Proposed Revisions to Regulation E for Overdraft Protection Plans

CUNA
January 23, 2009 | COMMENTS

The Federal Reserve Board (Fed) has issued a proposed rule to amend Regulation E, the Electronic Fund Transfer (EFT) Act, that will provide consumers with certain protections relating to the assessment of overdraft fees. These will apply to automated teller machine (ATM) transactions and one-time debit card overdrafts. This proposal replaces previously proposed rules under the Unfair and Deceptive Acts or Practices (UDAP) Act and the Truth in Savings Act that addressed overdraft protection plans. As a result, this new rule will apply to all credit unions, not just federal credit unions as would have been the case if these provisions were implemented under the UDAP Act.

The current proposal outlines the following two approaches for providing consumers a choice regarding the payment of ATM and one-time debit card overdrafts by their financial institution and seeks comments on which approach should be adopted in the final rule:

• Opt-out: Under this approach, an institution would be prohibited from imposing an overdraft fee unless the consumer is given an initial notice and a reasonable opportunity to opt-out of the institution's overdraft service, and the consumer does not opt-out.
• Opt-in: This second approach would prohibit an institution from imposing an overdraft fee for paying such overdrafts unless the consumer affirmatively consents to the institution's overdraft service.

The proposed rule will also prohibit financial institutions from imposing an overdraft fee when the account is overdrawn because of a hold placed on funds in the consumer's account that exceeds the actual transaction amount. This prohibition will be limited to debit card transactions in which the actual transaction amount can be determined within a short period of time after the transaction is authorized. Examples include transactions at gas stations and restaurants.

Comments in response to this proposal are due within sixty days after it is published in the Federal Register, which should be within the next several days.

Please submit your comments to CUNA by February 25, 2009. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. If commenting directly to the Fed, you must refer to Docket No. R-1343. You may also contact us if you would like a copy of the proposal or you may access it here.

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