[Federal Register Volume 75, Number 107 (Friday, June 4, 2010)]
[Rules and Regulations]
[Pages 31673-31676]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-13281]


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FEDERAL RESERVE SYSTEM

12 CFR Part 230

[Regulation DD; Docket No. R-1315]


Truth in Savings

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: On January 29, 2009, the Board published final rules amending 
Regulation DD, which implements the Truth in Savings Act, and the 
official staff commentary to the regulation. The final rule addressed 
depository institutions' disclosure practices related to overdraft 
services, including balances disclosed to consumers through automated 
systems. The Board is amending Regulation DD and the official staff 
commentary to address the application of the rule to retail sweep 
programs and the terminology for overdraft fee disclosures, and to make 
amendments that conform to the Board's final Regulation E amendments 
addressing overdraft services, adopted in November 2009.

DATES: The final rule is effective July 6, 2010, except for Sec.  
230.11(a)(1)(i), which is effective October 1, 2010.

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

SUPPLEMENTARY INFORMATION:

I. Background

    In December 2008, the Board adopted a final rule amending 
Regulation DD, which implements the Truth in Savings Act, and the 
official staff commentary to the regulation. The final rule addressed 
depository institutions' disclosure practices related to overdraft 
services, including balances disclosed to consumers through automated 
systems. The rule was published in the Federal Register on January 29, 
2009 and became effective January 1, 2010. See 74 FR 5584 (Regulation 
DD final rule).\1\
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    \1\ The Board published a technical amendment in April 2009 
correcting a printing error with respect to Sample Form B-10. 
Depository institutions must use Sample Form B-10, or a 
substantially similar form, including the box and gridlines, to 
provide totals for overdraft fees and returned item fees for the 
statement cycle and year-to-date. 74 FR 17768 (April 17, 2009). See 
Sec.  230.11(a).
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    In November 2009, the Board adopted a final rule under Regulation 
E, which implements the Electronic Fund Transfer Act, limiting a 
financial institution's ability to assess fees for paying ATM and one-
time debit card transactions pursuant to the institution's 
discretionary overdraft service without the consumer's affirmative 
consent to such payment. The rule was published in the Federal Register 
on November 17, 2009 and has a mandatory compliance date of July 1, 
2010. See 74 FR 59033 (Regulation E final rule).
    Since publication of the two rules, institutions and others have 
requested clarification of particular aspects of the rule and further 
guidance regarding compliance with the rule. In addition, conforming 
amendments to the Regulation DD final rule are necessary in light of 
certain provisions subsequently adopted in the Regulation E final rule. 
Accordingly, the Board proposed to amend Regulation DD and the official 
staff commentary. 75 FR 9126 (March 1, 2010).
    The Board received twelve comments on the proposed rule, including 
from financial institutions and their trade associations, as well as 
from a consortium of consumer groups. The final rule adopts the 
proposed rule substantially as proposed, with certain clarifications. 
Similarly, elsewhere in today's Federal Register, the Board is amending 
certain aspects of the Regulation E final rule.

II. Statutory Authority

    The Truth in Savings Act, 12 U.S.C. 4301 et seq., is implemented by 
the Board's Regulation DD (12 CFR part 230). The purpose of the act and 
regulation is to assist consumers in comparing deposit accounts offered 
by depository institutions, principally through the disclosure of fees, 
the annual percentage yield, the interest rate, and other account 
terms. An official staff commentary interprets the requirements of 
Regulation DD (12 CFR part 230 (Supp. I)). Credit unions are governed 
by a substantially similar regulation issued by the National Credit 
Union Administration. In the SUPPLEMENTARY INFORMATION to the 
Regulation DD final rule, the Board described its statutory authority 
and applied that authority to the requirements of the rule. For 
purposes of this rulemaking, the Board continues to rely on that legal 
authority and analysis.

[[Page 31674]]

III. Section-by-Section Analysis

A. Section 230.6(a)--Periodic Statement Disclosures; General Rule

    Section 230.6(a) describes disclosures that are required to be made 
when periodic statements are provided, including certain fees or 
charges. The Board proposed two technical amendments to Sec.  230.6(a) 
and the related staff commentary. First, the Board proposed to add a 
new Sec.  230.6(a)(5) to explicitly state that the aggregate fee 
disclosures required by Sec.  230.11(a)(1), discussed below, are among 
the disclosures that are required to be provided on periodic statements 
for purposes of Sec.  230.6(a). Second, the Board proposed to revise 
comment 6(a)(3)-2, to eliminate the reference to the promotion of the 
payment of overdrafts because the Regulation DD final rule extended the 
aggregate fee disclosure to all institutions. The Board did not receive 
comment on the proposed amendments, which are adopted substantially as 
proposed. Section 230.6(a)(5) has been revised from the proposal to 
indicate that the aggregate fee disclosure is required on periodic 
statements ``if applicable,'' because Sec.  230.11(a) does not require 
aggregate fee disclosures when a consumer has not incurred any 
overdraft fees for the calendar year-to-date.

B. Section 230.11(a)--Disclosure of Total Fees on Periodic Statements

    Section 230.11(a)(1)(i) requires institutions to disclose on each 
periodic statement, as applicable, the total dollar amount of all fees 
or charges imposed on the account for paying checks or other items when 
there are insufficient or unavailable funds and the account becomes 
overdrawn for the month and calendar year-to-date. Sample Form B-10 
displays this total as ``Total Overdraft Fees.'' Section 
230.11(a)(1)(ii) requires institutions to disclose separately the total 
dollar amount of all fees or charges imposed on the account for 
returning items unpaid for the month and calendar year-to-date. 12 CFR 
230.11(a)(1)(ii). Comment 230.11(a)(1)-3 states that institutions may 
use terminology such as ``returned item fee'' or ``NSF fee'' to 
describe fees for returning items unpaid. These fee totals must be 
disclosed in a tabular format substantially similar to Sample Form B-
10. 12 CFR 230.11(a)(3).
    Some institutions may use terms other than ``Overdraft Fee'' to 
describe per-item overdraft fees in their account agreements. Comment 
3(a)-2 to Regulation DD provides that institutions must use consistent 
terminology in their account-opening disclosures, periodic statements, 
and other disclosures. In light of this comment, questions have been 
raised as to whether institutions may use terminology other than 
``Total Overdraft Fees'' in the periodic statement aggregate fee 
disclosure to describe the total amount of all fees or charges imposed 
on the account for paying overdrafts.
    The Board proposed to revise Sec.  230.11(a)(1)(i) to clarify that 
the periodic statement aggregate fee disclosure must state the total 
dollar amount for all fees or charges imposed on the account for paying 
overdrafts, using the term ``Total Overdraft Fees.'' Proposed comment 
11(a)(1)-2 explained that this provision supersedes comment 3(a)-2. 
Consumer group commenters supported the proposed requirement. In 
particular, these commenters suggested that the use of the terms ``NSF 
Fee'' and ``Overdraft Fee'' interchangeably has led to confusion for 
consumers. Several industry commenters objected to the proposed 
terminology requirement, stating that customers are used to seeing 
certain terms used to describe overdraft fees, such as ``NSF Items 
Paid.'' \2\ Other commenters stated that the Board should permit 
alternative terminology, such as ``Total Overdraft Fees for Paid 
Items.'' The Board is adopting the revisions generally as proposed, 
with minor revisions for clarity.
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    \2\ The official staff commentary to Regulation DD provides that 
institutions should not use the generic term ``insufficient funds 
fee'' or ``NSF fee'' to describe both fees for paying overdrafts and 
fees for returning items unpaid. See, e.g., comment 6(a)(3)-2.iv 
(institutions may group itemized fees, but may not group together 
fees for paying overdrafts and fees for returning checks or other 
items unpaid).
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    Section 230.11(a)(1)(i) requires institutions to provide a fee 
total that includes all overdraft fees, including any additional daily 
or sustained overdraft, negative balance, or similar fees or charges 
imposed by the institution. See comment 11(a)(1)-2. Thus, the use of 
terminology other than ``Total Overdraft Fees'' may not capture the 
various fees associated with an overdraft service. Moreover, the 
purpose of the aggregate fee disclosure is to provide consumers who use 
overdraft services with additional information about fees to help them 
better understand the costs associated with the service. Permitting the 
use of terminology other than ``Total Overdraft Fees'' could be 
confusing to consumers and potentially undermines their ability to 
compare costs, particularly if a consumer has accounts at different 
institutions that each use different terminology. The Board does not 
believe the alternative terminology suggested by commenters furthers 
consumer understanding.

C. Section 230.11(c)--Disclosure of Account Balances

Comment 11(c)-2--Retail Sweep Programs
    Section 230.11(c) of the Regulation DD final rule addresses the 
disclosure of account balance information to a consumer through an 
automated system. Under Sec.  230.11(c), institutions must disclose a 
balance that does not include additional amounts that the institution 
may provide to cover an item when there are insufficient or unavailable 
funds in the consumer's account, including under a service to transfer 
funds from another account of the consumer. The Board adopted this 
provision to ensure that consumers receive accurate information about 
their account balances and to help avoid consumer confusion as to 
whether an account has sufficient funds to cover a transaction.
    After publication of the Regulation DD final rule, questions were 
raised about the application of the rule to retail sweep programs. In a 
retail sweep program, an institution establishes two legally distinct 
subaccounts, a transaction subaccount and a savings subaccount, which 
together make up the consumer's account. The institution allocates and 
transfers funds between the two subaccounts in order to maximize the 
balance in the savings subaccount while complying with the monthly 
limitations on transfers out of savings accounts under the Board's 
Regulation D, 12 CFR 204.2(d)(2). Certain characteristics distinguish 
retail sweep programs from overdraft services. Therefore, the Board 
proposed to add a new comment 11(c)-2 to clarify that, when disclosing 
a transaction account balance, Sec.  230.11(c) does not require an 
institution to exclude from the consumer's balance funds that may be 
transferred from another account pursuant to a retail sweep program. 
Commenters supported this clarification, but stated that the comment 
should also permit institutions to include in the disclosed balance 
funds in investment products linked to transaction accounts pursuant to 
investment sweep programs. The comment is adopted substantially as 
proposed.
    Retail sweep programs are distinguishable in several respects from 
overdraft protection plans that transfer funds from a consumer's linked 
accounts. In particular, retail sweep programs are generally not 
established for the purpose of covering overdrafts.

[[Page 31675]]

Rather, institutions typically establish retail sweep programs by 
agreement with the consumer, in order for the institution to minimize 
its transaction account reserve requirements and, in some cases, to 
provide a higher interest rate than the consumer would earn on a 
transaction account alone. Furthermore, most retail sweep programs are 
structured so that the consumer (or person acting on behalf of the 
consumer) cannot independently access the funds in the savings 
subaccount; all transfers out of, and deposits or transfers into, the 
savings subaccount component of a retail sweep program are effected 
through the transaction subaccount. Notwithstanding the establishment 
of two legally distinct subaccounts under a retail sweep program, the 
periodic statements that consumers receive show a single consumer 
account balance, and a single account on which all transactions into 
and out of the account are reflected.
    By contrast, linked accounts can be used and funded independently 
of one another. For example, a consumer can directly make deposits 
into, and withdrawals from, a savings account whether or not it is 
linked to a checking account. The link between accounts under an 
overdraft protection program is primarily established for purposes of 
providing funds from the savings account in the event that the consumer 
has insufficient funds in the checking account. Additionally, while 
retail sweep programs typically do not impose fees on transfers between 
the savings subaccount and the transaction subaccount, institutions 
typically charge fees for transfers from linked accounts to cover an 
overdraft.
    Based on the foregoing, the Board believes that consumers under a 
retail sweep program may reasonably expect to see a single balance 
combining the funds in the transaction subaccount and the savings 
subaccount when they request an account balance. Consumers could be 
confused if a balance that only includes funds in the transaction 
subaccount were provided because, in some cases, the balance in the 
transaction subaccount could be zero (to the extent funds had been 
transferred to the savings subaccount at the time of the balance 
inquiry). Thus, the final comment clarifies that Sec.  230.11(c) does 
not require an institution to exclude from the consumer's balance funds 
that may be transferred from another account pursuant to a retail sweep 
program.
    Some industry commenters stated that the Board should also permit 
institutions to include in the disclosed balance funds in investment 
products linked to transaction accounts pursuant to investment sweep 
programs. In an investment sweep program, a consumer links a 
transaction account at a depository institution with an investment 
product at a broker-dealer, investment institution, or the depository 
institution. The transaction account and the linked investment product 
are generally established contemporaneously. Investment sweep programs 
are normally not established for the purpose of covering overdrafts. 
Rather, deposits and other credits to the transaction account are swept 
on a regular basis to the investment product to provide the consumer a 
potentially higher rate of return, while providing consumers access to 
the funds through the transaction account. Fees are typically not 
charged for the transfers. For these reasons, the Board believes that 
investment sweep programs with these characteristics are also 
distinguishable from overdraft protection plans that transfer funds 
from a consumer's linked accounts, and the balances in the linked 
investment product could be included in the balance disclosed under 
Sec.  230.11(c).
Comment 11(c)-3--Additional Balance
    Section 230.11(c) of the Regulation DD final rule permitted 
institutions to disclose an additional balance including overdraft 
funds, so long as the institution prominently states that the balance 
contains additional overdraft funds. Comment 11(c)-2 of the final rule 
provided guidance on how institutions could appropriately identify the 
additional funds. However, the comment only addressed opt-outs. The 
Board subsequently adopted the November 2009 Regulation E final rule, 
which requires institutions to obtain a consumer's affirmative consent, 
or opt-in, to the institution's overdraft service, before charging any 
fees for paying ATM and one-time debit card transactions. In light of 
the final Regulation E opt-in requirement, the Board proposed to amend 
comment 11(c)-2, redesignated as comment 11(c)-3, to include references 
to the opt-in requirement. References to opt-outs were retained in some 
instances because some institutions may provide an opt-out choice with 
respect to checks, ACH, and other types of transactions not subject to 
the Regulation E final rule restrictions.
    The Board also proposed to extend the requirement to indicate, when 
applicable, that funds in the additional balance may not be available 
for all transactions. For example, if a consumer has an overdraft line 
of credit, but under the terms of the agreement with the institution, 
the consumer cannot access the line of credit when using a debit card 
at a point-of-sale transaction, the proposed comment should state that 
any additional balance displayed through an automated system should 
indicate that the overdraft funds are not available for all 
transactions.
    The Board did not receive comment on the proposed comment, which is 
adopted substantially as proposed with non-substantive revisions.\3\
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    \3\ Due to the clarifications finalized by the Board today, 
comment 11(c)-3 of the Regulation DD final rule has been 
redesignated as comment 11(c)-4.
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D. Effective Date

    Because some depository institutions may be using terminology other 
than ``Total Overdraft Fees'' in their aggregate fee disclosure under 
Sec.  230.11(a)(1), the Board proposed to make the proposed revisions 
to Sec.  230.11(a)(1)(i) effective approximately 90 days after 
publication of the final rule in the Federal Register. The Board 
solicited comment on whether this would be an appropriate time period 
for implementation. Consumer group commenters stated that this time 
frame would be reasonable, but that the Board should not extend the 
effective date further. Two industry trade associates urged the Board 
to provide an implementation time of six to nine months because 
institutions'' resources are currently devoted to coming into 
compliance with the Regulation E final rule.
    Section 302 of the Riegle Community Improvement Development and 
Regulatory Improvement Act of 1994, 12 U.S.C. 4802, requires 
regulations that impose additional disclosure requirements to take 
effect on the first day of a calendar quarter beginning on or after the 
date on which the regulations are published in final form, unless the 
agency determines, for good cause published with the regulation, that 
the regulation should become effective before such time. The Board 
believes that an approximately 90-day effective date is appropriate 
because final Sec.  230.11(a)(1)(i) will require some institutions to 
modify the disclosures provided to consumers. An effective date of July 
1, 2010, which is the first calendar quarter following publication of 
this final rule, would not provide sufficient time for compliance. 
Thus, Sec.  230.11(a)(1)(i) is effective October 1, 2010, which is the 
first day of the subsequent calendar quarter. The remaining provisions 
of the final rule are effective July 6, 2010.

IV. Regulatory Analysis

    Sections VI and VII of the SUPPLEMENTARY INFORMATION to the

[[Page 31676]]

Regulation DD final rule set forth the Board's analyses under the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.) and the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3506; 5 CFR part 1320 Appendix A.1). 
See 74 FR 5591-5593. Because the final amendments are clarifications 
and do not alter the substance of the analyses and determinations 
accompanying the Regulation DD final rule, the Board continues to rely 
on those analyses and determinations for purposes of this rulemaking.

List of Subjects in 12 CFR Part 230

    Advertising, Banks, Banking, Consumer protection, Reporting and 
recordkeeping requirements, Truth in savings.

Authority and Issuance

0
For the reasons set forth above, the Board amends 12 CFR part 230 and 
the Official Staff Commentary, as set forth below:

PART 230--TRUTH IN SAVINGS (REGULATION DD)

0
1. The authority citation for part 230 continues to read as follows:

    Authority: 12 U.S.C. 4301 et seq.


0
2. Section 230.6 is amended by adding paragraph (a)(5) to read as 
follows:


Sec.  230.6  Periodic statement disclosures.

    (a) * * *
    (5) Aggregate fee disclosure. If applicable, the total overdraft 
and returned item fees required to be disclosed by Sec.  230.11(a).
* * * * *

0
3. Section 230.11 is amended by revising paragraph (a)(1)(i) to read as 
follows:


Sec.  230.11  Additional disclosure requirements for overdraft 
services.

    (a) * * * (1) * * *
    (i) The total dollar amount for all fees or charges imposed on the 
account for paying checks or other items when there are insufficient or 
unavailable funds and the account becomes overdrawn, using the term 
``Total Overdraft Fees''; and
* * * * *

0
4. In Supplement I to part 230,
0
a. In Section 230.6(a)(3), the first two sentences of paragraph 2. are 
revised.
0
b. In Section 230.11(a)(1), paragraph 2. is revised.
0
c. In Section 230.11(c), paragraphs 2. and 3. are redesignated as 
paragraphs 3. and 4. respectively.
0
d. In Section 230.11(c), new paragraph 2. is added.
0
e. In Section 230.11(c), newly designated paragraph 3. is revised.

Supplement I to Part 230--Official Staff Interpretations

* * * * *

Section 230.6 Periodic Statement Disclosures

    (a) General Rule
    (a)(3) Fees Imposed
* * * * *
    2. Itemizing fees by type. In itemizing fees imposed more than 
once in the period, institutions may group fees if they are the same 
type. (See Sec.  230.11(a)(1) of this part regarding certain fees 
that are required to be grouped.) * * *
* * * * *

Section 230.11 Additional Disclosures Regarding the Payment of 
Overdrafts

    (a) Disclosure of total fees on periodic statements
    (a)(1) General
* * * * *
    2. Fees for paying overdrafts. Institutions must disclose on 
periodic statements a total dollar amount for all fees or charges 
imposed on the account for paying overdrafts. The institution must 
disclose separate totals for the statement period and for the 
calendar year-to-date. The total dollar amount for each of these 
periods includes per-item fees as well as interest charges, daily or 
other periodic fees, or fees charged for maintaining an account in 
overdraft status, whether the overdraft is by check, debit card 
transaction, or by any other transaction type. It also includes fees 
charged when there are insufficient funds because previously 
deposited funds are subject to a hold or are uncollected. It does 
not include fees for transferring funds from another account of the 
consumer to avoid an overdraft, or fees charged under a service 
subject to the Board's Regulation Z (12 CFR part 226). See also 
comment 11(c)-2. Under Sec.  230.11(a)(1)(i), the disclosure must 
describe the total dollar amount for all fees or charges imposed on 
the account for the statement period and calendar year-to-date for 
paying overdrafts using the term ``Total Overdraft Fees.'' This 
requirement applies notwithstanding comment 3(a)-2.
* * * * *
    (c) Disclosure of account balances
* * * * *
    2. Retail sweep programs. In a retail sweep program, an 
institution establishes two legally distinct subaccounts, a 
transaction subaccount and a savings subaccount, which together make 
up the consumer's account. The institution allocates and transfers 
funds between the two subaccounts in order to maximize the balance 
in the savings account while complying with the monthly limitations 
on transfers out of savings accounts under the Board's Regulation D, 
12 CFR 204.2(d)(2). Retail sweep programs are generally not 
established for the purpose of covering overdrafts. Rather, 
institutions typically establish retail sweep programs by agreement 
with the consumer, in order for the institution to minimize its 
transaction account reserve requirements and, in some cases, to 
provide a higher interest rate than the consumer would earn on a 
transaction account alone. Section 230.11(c) does not require an 
institution to exclude from the consumer's balance funds that may be 
transferred from another account pursuant to a retail sweep program 
that is established for such purposes and that has the following 
characteristics:
    i. The account involved complies with the Board's Regulation D, 
12 CFR 204.2(d)(2),
    ii. The consumer does not have direct access to the non-
transaction subaccount that is part of the retail sweep program, and
    iii. The consumer's periodic statements show the account balance 
as the combined balance in the subaccounts.
    3. Additional balance. The institution may disclose additional 
balances supplemented by funds that may be provided by the 
institution to cover an overdraft, whether pursuant to a 
discretionary overdraft service, a service subject to the Board's 
Regulation Z (12 CFR part 226), or a service that transfers funds 
from another account held individually or jointly by the consumer, 
so long as the institution prominently states that any additional 
balance includes these additional overdraft amounts. The institution 
may not simply state, for instance, that the second balance is the 
consumer's ``available balance,'' or contains ``available funds.'' 
Rather, the institution should provide enough information to convey 
that the second balance includes these amounts. For example, the 
institution may state that the balance includes ``overdraft funds.'' 
Where a consumer has not opted into, or as applicable, has opted out 
of the institution's discretionary overdraft service, any additional 
balance disclosed should not include funds that otherwise might be 
available under that service. Where a consumer has not opted into, 
or as applicable, has opted out of, the institution's discretionary 
overdraft service for some, but not all transactions (e.g., the 
consumer has not opted into overdraft services for ATM and one-time 
debit card transactions), an institution that includes these 
additional overdraft funds in the second balance should convey that 
the overdraft funds are not available for all transactions. For 
example, the institution could state that overdraft funds are not 
available for ATM and one-time (or everyday) debit card 
transactions. Similarly, if funds are not available for all 
transactions pursuant to a service subject to the Board's Regulation 
Z (12 CFR part 226) or a service that transfers funds from another 
account, a second balance that includes such funds should also 
indicate this fact.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, May 27, 2010.
Jennifer J. Johnson,
Secretary of the Board.
 [FR Doc. 2010-13281 Filed 6-3-10; 8:45 am]
BILLING CODE 6210-01-P