Federal Reserve Board Clarifies Final Rules Pertaining to Overdraft Services

Federal Reserve Board Clarifies Final Rules Pertaining to Overdraft Services

The Federal Reserve Board in late May issued clarifications to certain aspects of its final rules under Regulation E and Regulation DD. The clarifications come in response to questions that have arisen and provide additional guidance on compliance with certain parts of the final rules, said the Board's May 28 press release.

Clarifications cover reporting account balances, overdraft fees
The Board's clarification to the final rule amending Reg DD, which implements the Truth in Savings Act, addresses financial institutions' disclosure practices related to overdraft services, including account balance information given to consumers through automated systems. More specifically, the Board clarified that when disclosing transaction account balances in sweep accounts, financial institutions are not required to exclude funds that may be transferred to another account.

photo of woman's hand pointing to check register entry

The Board also amended the effective date of a rule requiring financial institutions to begin using the term "total overdraft fees" on their periodic statements to describe the total dollar amount for all fees or charges imposed during the statement period and calendar year-to-date for overdraft services. This portion of the rule is effective Oct. 1, 2010, while the remaining provisions go into effect July 6, said the Board.

Fee prohibitions apply to all institutions
The Board's clarification to the final rule under Reg E (electronic fund transfers) explains that the prohibition on charging fees for overdraft services—unless the consumer opts in—includes all institutions, even those "that have a policy and practice of declining to authorize and pay any ATM or one-time debit card transactions" when an account has insufficient funds. "Adopting exceptions to the fee prohibition would undermine the consumer's ability to understand the institution's overdraft practices and to make an informed choice," the Board noted.

More generally, the Regulation E final rule applies only to overdraft fees related to ATM and one-time debit card transactions and does not include those related to check, ACH, and recurring debit card transactions, the Board said.

The Board also clarified that financial institutions must provide confirmation of the consumer's opt-in choice in writing—or electronically, if the consumer agrees—before charging any overdraft fees.



June 28 , 2010