E are designed to ensure adequate disclosure of basic 

terms, costs, and rights relating to electronic fund transfer (EFT) services debiting or 

crediting a consumer’s account. The disclosures required by the EFTA and Regulation E 

are triggered by certain specified events. The disclosures inform consumers about the 

terms of the electronic fund transfer service, activity on the account, potential liability for 

unauthorized transfers, and the process for resolving errors. To ease institutions’ burden 

and cost of complying with the disclosure requirements of Regulation E (particularly for 

small entities), the Board publishes model forms and disclosure clauses. 
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only for the financial institutions it supervises44

Under alternative 1 the Federal Reserve estimates that, to comply with the 

proposed opt-out notice requirement, 1,205 respondents regulated by the Federal Reserve 

would take, on average, 16 hours (two business days) to revise and update initial 

disclosures (§ 205.7(b)) for new customers and that 327 respondents

and that meet the criteria set forth in the 

regulation. Other federal agencies account for the paperwork burden imposed on the 

entities for which they have regulatory enforcement authority. 

As mentioned in the SUPPLEMENTARY INFORMATION above, under 

Alternative 1, the proposed rule (§ 205.17) would prohibit account-holding financial 

institutions from assessing a fee or charge for paying ATM withdrawals and one-time 

debit card transactions pursuant to the institution’s overdraft service, unless the consumer 

is given the right to opt out of the service, and the consumer does not opt out. Alternative 

1 would also require these institutions to provide notice of the opt-out right subsequent to 

any overdraft fee assessment, whether on the consumer’s periodic statement or on a 

notice provided promptly after the occurrence of the overdraft. The proposal also sets 

forth an alternative approach, Alternative 2, that would require that a consumer 

affirmatively consent, or opt-in, to the institution’s overdraft service before overdraft fees 

could be assessed for these transactions. 

45

 44 State member banks, branches and agencies of foreign banks (other than Federal branches, Federal

agencies, and insured state branches of foreign banks), commercial lending companies owned or controlled 

by foreign banks, and Edge and agreement corporations, organizations operating under section 25 or 25(a) 

of the Federal Reserve Act.

45 To avoid double counting and to be consistent with the current burden associated with periodic 

statements, burden for the 878 state member banks will be taken under Regulation DD.

regulated by the 

Federal Reserve would take, on average, 16 hours (two business days) to revise and 

update periodic statements (§ 205.9(b)) for existing customers. 
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The Federal Reserve estimates the total annual one-time burden for respondents to 

be 24,512 hours and believes that, on a continuing basis, there would be no additional 

increase in burden as the disclosures would be sufficiently accounted for once 

incorporated into the current initial account disclosure (§ 205.7(b)) and periodic 

statements (§ 205.9(b)). This would increase the total annual burden to 84,414 hours for 

Federal Reserve-regulated financial institutions that are required to comply with 

Regulation E. To ease the burden of compliance model forms that institutions may use 

are available in Appendix A (See proposed Model Forms A-9(A) and A-9(B)).

Under alternative 2 the Federal Reserve estimates that, to comply with the 

proposed opt-in notice requirement, 1,205 respondents regulated by the Federal Reserve 

would again take, on average, 16 hours (two business days) to revise and update initial 

disclosures (§ 205.7(b)) for new customers. The Federal Reserve estimates that 1,205 

respondents regulated by the Federal Reserve would take, on average, 16 hours (two 

business days) to prepare and send new opt-in notices for existing customers. 

The Federal Reserve estimates the total annual one-time burden for respondents to 

be 38,560 hours and believes that, on a continuing basis, there would be no additional 

increase in burden as the disclosure would be sufficiently accounted for once 

incorporated into the current initial account disclosure (§ 205.7(b)). This would increase 

the total annual burden to 98,462 hours for Federal Reserve-regulated financial 

institutions that are required to comply with Regulation E. To ease the burden of 

compliance a model form that institutions may use is available in Appendix A (See

proposed Model Forms A-9).
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The Federal Reserve estimates that on average 5,136,693 consumers would spend 

as much as 5 minutes reviewing and responding to an opt-in or opt-out notice. This 

would increase the total annual burden for this information collection by 428,058 hours. 

Overall, the burden could increase, depending on the alternative implemented, 

between 452,570 hours for alternative 1 and 466,618 hours for alternative 2 (for 512,472 

hours or 526,520 hours total, respectively).

The other federal financial agencies are responsible for estimating and reporting 

to OMB the total paperwork burden for the institutions for which they have 

administrative enforcement authority. They may, but are not required to, use the Federal 

Reserve’s burden estimation methodology. Using the Federal Reserve’s method, the total 

estimated annual burden for all financial institutions subject to Regulation E, including 

Federal Reserve-supervised institutions, would be approximately 1,041,011 hours.46

Comments are invited on: a. whether the proposed collection of information is 

necessary for the proper performance of the Federal Reserve’s functions including (a) 

whether the information has practical utility; (b) the accuracy of the Federal Reserve’s 

estimate of the burden of the proposed information collection, including the cost of 

compliance; (c) ways to enhance the quality, utility, and clarity of the information to be 

collected; and (d) ways to minimize the burden of information collection on respondents, 

 The 

above estimates represent an average across all respondents and reflect variations 

between institutions based on their size, complexity, and practices. All covered 

institutions, including depository institutions (of which there are approximately 17,200), 

potentially are affected by this collection of information, and thus are respondents for 

purposes of the PRA. 

 46 This estimate does not include consumer burden.
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including through the use of automated collection techniques or other forms of 

information technology. Comments on the collection of information should be sent to 

Michelle Shore, Federal Reserve Board Clearance Officer, Division of Research and 

Statistics, Mail Stop 151-A, Board of Governors of the Federal Reserve System, 

Washington, DC 20551, with copies of such comments sent to the Office of Management 

and Budget, Paperwork Reduction Project (7100-0200), Washington, DC 20503.

Text of Proposed Revisions

Certain conventions have been used to highlight the proposed changes to the text 

of the regulation and staff commentary. New language is shown inside bold-faced 

arrows, while language that would be deleted is set off with bold-faced brackets.

List of Subjects in 12 CFR Part 205

Consumer protection, Electronic fund transfers, Federal Reserve System, 

Reporting and recordkeeping requirements. 

For the reasons set forth 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 205.12 is amended by revising paragraph (a) to read as follows:

§ 205.12 Relation to other laws.

(a) Relation to truth in lending. (1) The Electronic Fund Transfer Act and this 

part govern –
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(i) The addition to an accepted credit card as defined in Regulation Z (12 CFR 

226.12[(a)(2), footnote 21]►, comment 12-2◄), of the capability to initiate electronic 

fund transfers;

(ii) The issuance of an access device that permits credit extensions (under a 

preexisting agreement between a consumer and a financial institution ►or an overdraft 

service, as defined in § 205.17(a)◄) only when the consumer’s account is overdrawn or 

to maintain a specified minimum balance in the consumer’s account; [and]

►(iii) The addition of an overdraft service, as defined in § 205.17(a), to an 

accepted access device; and◄

[(iii)]►(iv)◄ A consumer’s liability for an unauthorized electronic fund transfer 

and the investigation of errors involving an extension of credit that occurs under an 

agreement between the consumer and a financial institution to extend credit ►or an 

overdraft service, as defined in § 205.17(a),◄ when the consumer’s account is 

overdrawn or to maintain a specified minimum balance in the consumer’s account.

(2) The Truth in Lending Act and Regulation Z (12 CFR ►part◄ 226), which 

prohibit the unsolicited issuance of credit cards, govern –

(i) The addition of a credit feature to an accepted access device; and 

(ii) Except as provided in paragraph (a)(1)(ii) of this section, the issuance of a 

credit card that is also an access device.

* * * * *

3. Section 205.17 is added to read as follows:

ALTERNATIVE 1

►§ 205.17 Requirements for overdraft services.
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(a) Definition. For purposes of this section, the term “overdraft service” means a 

service under which a financial institution assesses a fee or charge on a consumer’s 

account held by the institution for paying a transaction (including a check or other item) 

when the consumer has insufficient or unavailable funds in the account. The term 

“overdraft service” does not include any payment of overdrafts pursuant to –

(1) A line of credit subject to the Federal Reserve Board’s Regulation Z (12 CFR 

part 226), including transfers from a credit card account, home equity line of credit, or 

overdraft line of credit; or

(2) A service that transfers funds from another account held individually or jointly 

by a consumer. 

(b) Opt-out requirement. (1) General. Except as provided under paragraphs 

(b)(4) and (b)(5) 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 withdrawal or a 

one-time debit card transaction pursuant to the institution’s overdraft service, unless:

(i) The institution provides notice to the consumer explaining that it may pay 

overdrafts on such transactions pursuant to the institution’s overdraft service and assess a 

fee or charge on the consumer’s account for doing so; 

(ii) The consumer is given a reasonable opportunity to opt out of the institution’s 

overdraft service for such transactions; and 

(iii) The consumer has not opted out. 

(2) Conditioning the opt-out. If a consumer opts out of a financial institution’s 

overdraft service for ATM withdrawals and one-time debit card transactions, the 

institution [shall not/ may]:
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(i) Condition the consumer’s right to opt out of the institution’s overdraft service 

for ATM withdrawals and one-time debit card transactions on the consumer also opting 

out of the institution’s overdraft service with respect to the payment of checks, ACH 

transactions, and other types of transactions; or

(ii) Decline to pay checks, ACH transactions, or other types of transactions that 

overdraw the consumer’s account because the consumer has opted out of the institution’s 

overdraft service for ATM withdrawals and one-time debit card transactions. 

ALTERNATIVE A – PARAGRAPH (b)(3)

(3) Implementation of opt-out. A financial institution shall implement the 

consumer’s election to opt out of the institution’s overdraft service for ATM withdrawals 

and one-time debit card transactions by providing to the consumer an account that has the 

same terms, conditions, and features, including interest rates paid and fees assessed, as

are provided to consumers who do not opt out, except for features that limit the 

institution’s payment of such overdrafts as provided in this section.

ALTERNATIVE B – PARAGRAPH (b)(3)

(3) Implementation of opt-out. A financial institution shall implement the 

consumer’s election to opt out of the institution’s overdraft service for ATM withdrawals 

and one-time debit card transactions by providing an account on the same or reasonably 

comparable terms. The institution may vary the terms, conditions, and features for the 

account that does not permit the payment of overdrafts on ATM withdrawals and onetime debit card transactions, provided that the differences in the terms, conditions, or 

features are not so substantial that they would discourage a reasonable consumer from 

exercising his or her right to opt out of the payment of such overdrafts. 
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(4) Exceptions to the notice and opt-out requirement. The requirements of this 

section do not apply to any financial institution that:

(i) Has a policy and practice of declining to pay any ATM withdrawals or onetime debit card transactions for which authorization is requested if 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; or

(ii) Requires consumers to affirmatively consent to the institution’s overdraft 

service for the payment of any ATM withdrawals or one-time debit card transactions

before the institution assesses any fees or charges to the consumer’s account for paying 

such overdrafts. 

(5) Exceptions to the fee prohibition. Notwithstanding a consumer’s election to 

opt out, a financial institution may assess a fee or charge on a consumer’s account for 

paying an ATM withdrawal or a one-time debit card transaction pursuant to the 

institution’s overdraft service if:

(i) The institution has a reasonable belief that there are sufficient funds available 

in the consumer’s account at the time the institution authorizes the transaction; or 

(ii) In the case of a debit card transaction, the transaction is presented for payment 

by the merchant through paper-based means, rather than electronically through a card 

terminal, and the institution has not previously authorized the transaction.

(c) Timing

(1) For accounts opened on or after [the effective date of the final rule], prior to 

the financial institution’s assessment of any fee or charge on the consumer’s account for 

. The notice described in paragraph (b)(1)(i) of this section shall be 

provided:
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paying an ATM withdrawal or a one-time debit card transaction pursuant to the 

institution’s overdraft service, so long as the consumer has a reasonable opportunity to 

exercise the opt-out right before the assessment of any such fee or charge; and

(2) For any account for which an opt-out has not been exercised or for which a 

prior opt-out has been revoked, following the assessment of any fee or charge assessed on 

the consumer’s account for paying an ATM withdrawal or a one-time debit card 

transaction pursuant to the institution’s overdraft service:

(i) On each periodic statement that reflects any such fee or charge, in close 

proximity to the disclosures required to be disclosed by 12 CFR § 230.11(a); or 

(ii) At least once per statement cycle on any notice sent promptly after the 

institution’s payment of an overdraft for an ATM withdrawal or a one-time debit card 

transaction during that statement cycle.

(d) Content and format. (1) Initial notice. The notice required by paragraph 

(c)(1) of this section shall be substantially similar to Model Form A-9(A) set forth in 

Appendix A of this part, and include all applicable items in this paragraph.

(i) Overdraft policy

(ii) 

. A general description of the financial institution’s overdraft 

service, and the types of electronic fund transfers for which a fee or charge for paying an 

overdraft may be imposed, including ATM withdrawals and one-time debit card 

transactions. 

Fees imposed. The dollar amount of any fees or charges assessed on the 

consumer’s account by the financial institution for paying an ATM withdrawal or a onetime debit card transaction, as applicable, pursuant to the institution’s overdraft service. 

If the amount of the fee is determined on the basis of the number of times the consumer 
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has overdrawn the account, the amount of the overdraft, or other factors, the institution 

must disclose the maximum fee that may be imposed or provide a range of fees that may 

be imposed.

(iii) Limits on fees charged. The maximum amount of overdraft fees or charges 

that may be assessed for transactions per day, or, if applicable, that there is no limit to the 

fees that can be imposed.

(iv) Disclosure of opt-out right. An explanation of the consumer’s right to opt out 

of the financial institution’s payment of overdrafts for ATM withdrawals and one-time 

debit card transactions pursuant to the institution’s overdraft service, including the

method(s) by which the consumer may exercise that right and how to contact the 

institution for more information. 

(v) Alternative payment options. A statement that the financial institution offers 

other alternatives for the payment of overdrafts, if applicable. If the institution offers a 

line of credit subject to the Board’s Regulation Z (12 CFR part 226) or a service that 

transfers funds from another account of the consumer (including joint accounts) held at 

the institution to cover the overdraft, the institution shall also state that fact and how to 

obtain more information about these alternatives. An institution may, but is not required 

to, list additional alternatives for the payment of overdrafts.

(2) Subsequent notice. The notice required by paragraph (c)(2) of this section 

shall be substantially similar to either Model Form A-9(A) in Appendix A of this part, or 

Model Form A-9(B) in Appendix A of this part.
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(e) Joint relationships. If two or more consumers jointly hold an account, the 

financial institution shall treat an opt-out direction by any of the joint consumers as an 

opt-out for that account.

(f) Continuing right to opt-out. A consumer may opt out of the institution’s future 

payment of overdrafts at any time in the manner described in the notice required by 

paragraph (b)(1)(i) of this section. 

(g) Time to comply with opt-out. A financial institution shall comply with a 

consumer’s opt-out request as soon as reasonably practicable after the institution receives 

it.

(h) Duration of opt-out. A consumer’s opt-out is effective until revoked by the 

consumer in writing or electronically.

ALTERNATIVE 2

►§ 205.17 Requirements for overdraft services.

(a) Definition. For purposes of this section, the term “overdraft service” means a 

service under which a financial institution assesses a fee or charge on a consumer’s 

account held by the institution for paying a transaction (including a check or other item) 

when the consumer has insufficient or unavailable funds in the account. The term 

“overdraft service” does not include any payment of overdrafts pursuant to –

(1) A line of credit subject to the Federal Reserve Board’s Regulation Z (12 CFR 

part 226), including transfers from a credit card account, home equity line of credit, or 

overdraft line of credit; or

(2) A service that transfers funds from another account held individually or jointly 

by a consumer. 
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(b) Opt-in requirement. (1) General. Except as provided under paragraphs (b)(4) 

and (b)(5) 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 withdrawal or a onetime debit card transaction pursuant to the institution’s overdraft service, unless the 

institution: 

(i) Provides the consumer with a notice explaining the institution’s overdraft 

service for such transactions that is segregated from everything else, and does not contain 

any information not specified in or otherwise permitted by paragraph (d) of this section;

(ii) Provides a reasonable opportunity for the consumer to affirmatively consent, 

or opt in, to the service for such transactions; and 

(iii) Obtains the consumer’s affirmative consent, or opt-in, to the institution’s 

payment of ATM withdrawals or one-time debit card transactions pursuant to the 

institution’s overdraft service, and provides the consumer with written confirmation of 

the consumer’s consent. 

(2) Conditioning payment of other overdrafts on consumer’s affirmative consent

(ii) Decline to pay checks, ACH transactions, and other types of transactions that 

overdraw the consumer’s account because the consumer has not affirmatively consented

. 

A financial institution [shall not/ may]:

(i) Condition the payment of any overdrafts for checks, ACH transactions, and 

other types of transactions on the consumer also affirmatively consenting to the 

institution’s payment of ATM withdrawals and one-time debit card transactions pursuant 

to the institution’s overdraft service; or
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to the institution’s overdraft service for ATM withdrawals and one-time debit card 

transactions. 

ALTERNATIVE A – PARAGRAPH (b)(3)

(3) Implementation of opt-in. A financial institution shall provide to consumers 

who do not affirmatively consent to the institution’s overdraft service for ATM 

withdrawals and one-time debit card transactions an account with the same terms, 

conditions, and features, including interest rates paid and fees assessed, as it provides to 

consumers who affirmatively consent, except for features that limit the institution’s 

payment of such overdrafts as provided in this section.

ALTERNATIVE B – PARAGRAPH (b)(3)

(3) Implementation of opt-in

(4) 

. A financial institution shall implement the 

consumer’s affirmative consent to the institution’s overdraft service for ATM 

withdrawals and one-time debit card transactions by providing an account on the same or 

reasonably comparable terms. The institution may vary the terms, conditions, and 

features for the account that does not permit the payment of overdrafts on ATM 

withdrawals and one-time debit card transactions, provided that the differences in the 

terms, conditions, or features are not so substantial that they would compel a reasonable 

consumer to affirmatively consent to the payment of such overdrafts.

Exception to the notice and opt-in requirements. The requirements of this 

section do not apply to any financial institution that has a policy and practice of declining

to pay any ATM withdrawals or a one-time debit card transactions for which 

authorization is requested when the institution has a reasonable belief that the consumer’s 
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account does not have sufficient funds available to cover the transaction at the time of the 

authorization request.

(5) Exceptions to the fee prohibition. Notwithstanding the absence of a

consumer’s affirmative consent, a financial institution may assess a fee or charge on the

consumer’s account for paying an ATM withdrawal or a one-time debit card transaction 

pursuant to the institution’s overdraft service if:

(i) The institution has a reasonable belief that there are sufficient funds available

in the consumer’s account at the time the institution authorizes the transaction; or

(ii) In the case of a debit card transaction, the transaction is presented for payment 

by the merchant through paper-based means, rather than electronically through a card 

terminal, and the institution has not previously authorized the transaction.

(c) Timing

(2) For accounts opened on or after [the effective date of the final rule], before

the financial institution assesses any fee or charge on the consumer’s account for paying 

. The notice required by paragraph (b)(1)(i) of this section shall be 

provided:

(1) For accounts opened and for which an overdraft service is provided prior to 

[the effective date of the final rule], at the institution’s option –

(i) On or with the first periodic statement sent on or after [the effective date of 

the final rule]; or

(ii) Following the first assessment on or after [the effective date of the final rule]

of any fee or charge on the consumer’s account for paying an ATM withdrawal or a onetime debit card transaction pursuant to the institution’s overdraft service; or
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an ATM withdrawal or a one-time debit card transaction pursuant to the institution’s 

overdraft service. 

(d) Content and format. The notice required by paragraph (b)(1)(i) of this section

shall be substantially similar to Model Form A-9 set forth in Appendix A of this part, and 

include all applicable items in this paragraph.

(1) Overdraft policy. A general description of the financial institution’s overdraft 

services and the types of electronic fund transfers for which a fee or charge for paying an 

overdraft may be imposed, including ATM withdrawals and one-time debit card 

transactions. 

(2) Fees imposed. The dollar amount of any fees or charges assessed on the 

consumer’s account by the financial institution for paying an ATM withdrawal or a onetime debit card transaction pursuant to the institution’s overdraft service. If the amount 

of the fee is determined on the basis of the number of times the consumer has overdrawn 

the account, the amount of the overdraft, or other factors, the institution must disclose the 

maximum fee that may be imposed or provide a range of fees that may be imposed.

(3) Limits on fees charged. The maximum amount of overdraft fees or charges 

that may be assessed per day, or, if applicable, that there is no limit to the fees that can be

imposed.

(4) Disclosure of opt-in right. An explanation of the consumer’s right to 

affirmatively consent to the financial institution’s payment of overdrafts for ATM 

withdrawals and one-time debit card transactions pursuant to the institution’s overdraft 

service, including the method(s) by which the consumer may consent to the service and 

how to get more information; and 
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(5) Alternative payment options. A statement that the financial institution offers 

other alternatives for the payment of overdrafts, if applicable. If the institution offers a 

line of credit subject to the Board’s Regulation Z (12 CFR part 226) or a service that 

transfers funds from another account of the consumer (individual or joint) held at the 

institution to cover the overdraft, the institution must also state that fact and how to 

obtain more information about these alternatives. An institution may, but is not required 

to, list additional alternatives for the payment of overdrafts.

(e) Joint relationships. If two or more consumers jointly hold an account, the 

financial institution shall treat the affirmative consent of any of the joint consumers as 

affirmative consent for that account.

(f) Continuing right to opt-in. A consumer may affirmatively consent to the

financial institution’s overdraft service at any time in the manner described in the notice

required by paragraph (b)(1)(i) of this section. 

(g) Time to comply for existing customers. For accounts opened prior to [the 

effective date of the final rule], if a consumer has not affirmatively consented to a 

financial institution’s overdraft service within 60 days after the institution sends the 

notice required under paragraph (c)(1) of this section, the institution shall cease assessing 

any fees or charges on a consumer’s account for paying an ATM withdrawal or a onetime debit card transaction pursuant to the service.

(h) Duration of opt-in. A consumer’s affirmative consent to the institution’s 

overdraft service is effective until revoked by the consumer, or until the financial

institution decides for any reason to terminate the service for the consumer, such as due 

to the consumer’s excessive usage of the service.◄
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4. Section 205.19 is added to read as follows:

►§ 205.19 Debit holds.

(a) General rule. A financial institution shall not assess a fee or charge for paying 

an overdraft pursuant to the institution’s overdraft service, as defined in § 205.17(a), if 

the overdraft would not have occurred but for a hold placed on funds in the consumer’s 

account in connection with a debit card transaction if the actual amount of the transaction 

can be determined by the merchant or other payee within a short period of time after the 

financial institution authorizes the transaction. A financial institution may, however, 

assess a fee or charge for paying an overdraft for a debit card transaction incurred in 

connection with a hold placed on funds for that transaction if the amount of the hold is 

less than or equal to the actual amount of the transaction.

(b) Safe harbor. Notwithstanding paragraph (a) of this section, a financial 

institution may assess an overdraft fee if the institution has procedures and practices in 

place designed to release a debit hold subject to this section within a reasonable period of 

time. An institution is deemed to have procedures and practices designed to release the

hold within a reasonable period of time if the institution releases the hold within two 

hours of the institution’s authorization of the transaction.◄

5. In Appendix A to Part 205, Appendix A-9 MODEL FORMS FOR 

OVERDRAFT SERVICES (§ 205.17) is added to read as follows:

APPENDIX A TO PART 205 – MODEL DISCLOSURE CLAUSES AND FORMS

* * * * *
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A-9 – MODEL FORMS FOR OVERDRAFT SERVICES (§ 205.17)

ALTERNATIVE 1 – MODEL FORM A-9(A)

A-9(A) Model Opt-Out Form for Account Opening (ALTERNATIVE 1 ONLY)

[Insert A-9(A) Model Opt-Out Form for Account Opening]
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A-9(B) Model Opt-Out Form for Periodic Statements (ALTERNATIVE 1 ONLY)

[Insert A-9(B) Model Opt-Out Form for Periodic Statements]
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ALTERNATIVE 2 – MODEL FORM A-9

A-9 Model Consent Form for Overdraft Services (ALTERNATIVE 2 ONLY)

[Insert A-9 Model Consent Form for Overdraft Services]
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6. In Supplement I to part 205, 

a. Under § 205.12 Relation to other laws, under 12(a) Relation to truth in lending, 

paragraph 2. is revised, and paragraph 3. is added.

b. Section 205.17 – Requirements for Overdraft Services is added.

c. Section 205.19 – Debit Holds is added.

Supplement I to Part 205 – Official Staff Interpretations

* * * * *

Section 205.12 – Relation to Other Laws

12(a) Relation to Truth in Lending

* * * * *

2. Issuance rules. For access devices that also constitute credit cards, the 

issuance rules of Regulation E apply if the only credit feature is a preexisting credit line 

attached to the asset account to cover overdrafts (or to maintain a specified minimum 

balance) ►or an overdraft service, as defined in § 205.17(a)◄. Regulation Z (12 CFR 

►part◄ 226) rules apply if there is another type of credit feature, for example, one 

permitting direct extensions of credit that do not involve the asset account.

►3. Overdraft service. The addition of an overdraft service, as that term is 

defined in § 205.17(a), to an accepted access device does not constitute the addition of a 

credit feature subject to Regulation Z. Instead, the provisions of Regulation E apply, 

including the liability limitations (§ 205.6) and the requirement to provide consumers an 

opportunity to opt out of the service before any fees or charges for paying an overdraft 

may be assessed to the account (§ 205.17).◄

* * * * *
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►Section 205.17 – Requirements for Overdraft Services

ALTERNATIVE 1

17(b) Opt-out requirement

1. Effect of opt-out. A consumer’s election to opt out of a financial institution’s 

overdraft service does not prohibit the institution from paying overdrafts for ATM 

withdrawals and one-time debit card transactions. If the institution pays such an 

overdraft, however, it may not impose a fee or charge for doing so if the consumer has 

opted out, except as permitted under the exceptions set forth in § 205.17(b)(5). These 

provisions do not limit the institution’s ability to debit the consumer’s account for the 

amount of the overdraft if permitted to do so under applicable law.

2. Examples of reasonable opportunity to opt out. A financial institution gives a 

consumer a reasonable opportunity to opt out if:

i. By mail. The institution provides a form for the consumer to fill out and mailto 

opt out. The consumer is given 30 days from the date the consumer is provided the initial

opt-out notice to opt out before an overdraft fee or charge is assessed to the consumer’s 

account.

ii. By telephone

iii. 

. The institution provides a toll-free telephone number that 

consumers may call to opt out. The consumer is given 30 days from the date the 

consumer is provided the initial opt-out notice to opt out before an overdraft fee or charge 

is assessed to the consumer’s account.

By electronic means. The institution provides an electronic means to opt out, 

such as a form that can be accessed and processed at an Internet Web site, provided that 

the institution directs the consumer to the specific website address where the form is 
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located, rather than solely referring to the institution’s home page. The consumer is 

given 30 days from the date the consumer is provided the initial opt-out notice to opt out 

before an overdraft fee or charge is assessed to the consumer’s account.

iv. At the time of account-opening. The institution provides the opt-out notice 

prior to or at account-opening and requires the consumer to decide whether to opt out of 

the institution’s payment of ATM withdrawals and one-time debit card transactions 

pursuant to the institution’s overdraft service as a necessary step to opening the account.

Paragraph 17(b)(3) – Implementation of Opt-out

ALTERNATIVE B ONLY

1. Example of impermissible variation in account terms. A financial institution 

may not vary the terms, conditions, or features of an account that does not permit the 

payment of overdrafts for ATM withdrawals and one-time debit card transactions such 

that the differences in the terms, conditions, or features are so substantial that they would 

discourage a reasonable consumer from opting out of the institution’s overdraft service. 

For example, an institution may not decline to provide ATM and debit card services 

altogether because the consumer has opted out of the institution’s overdraft service for 

ATM and one-time debit card transactions.

Paragraph 17(b)(4) – Exceptions to the Notice and Opt-out Requirement

1. Compliance. A financial institution that qualifies for either of the exceptions 

in § 205.17(b)(4) is not subject to the requirements to provide a consumer notice and a 

reasonable opportunity to opt out of the institution’s payment of overdrafts for ATM 

withdrawals and one-time debit card transactions.
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2. Opt-in. A financial institution that requires the consumer’s affirmative consent 

before paying overdrafts on the consumer’s behalf need not obtain the consumer’s 

affirmative consent prior to each transaction that may cause the consumer to overdraw 

the account. It is sufficient for the institution to require that the consumer affirmatively

consent to the institution’s overdraft service prior to the institution’s assessment of any 

fees or charges for paying an overdraft. 

Paragraph 17(b)(5) – Exceptions to the Fee Prohibition

1. Examples of transactions authorized on an institution’s reasonable belief. 

i. Balances not updated in real-time

ii.

. A consumer has opted out of a financial 

institution’s overdraft service. The financial institution uses a daily batch balance 

method for authorizing transactions, and updates the balance used for authorization at the 

end of the processing day. The consumer has $100 in her deposit account after the 

institution has finished processing transactions at the end of the day. The next day, the 

consumer makes two $40 debit card purchases followed by a $25 debit card purchase. 

Because the institution does not update the authorization balance during the day, each 

transaction, including the $25 debit card purchase, is authorized by the institution based 

on the same $100 balance that was calculated at the end of the prior day’s processing. 

Under these circumstances, the institution may assess a fee for paying or honoring the 

$25 debit card purchase because the institution authorized the transaction on the 

reasonable belief that the consumer had sufficient funds available in her account to cover 

the transaction. 

Returned deposit. A consumer has opted out of a financial institution’s 

overdraft service. The consumer has $30 in his deposit account and deposits a $100 
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check. The institution provides immediate availability to the consumer for the deposited 

funds. Subsequently, the consumer makes a $75 debit card purchase which is authorized 

by the institution based on a balance of $130. The $100 check is later returned on 

insufficient funds. Under these circumstances, the institution may assess a fee for paying 

or honoring the $75 debit card transaction because the institution authorized the

transaction on the reasonable belief that the consumer had sufficient funds available in 

his account to cover the transaction. 

iii. Settlement amount exceeds authorization amount

iv. 

. A consumer has opted out 

of an institution’s overdraft service. The consumer has $30 in her deposit account and 

uses a debit card to purchase fuel. Before permitting the consumer to use the fuel pump, 

the merchant verifies the validity of the card by requesting a pre-authorization hold from 

the institution for $1. The institution does not increase the amount of the hold. The 

consumer purchases $50 of fuel. If the institution pays or honors the transaction, it may 

assess an overdraft fee because the actual amount of the transaction exceeds the amount 

requested for authorization and causes the consumer to overdraw her account.

Intervening transactions between authorization and settlement of a “force pay” 

debit card transaction. A consumer has opted out of a financial institution’s overdraft 

service. The consumer has $100 in his deposit account and uses his debit card to make a 

$50 purchase at a store, and the institution authorizes the transaction. Before the 

transaction is presented for settlement, however, checks written by the consumer totaling 

$75 are posted to the consumer’s account. Under these circumstances, and assuming no 

intervening deposits are made by the consumer, the institution may assess a fee or charge 

for paying or honoring an overdraft when the $50 is presented for settlement because the 
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institution authorized that transaction on the reasonable belief that the consumer had 

sufficient funds available in his account to cover the transaction.

2. Examples of transactions not submitted for authorization. The exception under 

§ 205.17(b)(5)(i) permitting an overdraft fee to be charged to a consumer’s account when 

a financial institution has a reasonable belief that the consumer has sufficient funds 

available for the requested transaction does not apply where the transaction is not 

submitted to the institution for authorization. Under these circumstances, the general rule 

in § 205.17(b)(1) prohibits the institution from assessing a fee on the consumer’s account 

for paying or honoring an ATM withdrawal or one-time debit card transaction that 

overdraws the consumer’s account if the consumer has opted out of the institution’s 

overdraft service. If otherwise permitted under applicable law, the institution may debit 

the consumer’s account for the amount of the overdraft.

i. Small-dollar transactions not submitted for authorization

ii. 

. A consumer has 

opted out of a financial institution’s overdraft service. The consumer purchases a $3 cup 

of coffee using his debit card. Because of the small dollar amount of the transaction, the 

merchant does not submit the transaction to the consumer’s financial institution for 

authorization. At the time of the transaction, the consumer’s account does not have 

sufficient available funds to cover the transaction. The institution may not assess an 

overdraft fee to the consumer’s account for paying or honoring the debit card transaction. 

If otherwise permitted under applicable law, the institution may debit the consumer’s 

account for the amount of the overdraft.

Stand-in processing. A consumer has opted out of a financial institution’s 

overdraft service. The consumer withdraws $20 from an ATM. At the time the 
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consumer initiates the withdrawal request, the card network is temporarily unavailable 

and the request is not submitted to the institution for authorization. Instead, the 

consumer’s financial institution uses a “stand-in” processor to authorize transactions 

based on the institution’s pre-determined amount, rather than the consumer’s account 

balance. The consumer’s account does not have sufficient available funds at settlement 

to cover the transaction. The institution may not assess an overdraft fee to the 

consumer’s account for paying or honoring the debit card transaction. If otherwise 

permitted under applicable law, the institution may debit the consumer’s account for the 

amount of the overdraft.

3. Example of a transaction presented by paper-based means. A consumer has

opted out of a financial institution’s overdraft service. The consumer has $50 in her

deposit account and presents her debit card to make a $60 purchase. At that time, the 

merchant takes an imprint of the card but does not submit the transaction for 

authorization. Later that day, the merchant submits a sales slip with the card imprint to 

its processor for payment. If the transaction overdraws the consumer’s account and the 

consumer’s institution pays the transaction, the institution may assess a fee or charge for 

paying or honoring the overdraft.

1. 

17(c) Timing

Paragraph 17(c)(1)

Existing customers. The requirement to provide notice before overdraft fees 

are assessed for payment of an ATM withdrawal or one-time debit card transaction 

pursuant to a financial institution’s overdraft service is applicable only to accounts 

opened on or after [the effective date of the final rule]. However, the requirement to
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provide notice of the opt-out right following the institution’s assessment of a fee or 

charge for paying an ATM withdrawal or a one-time debit card transaction pursuant to 

the institution’s overdraft service applies on or after [the effective date of the final rule], 

unless the consumer has previously opted out and the consumer has not revoked the optout. 

17(d) Content and Format

Paragraph 17(d)(1) – Initial Notice

1. Range of fees. If the amount of a fee will vary from transaction to transaction, 

the financial institution may indicate that the consumer may be assessed a fee “up to” the 

maximum fee or provide the range of fees.

2. Additional opt-out notice content. Section 205.17(b)(1) requires an opt-out 

notice that is substantially similar to Model Forms A-9(A) and A-9(B). A financial

institution, may, however, briefly describe in its notice the consequences of the 

consumer’s election to opt out of the institution’s payment of overdrafts. For example, 

the institution may state that if a consumer opts out of the institution’s overdraft service 

for ATM withdrawals and one-time debit card transactions, the institution may decline 

such transactions if the consumer’s account does not have sufficient funds. An institution 

may also include language describing other types of transactions that are not subject to 

the opt-out right or indicating that the institution pays overdrafts at its discretion.

1. 

17(g) Time to Comply with Opt-out

Fees or charges assessed prior to implementing opt-out. Section 205.17(g) 

provides that a consumer may opt out of a financial institution’s future payment of 

overdrafts at any time. If a consumer, who has not initially opted out, later elects to 
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exercise his or her opt-out right, this provision does not require the institution to waive or 

reverse any overdraft fees or charges assessed to the consumer’s account prior to the 

institution’s implementation of the consumer’s opt-out request.

ALTERNATIVE 2

17(b) Opt-in requirement

1. No affirmative consent. A financial institution may pay overdrafts for ATM 

withdrawals and one-time debit card transactions even if a consumer has not 

affirmatively consented or opted in to the institution’s overdraft service. If the institution 

pays such an overdraft, however, it may not impose a fee or charge for doing so without 

the consumer’s affirmative consent, except as permitted under the exceptions set forth in

§ 205.17(b)(5). These provisions do not limit the institution’s ability to debit the 

consumer’s account for the amount of the overdraft if the institution is permitted to do so 

under applicable law.

2. Overdraft transactions not required to be paid or honored. Section 205.17 does 

not require a financial institution to pay or honor an overdraft on an ATM withdrawal or 

a one-time debit card transaction even if the consumer has affirmatively consented to an 

institution’s overdraft service for such transactions.

3. Examples of reasonable opportunity to provide affirmative consent. A 

financial institution provides a reasonable opportunity for the consumer to affirmatively 

consent to the institution’s overdraft service if –

i. By mail. The institution provides a form for the consumer to fill out and mail to 

affirmatively request the service.
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ii. By telephone. The institution provides a toll-free telephone number that 

consumers may call to provide affirmative consent.

iii. By electronic means. The institution provides an electronic means for the 

consumer to affirmatively consent, such as a form that can be accessed and processed at 

an Internet Web site, provided that the institution directs the consumer to the specific 

website address where the form is located, rather than solely referring to the institution’s 

home page.

4. Implementing opt-in at account-opening

1. 

. A financial institution may provide a 

notice regarding the institution’s overdraft service prior to or at account-opening and, as a 

necessary step to opening an account, require a consumer to choose whether to opt in to 

the payment of ATM withdrawals or one-time debit card transactions pursuant to the 

institution’s overdraft service. For example, the institution could require the consumer at 

account opening to choose between an account that does not permit the payment of ATM 

withdrawals or one-time debit card transactions pursuant to the institution’s overdraft 

service or an account that permits the payment of such overdrafts.

Paragraph 17(b)(3) – Implementation of Opt-in

ALTERNATIVE B ONLY

Example of impermissible variation in account terms. A financial institution 

may not vary the terms, conditions, or features of an account that does not permit the 

payment of overdrafts for ATM withdrawals and one-time debit card transactions such 

that the differences in the terms, conditions, or features are so substantial that they would 

compel a reasonable consumer to opt in to the institution’s overdraft service. For 

example, an institution may not decline to provide ATM and debit card services 
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altogether unless the consumer affirmatively consents to the institution’s overdraft 

service for ATM withdrawals and one-time debit card transactions.

Paragraph 17(b)(5) – Exceptions to the Fee Prohibition

1. Examples of transactions authorized on an institution’s reasonable belief. 

i. Balances not updated in real-time

ii. 

. A consumer has not affirmatively consented 

to a financial institution’s overdraft service. A financial institution uses a daily batch 

balance method for authorizing transactions, and updates the balance used for 

authorization at the end of the processing day. The consumer has $100 in her deposit 

account after the institution has finished processing transactions at the end of the day. 

The next day, the consumer makes two $40 debit card purchases followed by a $25 debit 

card purchase. Because the institution does not update the authorization balance during 

the day, each transaction, including the $25 debit card purchase, is authorized by the 

institution based on the same $100 balance that was calculated at the end of the prior 

day’s processing. Under these circumstances, the institution may assess a fee for paying 

or honoring the $25 debit card purchase because the institution authorized the transaction 

on the reasonable belief that the consumer had sufficient funds available in her account to 

cover the transaction. 

Returned deposit. A consumer has not affirmatively consented to a financial 

institution’s overdraft service. The consumer has $30 in his deposit account and deposits 

a $100 check. The institution provides immediate availability to the consumer for the 

deposited funds. Subsequently, the consumer makes a $75 debit card purchase which is 

authorized by the institution based on the $130 balance. The $100 check is later returned 

on insufficient funds. Under these circumstances, the institution may assess a fee for 
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paying or honoring the $75 debit card transaction because the institution authorized the 

transaction on the reasonable belief that the consumer had sufficient funds available in 

his account to cover the transaction. 

iii. Settlement amount exceeds authorization amount. A consumer has not 

affirmatively consented to a financial institution’s overdraft service. The consumer has 

$30 in her deposit account and uses a debit card to purchase fuel. Before permitting the 

consumer to use the fuel pump, the merchant verifies the validity of the card by 

requesting a pre-authorization hold from the institution for $1. The institution does not 

increase the amount of the hold. The consumer purchases $50 of fuel. If the institution 

pays or honors the transaction, it may assess an overdraft fee because the actual amount 

of the transaction exceeds the amount requested for authorization and causes the 

consumer to overdraw her account.

iv. Intervening transactions between authorization and settlement of a “force pay” 

debit card transaction. A consumer has not affirmatively consented to a financial 

institution’s overdraft service. The consumer has $100 in a deposit account and uses his 

debit card to make a $50 purchase at a store. The institution authorizes the transaction. 

Before the transaction is presented for settlement, however, checks written by the 

consumer totaling $75 are posted to the consumer’s account. Under these circumstances, 

and assuming no intervening deposits are made by the consumer, the institution may 

assess a fee or charge for paying or honoring an overdraft when the $50 is presented for 

settlement because the institution authorized that transaction on the reasonable belief that 

the consumer had sufficient funds available in his account to cover the transaction.
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2. Examples of transactions not submitted for authorization. The exception under 

§ 205.17(b)(5)(i) permitting an overdraft fee to be charged to a consumer’s account when 

a financial institution has a reasonable belief that the consumer has sufficient funds 

available for the requested transaction does not apply where the transaction is not 

submitted to the institution for authorization. Under these circumstances, the general rule 

in § 205.17(b)(1) prohibits an institution from assessing a fee to the consumer’s account 

for paying or honoring an ATM withdrawal or one-time debit card transaction that 

overdraws the consumer’s account if the consumer has not affirmatively consented to the 

institution’s overdraft service. If otherwise permitted under applicable law, the 

institution may debit the consumer’s account for the amount of the overdraft.

i. Small-dollar transactions not submitted for authorization

ii. 

. A consumer has not 

affirmatively consented to a financial institution’s overdraft service. The consumer 

purchases a $3 cup of coffee using his debit card. Because of the small dollar amount of 

the transaction, the merchant does not submit the transaction to the consumer’s financial 

institution for authorization. At the time of the transaction, the consumer’s account does 

not have sufficient available funds to cover the transaction and the consumer has not 

affirmatively consented to the institution’s overdraft service. The institution may not 

assess an overdraft fee to the consumer’s account for paying or honoring the debit card 

transaction. If otherwise permitted under applicable law, the institution may debit the 

consumer’s account for the amount of the overdraft. 

Stand-in processing. A consumer has not affirmatively consented to a 

financial institution’s overdraft service. The consumer withdraws $20 from an ATM. At 

the time the consumer initiates the withdrawal request, the card network is temporarily 
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unavailable and the request is not submitted to the consumer’s financial institution for 

authorization. Instead, the institution uses a “stand-in” processor to authorize 

transactions based on the institution’s pre-determined amount, rather than the consumer’s 

account balance. The consumer’s account does not have sufficient available funds at 

settlement to cover the transaction. The institution may not assess an overdraft fee to the 

consumer’s account for paying or honoring the debit card transaction. If otherwise 

permitted under applicable law, the institution may debit the consumer’s account for the 

amount of the overdraft. 

3. Example of a transaction presented by paper-based means. A consumer has 

not affirmatively consented to a financial institution’s overdraft service. The consumer 

has $50 in her deposit account and presents her debit card to make a $60 purchase. At 

that time, the merchant takes an imprint of the card but does not submit the transaction 

for authorization. Later that day, the merchant submits a sales slip with the card imprint 

to its processor for payment. If the transaction overdraws the consumer’s account and the 

consumer’s institution pays the transaction, the institution may assess a fee or charge for 

paying or honoring the overdraft.

17(d) Content and Format

1. Range of fees

2. 

. If the amount of a fee may vary from transaction to transaction, 

the financial institution may indicate that the consumer may be assessed a fee “up to” the 

maximum fee or provide the range of fees.

Additional consent notice content. Section 205.17(d)(1) requires an opt-in 

notice that is substantially similar to Model Form A-9. A financial institution may, 

however, briefly describe in its notice the benefits of the institution’s payment of ATM 
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withdrawals or debit card transactions. For example, the institution may state that if a 

consumer does not affirmatively consent to the institution’s overdraft service in 

connection with ATM withdrawals and one-time debit card transactions, the institution 

may decline such transactions if the consumer’s account does not have sufficient funds. 

An institution may also include language describing other types of transactions that are 

not subject to the opt-in right or indicating that even if the consumer affirmatively 

consents to the overdraft service, the institution pays overdrafts at its discretion.◄

* * * * *

►Section 205.19 – Debit Holds

19(a) General Rule

1. Transactions for which the actual transaction amount can be determined 

shortly after authorization. Examples of transactions involving a hold in connection with 

a debit card transaction for which the actual transaction amount can be determined within 

a short period of time after authorization is obtained include:

i. A fuel purchase at a pay-at-the-pump dispenser.

ii. The payment of a restaurant bill where an estimated amount is added to the 

amount of the requested authorization to account for service tips.

2. Additional reasons for overdraft. Section 205.19 does not limit a financial 

institution from assessing an overdraft fee or charge for paying a particular transaction 

pursuant to the institution’s overdraft service if the consumer would have incurred an 

overdraft for other reasons, such as a prior debit card transaction that may have been 

authorized but not yet presented for settlement or if a deposited check is returned.
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3. Waiver of overdraft fees caused by debit holds

4. 

. A financial institution does 

not violate § 205.19 if it promptly waives or refunds any overdraft fees or charges 

assessed to the consumer’s account caused by a debit hold in excess of the actual amount 

of the transaction. For example, assume that a consumer has $50 in a deposit account. 

An institution does not violate § 205.19 if it assesses an overdraft fee on the consumer’s 

account as a result of a $75 hold placed in connection with a pay-at-the-pump fuel 

transaction, but promptly waives or refunds the overdraft fee after determining that the 

consumer has only purchased $40 worth of fuel. The institution may not require the 

consumer to provide notice or other information that an overdraft fee was caused by a 

debit hold on funds in the consumer’s account before the institution waives or refunds the 

fee.

Example of prohibition in connection with a debit hold placed for same 

transaction. A consumer has $50 in a deposit account and is enrolled in a financial

institution’s overdraft service. The consumer makes a fuel purchase using his debit card. 

Before permitting the consumer to use the fuel pump, the merchant obtains a preauthorization hold for $1 to verify that the consumer’s account is valid. The institution 

increases the amount of the hold to $75, or the maximum amount it guarantees to the 

merchant for the authorized transaction under card network rules. The $75 hold exceeds 

the consumer’s funds. The consumer purchases $20 of fuel. Under these circumstances, 

the financial institution is prohibited from assessing a fee or charge in connection with 

the debit hold because the overdraft would not have occurred but for the excess amount 

of the debit hold. However, if the consumer had purchased $60 of fuel, the institution
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could assess a fee or charge for an overdraft because the transaction exceeds the funds in 

the consumer’s account.

5. Example of prohibition in connection with a debit hold placed for another 

transaction

6. 

. A consumer has $100 in a deposit account and is enrolled in a financial

institution’s overdraft service. The consumer makes a fuel purchase using her debit card. 

Before permitting the consumer to use the fuel pump, the merchant obtains a preauthorization hold for $1, which the institution increases to $75, or the maximum amount 

it guarantees to the merchant for the authorized transaction under card network rules. 

The consumer purchases $20 of fuel, but the transaction is not presented for settlement 

for two days. The next day, the consumer withdraws $75 at an ATM. Under these 

circumstances, § 205.19 prohibits the institution from assessing a fee or charge for paying 

an overdraft with respect to the $75 withdrawal because the overdraft would not have 

occurred but for the $75 hold. 

Example of prohibition when authorization and settlement amounts are held 

for the same transaction. A consumer has $100 in a deposit account and is enrolled in a 

financial institution’s overdraft service. The consumer makes a $50 fuel purchase using

his debit card. Before permitting the consumer to use the fuel pump, the merchant 

obtains a pre-authorization hold for $1, which the institution increases to $75, or the 

maximum amount it guarantees to the merchant for the authorized transaction. The 

consumer purchases $50 of fuel. When the merchant presents the $50 transaction for 

settlement, it uses a different transaction code to identify the transaction than it had used 

for the pre-authorization, causing both the $75 hold and the $50 purchase amount to be 

temporarily posted to the consumer’s account at the same time. As a result, the 
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consumer’s account becomes overdrawn. Under these circumstances, and assuming no 

other transactions, § 205.19 prohibits the institution from assessing a fee or charge for 

paying an overdraft because the overdraft would not have occurred but for the $75 hold. 

7. Example of permissible overdraft fees in connection with a debit hold. A 

consumer has $100 in a deposit account and is enrolled in a financial institution’s 

overdraft service. The consumer makes a fuel purchase using her debit card. Before 

permitting the consumer to use the fuel pump, the merchant obtains a pre-authorization 

hold for $1, which the institution increases to $75, or the maximum amount it guarantees

to the merchant for the authorized transaction. The consumer purchases $35 of fuel, but 

the transaction is not presented for settlement for two days. The next day, the consumer 

withdraws $75 at an ATM. Notwithstanding the existence of the hold, the consumer’s 

financial institution may charge the consumer an overdraft fee for the $75 ATM 

withdrawal because the consumer would have incurred the overdraft even if the debit 

hold had been for the actual amount of the fuel purchase.

1. 

19(b) Safe Harbor

Example of two-hour safe harbor. A consumer has $100 in his deposit account

and is enrolled in a financial institution’s overdraft service. The consumer makes a $35 

fuel purchase using his debit card. Before permitting the consumer to use the fuel pump, 

the merchant obtains pre-authorization hold for $1, which the institution increases to $75, 

or the maximum amount it guarantees to the merchant for the authorized transaction. 

One hour after the transaction is completed, but before the transaction is presented for 

settlement, the consumer withdraws $55 at an ATM. Notwithstanding the existence of 

the debit hold, the consumer’s financial institution may charge the consumer an overdraft 
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fee for the $55 ATM withdrawal even though the overdraft was caused by the hold, 

because the institution has procedures and practices to release the hold within two hours 

and the ATM withdrawal occurred within the two-hour safe harbor period.

2. Relationship between § 205.17 and § 205.19. If a consumer is not enrolled in 

the institution’s overdraft service for ATM withdrawals and one-time debit card 

transactions (because the consumer has opted out or not opted in), the institution may not 

assess any fees or charges to the consumer’s account for paying a debit card overdraft 

even if the institution is not otherwise prohibited from doing so by the debit hold

provision in § 205.19. For example, assume a consumer has $100 in her deposit account 

and has opted out of the institution’s overdraft service. The consumer uses her debit card 

to purchase $30 of fuel at a pay-at-the-pump fuel dispenser. At the time of authorization, 

the financial institution increased the gas station’s $1 preauthorization hold to $75. One 

hour after completing the fuel purchase, the consumer makes a $60 debit card purchase at 

a grocery store. Notwithstanding the fact that the consumer made the purchase within the 

two-hour safe harbor, the institution would not be permitted to assess an overdraft fee 

because the consumer had opted out of the institution’s overdraft service.◄

By order of the Board of Governors of the Federal Reserve System, December __, 

2008.

Jennifer J. Johnson,

Secretary of the Board.

Billing Code 6210-01-P