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:

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:

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.