[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3449 Introduced in House (IH)]







109th CONGRESS
  1st Session
                                H. R. 3449

  To extend the protections of the Truth in Lending Act to overdraft 
 protection programs and services provided by depository institutions, 
    to require customer consent before a depository institution may 
    initiate overdraft protection services and fees, to enhance the 
     information made available to consumers relating to overdraft 
 protection services and fees, to prohibit systematic manipulation in 
the posting of checks and other debits to a depository account for the 
    purpose of generating overdraft protection fees, and for other 
                               purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 27, 2005

Mrs. Maloney (for herself, Mr. Sanders, Mr. Frank of Massachusetts, and 
   Ms. Lee) introduced the following bill; which was referred to the 
                    Committee on Financial Services

_______________________________________________________________________

                                 A BILL


 
  To extend the protections of the Truth in Lending Act to overdraft 
 protection programs and services provided by depository institutions, 
    to require customer consent before a depository institution may 
    initiate overdraft protection services and fees, to enhance the 
     information made available to consumers relating to overdraft 
 protection services and fees, to prohibit systematic manipulation in 
the posting of checks and other debits to a depository account for the 
    purpose of generating overdraft protection fees, and for other 
                               purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Consumer Overdraft Protection Fair 
Practices Act''.

SEC. 2. RESTRICTIONS ON OVERDRAFT PROTECTION PROGRAMS OR SERVICES.

    (a) Truth in Lending Act Amendments.--
            (1) Definition.--Section 103 of the Truth in Lending Act 
        (15 U.S.C. 1602) is amended by adding at the end the following 
        new subsection:
    ``(cc) Terms Relating to Short-Term Extensions of Credit Under 
Overdraft Protection Programs.--
            ``(1) Overdraft protection fee.--The term `overdraft 
        protection fee' means any fee or charge imposed in connection 
        with any account on which checks or other debits are paid by 
        the institution in which such account is held even though there 
        are insufficient funds in the account to cover such checks or 
        other debits, unless such fee or charge--
                    ``(A) is imposed on an incidental basis as a 
                customer accommodation and no more than 3 such 
                overdraft fees are imposed during any calendar year;
                    ``(B) is imposed in connection with an extension of 
                credit to a transaction account of a consumer under a 
                written open end consumer credit plan the purpose of 
                which is to cover any check presented against, 
                electronic fund transfer from, or other debit of the 
                account for the payment of which there are insufficient 
                funds in the account; or
                    ``(C) has been disclosed in connection with a 
                program under which the overdraft is covered by funds 
                transferred from another deposit, share, or other asset 
                account.
            ``(2) Other terms.--
                    ``(A) Check.--The term `check' has the same meaning 
                as in section 3(6) of the Check Clearing for the 21st 
                Century Act.
                    ``(B) Other debits.--The term `other debits' 
                includes withdrawals from an account by the consumer 
                through an automated teller machine and electronic fund 
                transfers from an account that are initiated or 
                authorized by the consumer.
                    ``(C) Electronic fund transfer.--The term 
                `electronic fund transfer' has the same meaning as in 
                section 903.
                    ``(D) Account.--The term `account' means any 
                account intended for use by and generally used by a 
                consumer primarily for personal, family, or household 
                purposes into which the consumer deposits funds.
                    ``(E) Transaction account.--The term `transaction 
                account' has the same meaning as in section 19(b)(1)(C) 
                of the Federal Reserve Act.''.
            (2) Restrictions on overdraft protection programs or 
        services.--
                    (A) In general.--Chapter 2 of the Truth in Lending 
                Act (15 U.S.C. 1631 et seq.) is amended by adding at 
                the end the following new section:
``Sec. 140. Restrictions on overdraft protection programs or services
    ``(a) In General.--In the case of any transaction account of a 
consumer at any institution, no overdraft protection fee may be imposed 
on such account for any extension of funds by the institution to cover 
any check or other debit for which there are insufficient funds in the 
consumer's account to pay such check or other debit, unless--
            ``(1) the consumer has provided specific written consent to 
        any program or service that provides for charging of such fees 
        in connection with any such extension of funds;
            ``(2) such fee is imposed pursuant to the terms of a 
        written agreement with the consumer which discloses, in a clear 
        and conspicuous manner--
                    ``(A) the amount of any fee imposed in connection 
                with paying an overdraft;
                    ``(B) any applicable disclosure required by this 
                title in connection with such extension of credit, 
                including the amount of the finance charge in 
                connection with such fee or fees, as required by 
                section 106;
                    ``(C) the categories of transactions for which a 
                fee for payment of an overdraft may be imposed, 
                including whether an overdraft created by withdrawals 
                at automated teller machines or other electronic fund 
                transfers will be covered and a fee imposed;
                    ``(D) the time period by which the consumer must 
                repay or cover any extension of credit in the form of 
                payment of an overdraft; and
                    ``(E) the circumstances under which the institution 
                in which an account is held will not pay an overdraft; 
                and
                    ``(F) other information required to be disclosed by 
                regulation;
            ``(3) such fee is separately and conspicuously disclosed, 
        each time the fee is imposed, in any periodic statement 
        provided to the consumer with respect to such account.
    ``(b) Clarification Relating to Overdraft Fees.--In the case of any 
transaction account of a consumer at any institution, the prohibition 
against an overdraft protection fee under subsection (a) shall apply 
regardless of whether the amount of such fee is the same as, or less 
than, any fee imposed by the institution with respect to such account 
for a check or other debit that is returned unpaid.
    ``(c) Prohibition on Misrepresentations.--If any institution--
            ``(1) will not extend funds under specific circumstances to 
        cover an overdraft in any transaction account of a consumer at 
        the institution; or
            ``(2) reserves the right to extend funds to pay any such 
        overdraft on a discretionary basis,
any representation by such institution that the institution will extend 
credit to cover all overdrafts on such account shall be a violation of 
this title.''.
                    (B) Clerical amendment.--The table of sections for 
                chapter 2 of the Truth in Lending Act is amended by 
                inserting after the item relating to section 139 the 
                following new item:

``140. Restrictions on overdraft protection programs or services.''.
            (3) Restrictions on advertising of overdraft protection 
        programs or services.--
                    (A) In general.--Chapter 3 of the Truth in Lending 
                Act (15 U.S.C. 1661 et seq.) is amended by adding at 
                the end the following new section:
``Sec. 148. Restrictions on advertising of overdraft protection 
              programs or services
    ``(a) In General.--In the case of an institution that maintains 
transaction accounts for consumers and offers a program or service 
under which the institution pays any overdraft on the account in 
exchange for payment of an overdraft protection fee, the institution 
may not make any of the following representations or statements with 
respect to such program or service in any advertisement or promotion:
            ``(1) Any representation or statement describing a 
        transaction account as free or no cost if the account includes, 
        or is promoted as including, overdraft protection services that 
        involve the payment of overdraft protection fees.
            ``(2) Any representation or statement encouraging use of 
        the account as a service to meet short-term credit needs or to 
        obtain advances on a consumer's next payment of salary or 
        wages.
            ``(3) Any representation or statement that the financial 
        institution will honor all checks or other debits presented 
        against the account, if the institution retains discretion at 
        any time not to honor any check or other debit presented.
            ``(4) Any representation or statement that consumers may 
        overdraw their accounts and maintain a negative balance, if the 
        terms of the account require the consumer to promptly repay or 
        cover any overdraft.
    ``(b) Regulations.--The Board shall prescribe regulations 
implementing the restrictions set forth in subsection (a) pursuant to 
the authority of the Board under section 18(f) of the Federal Trade 
Commission Act, and may, by regulation or order, restrict such 
additional acts or practices that the Board finds to be unfair or 
deceptive in connection with the offering, operation, and advertising 
of overdraft protection programs and services.''.
                    (B) Clerical amendment.--The table of sections for 
                chapter 3 of the Truth in Lending Act is amended by 
                inserting after the item relating to section 147 the 
                following new item:

``148. Restrictions on advertising of overdraft protection programs or 
                            services.''.
            (4) Clarification of finance charge.--Section 106(a) of the 
        Truth in Lending Act (15 U.S.C. 1605(a)) is amended by adding 
        at the end the following new paragraph:
            ``(7) Overdraft protection fee.''.
    (b) Electronic Fund Transfer Act Amendments.--Section 904 of the 
Electronic Fund Transfer Act (15 U.S.C. 1693b) is amended by adding at 
the end the following new subsection:
    ``(e) Restrictions on Overdraft Protection Services and Fees.--
            ``(1) In general.--A financial institution that holds a 
        consumer's account may not impose an overdraft protection fee 
        on the account in connection with any payment of an electronic 
        fund transfer initiated by the consumer at an automated teller 
        machine operated by the financial institution in spite of a 
        lack of sufficient funds in the consumer's account to pay such 
        electronic fund transfer, unless--
                    ``(A) the consumer has affirmatively requested such 
                service pursuant to section 140(a)(1);
                    ``(B) the financial has provided a notice to the 
                consumer, on the screen of the automated teller 
                machine, or on a paper notice issued from such machine, 
                after the transaction is initiated and before the 
                consumer is irrevocably committed to completing the 
                transaction, that the electronic fund transfer the 
                consumer has requested may initiate an overdraft 
                protection fee, together with the amount of any such 
                fee;
                    ``(C) the consumer elects to continue in the manner 
                necessary to effect the requested electronic fund 
                transfer after receiving such notice; and
                    ``(D) the overdraft protection fee imposed in 
                connection with such transaction is clearly disclosed 
                in the written documentation of the electronic fund 
                transfer required by section 906(a).
            ``(2) Disclosure of account balances.--In the case of any 
        financial institution that offers a program or service under 
        which the institution pays any overdraft on a consumer's 
        account in exchange for the imposition of an overdraft 
        protection fee in accordance with paragraph (1), the financial 
        institution shall, in response to a balance inquiry initiated 
        by the consumer at an automated teller machine operated by the 
        financial institution, disclose only the actual dollar balance 
        in the consumer's account at the time of the request, which 
        shall not include any additional amount of credit or overdraft 
        protection the financial institution will pay under any 
        agreement with the consumer that permits the imposition of the 
        overdraft protection fee.
            ``(3) Overdraft protection fee defined.--For purposes of 
        this subsection, the term `overdraft protection fee' has the 
        same meaning as in section 103(cc)(1).''.
    (c) Expedited Funds Availability Act Amendments.--
            (1) Definition.--Section 602 of the Expedited Funds 
        Availability Act (12 U.S.C. 4001) is amended by adding at the 
        end the following new paragraph:
            ``(26) Overdraft protection fee.--The term `overdraft 
        protection fee' has the same meaning as in section 103(cc)(1) 
        of the Truth in Lending Act.''.
            (2) Restrictions on overdraft protection fees.--Section 607 
        of the Expedited Funds Availability Act (12 U.S.C. 4006) is 
        amended by adding at the end the following new subsection:
    ``(f) Restrictions on Overdraft Protection Fees.--A depository 
institution may not--
            ``(1) impose an overdraft protection fee on an account at 
        such institution for paying any check drawn on the account in 
        spite of a lack of sufficient funds in the account to pay such 
        check or any similarly activity unless the accountholder has 
        affirmatively requested such service pursuant to section 
        140(a)(1) of the Truth in Lending Act; or
            ``(2) engage in a pattern or practice of delaying the 
        posting of any deposit in an account, or manipulating the 
        process of posting any check or other debit against an account, 
        for the purpose of initiating 1 or more overdrafts that trigger 
        payment by the accountholder of an overdraft protection fee.''.
    (d) Federal Reserve Board Study of Overdraft Protection Programs 
Offered by Financial Institutions.--
            (1) Study required.--
                    (A) In general.--The Board of Governors of the 
                Federal Reserve System shall conduct a study of 
                overdraft protection or avoidance programs and services 
                offered by financial institutions to determine the 
                extent to which such programs or services are available 
                to consumers, the differences in operation and cost of 
                such programs or services, and the benefits and risks 
                of such programs or services for consumers.
                    (B) Areas for study.--In conducting the study under 
                subparagraph (A), the Board shall consider, among other 
                issues--
                            (i) the criteria used by financial 
                        institutions in designing or selecting 
                        overdraft protection programs and services;
                            (ii) the extent to which financial 
                        institutions exercise discretion on whether to 
                        not to cover an overdraft and criteria used in 
                        exercising such discretion;
                            (iii) the adequacy of information provided 
                        to customers regarding alternative overdraft 
                        protection programs or services and the cost 
                        and terms of such programs and services;
                            (iv) the adequacy of disclosures in 
                        promotions and advertising relating to 
                        overdraft protection services;
                            (v) the extent to which overdraft 
                        protection programs and services are conducted 
                        by third-party vendors, the basis for 
                        structuring vendor compensation arrangements 
                        for these programs and services, and the 
                        impact, if any, of linking vendor compensation 
                        to increases in fee revenue on the quality and 
                        cost of overdraft protection services; and
                            (vi) the feasibility of providing notice in 
                        connection with point of sale debit 
                        transactions that a transaction initiated by 
                        the consumer will result in an overdraft 
                        protection fee if completed by the consumer and 
                        the potential benefit of such disclosure to 
                        consumers.
                    (C) Consultation required.--The Board of Governors 
                of the Federal Reserve System shall--
                            (i) consult with the other Federal banking 
                        agencies (as defined in section 3 of the 
                        Federal Deposit Insurance Act) and the National 
                        Credit Union Administration Board in 
                        formulating and conducting the study required 
                        under subparagraph (A); and
                            (ii) employ research methods and 
                        procedures, including consumer survey and 
                        market tester programs, necessary to address 
                        the issues required by subparagraph (B).
            (2) Report required.--Before the end of the 1-year period 
        beginning on the date of the enactment of this Act, the Board 
        of Governors of the Federal Reserve System shall submit a 
        report to the Committee on Banking, Housing and Urban Affairs 
        of the Senate and the Committee on Financial Services of the 
        House of Representatives containing a detailed summary of the 
        finding and conclusions of the study under this subsection, 
        together with such recommendations for legislative or 
        administrative actions as the Board may determine to be 
        appropriate.
                                 <all>