Overdraft Protection Act of 2016

To amend the Truth in Lending Act to establish fair and transparent practices related to the marketing and provision of overdraft coverage programs at depository institutions, and for other purposes. 1. Short title This Act may be cited as the Overdraft Protection Act of 2016 2. Findings and purpose (a) Findings The Congress finds the following: (1) Overdraft coverage is a form of short-term credit that depository institutions provide for consumer transaction accounts. Historically, depository institutions covered overdrafts for a fee on an ad hoc basis. (2) With the growth in specially designed software programs and in consumer use of debit cards, overdraft coverage for a fee has become more prevalent. (3) Many depository institutions offer a range of overdraft options but aggressively encourage consumers to consent to the most expensive option, where a high flat fee is collected for every individual overdraft transaction. (4) Most depository institutions collect a high flat fee, including for small dollar transactions, each time the institution covers an overdraft, in some cases impose multiple overdraft coverage fees within a single day, and many charge additional fees for each day during which the account remains overdrawn. (5) Such abusive practices in connection with overdraft coverage fees have deprived consumers of meaningful choices about their accounts and placed significant financial burdens on low- and moderate-income consumers. (b) Purpose It is the purpose of this Act to protect consumers by limiting abusive overdraft coverage fees and practices, and by providing meaningful disclosures and consumer choice in connection with overdraft coverage fees. 3. Definitions (a) Additional definitions Section 140B of the Truth in Lending Act, as added by section 4, is amended by adding at the end the following new subsection: (o) Definitions relating to overdraft coverage For purposes of this section: (1) Check The term check 12 U.S.C. 5001 et seq. (2) Depository institution The term depository institution 12 U.S.C. 461(b)(1)(A) (3) Nonsufficient fund fee The term nonsufficient fund fee (4) Overdraft The term overdraft (5) Overdraft coverage The term overdraft coverage (6) Overdraft coverage fee The term overdraft coverage fee (A) an extension of credit through an overdraft line of credit program where such fee or charge was considered a finance charge under this title as in effect immediately prior to the enactment of the Overdraft Protection Act of 2012; or (B) any transfer from an account linked to another transaction account. Such fee shall be considered a finance charge 12 U.S.C. 1757(5)(A)(vi) (7) Overdraft coverage program The term overdraft coverage program (8) Transaction account The term transaction account 12 U.S.C. 461(b)(1)(C) . (b) Conforming amendment Section 107(5)(A)(vi) of the Federal Credit Union Act ( 12 U.S.C. 1757(5)(A)(vi) , other than an overdraft coverage fee, as defined in section 140B(o) of the Truth in Lending Act inclusive of all finance charges 4. Fair marketing and provision of overdraft coverage programs (a) In general Chapter 2 of the Truth in Lending Act ( 15 U.S.C. 1631 et seq. 140B. Overdraft coverage program disclosures and consumer protection (a) Prohibitions No depository institution may engage in acts or practices in connection with the marketing of or the provision of overdraft coverage that are unfair, deceptive, or designed to evade the provisions of this section. (b) Marketing disclosures Each depository institution that provides or offers to provide overdraft coverage with respect to transaction accounts held at that depository institution shall clearly and conspicuously disclose in all marketing materials for such overdraft coverage— (1) any overdraft coverage fees with respect to such overdraft coverage; and (2) that by not opting in to such overdraft coverage— (A) a consumer’s transaction may be declined if there are insufficient funds in the related transaction account; and (B) the consumer will not be charged a fee if such transaction is declined. (c) Consumer consent opt-in A depository institution may charge overdraft coverage fees with respect to the use of an automatic teller machine or point of sale transaction only if the consumer has consented in writing, in electronic form, or in such other form as is permitted under regulations of the Bureau. (d) Consumer disclosures Each depository institution shall clearly disclose to each consumer covered by an overdraft protection program of that depository institution— (1) that— (A) the consumer may be charged for not more than one overdraft coverage fee in any single calendar month and not more than 6 overdraft coverage fees in any single calendar year, per transaction account; and (B) the depository institution retains the discretion to pay (without assessing an overdraft coverage fee) or reject overdrafts incurred by the consumer beyond the numbers described in subparagraph (A); (2) the overdraft coverage fee as an annual percentage rate, so as to permit consumers to meaningfully compare the overdraft coverage to alternative forms of overdraft options and other sources of credit; (3) information about any alternative overdraft products that are available (such as linked accounts, lines of credit, and alerts), including a clear explanation of how the terms and fees for such alternative services and products differ; and (4) such other information as the Bureau may require, by rule. (e) Periodic statements Each depository institution that offers an overdraft coverage program shall, in each periodic statement for any transaction account that has an overdraft coverage program feature, clearly disclose to the consumer the dollar amount of all overdraft coverage fees and nonsufficient fund fees charged to the consumer for the relevant period and year to date. (f) Exclusion from account balance information No depository institution may include the amount available under the overdraft coverage program of a consumer as part of the transaction account balance of that consumer. (g) Prompt notification Each depository institution shall promptly notify consumers, through a reasonable means selected by the consumer, when overdraft coverage has been accessed with respect to the account of the consumer, not later than on the day on which such access occurs, including— (1) the date of the transaction; (2) the type of transaction; (3) the overdraft amount; (4) the overdraft coverage fee; (5) the amount necessary to return the account to a positive balance; and (6) whether the participation of a consumer in an overdraft coverage program will be terminated if the account is not returned to a positive balance within a given time period. (h) Terminated or suspended coverage Each depository institution shall provide prompt notice to the consumer, using a reasonable means selected by the consumer, if the institution terminates or suspends access to an overdraft coverage program with respect to an account of the consumer, including a clear rationale for the action. (i) Overdraft coverage fee limits (1) Notice and Opportunity To Cancel Each depository institution shall— (A) warn any consumer covered by an overdraft coverage program who engages in a transaction through an automated teller machine or a branch teller if completing the transaction would trigger overdraft coverage fees, including the amount of the fees; and (B) provide to the consumer the opportunity to cancel the transaction before it is completed. (2) Frequency A depository institution may charge not more than one overdraft coverage fee in any single calendar month, and not more than 6 overdraft coverage fees in any single calendar year, per transaction account. (3) Reasonable and proportional overdraft coverage fees (A) In general The amount of any overdraft coverage fee that a depository institution may assess for paying a transaction (including a check or other debit) shall be reasonable and proportional to the amount of the overdraft. (B) Safe harbor rule authorized The Bureau, in consultation with the Board of Governors of the Federal Reserve System, Comptroller of the Currency, the Board of Directors of the Federal Deposit Insurance Corporation, and the National Credit Union Administration Board, may issue rules to provide an amount for any overdraft coverage fee that is presumed to be reasonable and proportional the amount of the overdraft. (4) Posting order In order to minimize overdraft coverage fees charged to consumers, each depository institution shall post transactions with respect to transaction accounts in such a manner that the consumer does not incur avoidable overdraft coverage fees. (j) Debit holds No depository institution may charge an overdraft coverage fee on any category of transaction, if the overdraft results solely from a debit hold amount placed on a transaction account that exceeds the actual dollar amount of the transaction. (k) Nondiscrimination for not opting In In implementing the requirements of this section, each depository institution shall provide to consumers who have not consented to participate in an overdraft coverage program, transaction accounts having the same terms, conditions, or other features as those that are provided to consumers who have consented to participate in such overdraft coverage program, except for features of such overdraft coverage. (l) Nonsufficient fund fee limits No depository institution may charge any nonsufficient fund fee with respect to— (1) any transaction at an automated teller machine; or (2) any debit card transaction. (m) Reports to consumer reporting agencies No depository institution may report negative information regarding the use of overdraft coverage by a consumer to any consumer reporting agency (as that term is defined in section 603 of the Fair Credit Reporting Act ( 15 U.S.C. 1681a (n) Rule of construction No provision of this section may be construed as prohibiting a depository institution from retaining the discretion to pay, without assessing an overdraft coverage fee or charge, an overdraft incurred by a consumer. . (b) Technical amendment The table of contents for chapter II of the Truth in Lending Act is amended by inserting after the item relating to section 140A the following new item: 140B. Overdraft coverage program disclosures and consumer protection. . 5. Regulatory authority of the Bureau Not later than 24 months after the date of the enactment of this Act, the Bureau of Consumer Financial Protection (hereafter in this Act referred to as the Bureau 6. Effective date (a) In general This Act and the amendments made by this Act shall take effect 1 year after the date of the enactment of this Act, whether or not the rules of the Bureau under this Act or such amendments are prescribed in final form. (b) Moratorium on fee increases (1) In general During the 1-year period beginning on the date of the enactment of this Act, no depository institution may increase the overdraft coverage fees or charges assessed on transaction accounts for paying a transaction (including a check or other debit) in connection with an overdraft or for nonsufficient funds. (2) Definitions As used in this section, the terms depository institution overdraft overdraft coverage fee transaction account nonsufficient fund fee

Summary: Overdraft Protection Act of 2016 This bill amends the Truth in Lending Act to prohibit a depository institution from engaging in unfair or deceptive acts or practices in connection with overdraft coverage, or in acts designed to evade the provisions of this Act. Each depository institution that offers or provides overdraft coverage for transaction accounts held at the institution shall clearly and conspicuously disclose overdraft coverage fees. It must also disclose that, if a consumer does not opt-in to such overdraft coverage: the consumer's transaction may be declined if there are insufficient funds in the related transaction account, and the consumer will not be charged a fee if such transaction is declined. A depository institution may charge overdraft coverage fees in connection with use of an automatic teller machine (ATM) or point of sale transaction only if the consumer has consented in writing, in electronic form, or in another form permitted by the Consumer Financial Protection Bureau.A depository institution must provide specified consumer disclosures regarding its overdraft protection program, including: periodic statements for any transaction account that has an overdraft coverage program feature; prompt notification of the account's overdraft status; and the overdraft coverage fee as an annual percentage rate, permitting consumers to compare meaningfully the overdraft coverage to alternative forms of overdraft options and other sources of credit. The bill prescribes overdraft coverage fee limits. The bill prohibits an overdraft coverage fee if the overdraft results solely from a debit hold amount that exceeds the actual dollar amount of the transaction. A depository institution shall provide consumers who have not consented to participate in an overdraft coverage program transaction accounts with the same terms as those provided to consumers who have consented to participate in such program. The bill prohibits a depository institution from: charging a non-sufficient fund fee for any ATM or debit card transaction, or reporting negative information regarding consumer use of overdraft coverage to any consumer reporting agency when the overdraft amounts and coverage fees are paid under the terms of an overdraft coverage program.