New Rules Aim to Clarify Overdraft Information
The Federal Reserve Board has amended the regulation that governs how banks provide information to consumers. The amendments to Regulation DD, which implements the Truth in Savings Act, in part address the service often referred to as bounced-check protection or courtesy overdraft protection.
Clarifying services and fees
Banks routinely provide services that pay a customer’s checks and allow transactions to clear the customer’s account when the funds in the account are insufficient. The new amendments expand Regulation DD’s rule against advertisements that are misleading to include communications with both new and existing customers.
Many institutions already notify consumers in a timely manner about fees imposed when an overdraft occurs. Institutions’ practices and disclosures vary, however, and some consumers may not promptly get adequate information. For example, according to the Board, some institutions extend overdraft protection—and its attendant fees—not only to checks but also to ATM withdrawals, debit card transactions, or other electronic transfers but suggest in their disclosures or advertisements that such protection applies only to checks.
Fees must be clearly stated
The final amendments to Regulation DD, which become effective July 1, 2006, also require institutions that advertise overdraft protection to separately disclose on their periodic statements to customers the total amount of fees or charges imposed on the deposit account for paying overdrafts and for returning items unpaid.
The final rule is narrower than the original proposal, which would have applied to all institutions regardless of whether they advertise overdraft protection. Under the final rule, institutions that do not promote overdraft protection services are not required to disclose that information. New language in the regulation’s commentary provides examples of messages that are not considered advertisements for purposes of Regulation DD.