[Federal Register Volume 70, Number 235 (Thursday, December 8, 2005)]
[Rules and Regulations]
[Pages 72895-72902]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-23711]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 707

RIN 3133-AC57


Truth in Savings

AGENCY: National Credit Union Administration (NCUA).

ACTION: Interim final rule with request for comments.

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SUMMARY: As required by the Truth in Savings Act, the NCUA is amending 
its rule and official staff interpretation to address the uniformity 
and adequacy of information provided to members when they overdraw 
their share accounts. The amendments address services referred to as 
``bounced-check protection'' or ``courtesy overdraft protection'' that 
pay members' checks and allow other overdrafts when there are 
insufficient funds in the account. The interim final rule creates a new 
section in the regulation and requires credit unions that promote the 
payment of overdrafts in advertisements to disclose fees and other 
information in advertisements of overdraft services.

DATES: This rule is effective December 8, 2005. To allow time for any 
necessary operational changes, however, the mandatory compliance date 
for the interim final rule is July 1, 2006. Comments must be received 
on or before February 6, 2006.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web site: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the 
instructions for submitting comments.
     E-mail: Address to [email protected]. Include ``[Your 
name] Comments on Part 707 Truth in Savings'' in the e-mail subject 
line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public Inspection: All public comments are available on the 
agency's Web site at http://www.ncua.gov/RegulationsOpinionsLaws/comments as submitted, except as may not be possible for technical 
reasons. Public comments will not be edited to remove any identifying 
or contact information. Paper copies of comments may be inspected in 
NCUA's law library at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6540 or send an e-mail to [email protected].

FOR FURTHER INFORMATION CONTACT: Moisette I. Green or Frank S. 
Kressman, Staff Attorneys, at the address above or telephone: (703) 
518-6540.

SUPPLEMENTARY INFORMATION:

I. Background

    In November 2002, the Board of Governors of the Federal Reserve 
System (Federal Reserve) solicited comment about financial 
institutions' current overdraft services to determine the need for 
guidance to depository institutions under 12 CFR part 226 (Regulation 
Z) and other laws. 67 FR 72618 (December 6, 2002). Based on comments it 
received, the Federal Reserve amended 12 CFR part 230 (Regulation DD), 
and its staff commentary in May 2005. 70 FR 29582 (May 24, 2005). 
Regulation DD, the Federal Reserve's implementation of the Truth in 
Savings Act (TISA), now requires banks to disclose rates and fees 
charged as a part of ``bounced-check protection'' or ``courtesy 
overdraft protection'' programs offered as an alternative to 
traditional overdraft lines of credit. The Federal Reserve's final rule 
also requires financial institutions that promote the payment of 
overdrafts in an advertisement to: (1) Disclose the total fees imposed 
for paying overdrafts and returning unpaid items on periodic statements 
for both the statement period and the calendar year to date and (2)

[[Page 72896]]

include certain other disclosures in advertisements of overdraft 
services.
    TISA requires NCUA to promulgate regulations substantially similar 
to those promulgated by the Federal Reserve within 90 days of the 
effective date of the Federal Reserve's rules. 12 U.S.C. 4311(b). In 
doing so, NCUA is to take into account the unique nature of credit 
unions and the limitations under which they may pay dividends on member 
accounts. In compliance with TISA, NCUA is issuing this interim final 
rule with request for comments that is substantially similar to the 
Federal Reserve's May 2005 final rule.
    Part 707 of NCUA's regulations implements TISA for credit unions. 
12 CFR part 707. Part 707 requires, among other things, disclosure of 
yields, fees and other terms concerning share accounts to members 
before an account is opened, upon a member's request, before an adverse 
change in account terms occurs, before the renewal of certificates of 
deposit, and in periodic statements. Credit unions are not required to 
provide periodic statements, but if they do, statements must have the 
disclosures TISA requires.
    Part 707 and TISA have rules for advertising share accounts and 
prohibit advertisements, announcements, or solicitations that are 
inaccurate or misleading, or that misrepresent the credit union's 
account contract. 12 CFR 707.8(a). For example, credit unions are 
prohibited from describing an account as ``free'' or using words of 
similar meaning if any maintenance or activity fee may be imposed. Id.

II. The Interim Final Rule

    To comply with the Board's obligation under TISA, it is adopting 
interim final revisions to part 707 and the accompanying official staff 
interpretation that are substantially similar to the Federal Reserve's 
final rule in May 2005. NCUA has made some modifications to the rule to 
account for the unique nature of credit unions. The interim final rule 
consolidates the guidance for credit unions that promote the payment of 
overdrafts in a new Sec.  707.11 to facilitate compliance. To give 
credit unions sufficient time to implement the necessary system changes 
to comply with the regulation, compliance with the interim final rule 
will not become mandatory until July 1, 2006.
    The NCUA Board is issuing this rule as an interim final rule 
because there is a strong public interest in having in place consumer-
oriented rules that are consistent with those recently promulgated by 
the Federal Reserve. Additionally, as discussed above, NCUA is 
statutorily required to issue rules substantively similar to those of 
the Federal Reserve within 90 days of the effective date of the Federal 
Reserve's rules. Although the Federal Reserve's rule will not be 
effective until July 1, 2006, credit unions and their accounting 
software providers will need to adapt their current systems to 
accommodate these changes. The Board wants to provide adequate lead 
time for these changes. Accordingly, for good cause, the Board finds 
that, pursuant to 5 U.S.C. 553(b)(3)(B), notice and public procedures 
are impracticable, unnecessary, and contrary to the public interest; 
and, pursuant to 5 U.S.C. 553(d)(3), the rule will be effective 
immediately and without 30 days advance notice of publication. Although 
the rule is being issued as an interim final rule and is effective 
immediately, compliance will not become mandatory until July 1, 2006 to 
give credit unions sufficient time to implement the necessary system 
changes to comply with the regulation. Even so, the NCUA Board 
encourages interested parties to submit comments.

Summary of Revisions to the Regulation

    The following is a summary of the interim final rule. This interim 
final rule tracks closely the Federal Reserve's recent amendments to 
Regulation DD. A section-by-section analysis of the regulatory language 
and staff commentary is in the Federal Reserve's final rule. 70 FR 
29582 (May 24, 2005).

Disclosures Concerning Overdraft Fees on Periodic Statements

    Courtesy overdraft protection allows the payment of a check or 
debit transaction that would otherwise be rejected for non-sufficient 
funds (NSF). Payment of the item overdraws the member's account, and a 
fee is charged for paying the NSF item. Under overdraft protection 
programs, there is no written agreement between the member and credit 
union to pay NSF items. Instead, payment is made at the discretion of 
the credit union, and a fee is charged for each item paid. Generally, 
overdraft protection services allowed the occasional, manual payment of 
an overdraft. Some financial institutions have automated the decision 
and payment process however.
    Credit unions that provide courtesy overdraft protection must 
separately disclose on their periodic statements the total amount of 
fees or charges imposed on the share account for paying overdrafts and 
returning items unpaid. These disclosures must be provided for the 
statement period and for the calendar year to date. Credit unions that 
do not provide this service would not be required to provide the new 
disclosures.

Account-Opening Disclosures

    Credit unions must specify in account-opening disclosures the 
categories of transactions for which an overdraft fee may be imposed. 
An exhaustive list of transactions is not required. It is sufficient to 
state that the fee is imposed for overdrafts created by checks, in-
person withdrawals, ATM withdrawals, or by other electronic means, as 
applicable. This requirement applies to all credit unions, including 
credit unions that do not promote the payment of overdrafts in an 
advertisement.

Advertising Rules

    To avoid confusion with traditional lines of credit, credit unions 
that promote the payment of overdrafts must include certain disclosures 
in their advertisements about the service:
    (1) The applicable fees or charges, the categories of transactions 
covered;
    (2) The time period members have to repay or cover any overdraft; 
and
    (3) The circumstances under which the credit union would not pay an 
overdraft.
    Stating the available overdraft limit or the amount of funds 
available on a periodic statement would be considered an advertisement 
triggering the required disclosures.
    The interim final rule provides safe harbors from the advertising 
requirements similar to those for the periodic statement disclosure 
requirements. For example, the advertising disclosure requirements 
would not apply to credit unions when they provide educational 
materials, respond to a member-initiated inquiry about overdrafts or 
share accounts, or notify a member about a specific overdraft in their 
account.
    Advertising disclosures are not required on ATM receipts, due to 
space limitations. Similarly, advertising disclosures are not required 
for advertisements using broadcast media, billboards, or telephone 
response systems. This parallels an exemption in part 707 for other 
types of advertising disclosures. Limited advertising disclosures are 
required on ATM screens, telephone response machines, and indoor signs. 
For example, a sign in a credit union lobby advertising courtesy 
overdraft protection must state that fees may apply and direct members 
to contact a credit union employee for more information.

[[Page 72897]]

Prohibiting Misleading Advertisements

    TISA's prohibition against advertisements, announcements, or 
solicitations that are misleading or misrepresent the deposit contract 
is extended to communications with members about the terms of their 
existing accounts.

Examples of Misleading Advertisements

    The staff interpretation is revised to provide five examples of 
advertisements that would ordinarily be deemed misleading:
    (1) Representing an overdraft service as a ``line of credit'';
    (2) Representing that the credit union will honor all checks or 
transactions if the credit union in fact retains discretion not to 
honor a transaction;
    (3) Representing that members with an overdrawn account can 
maintain a negative balance if the overdraft service requires members 
to return the share account to a positive balance promptly;
    (4) Describing an overdraft service solely as protection against 
bounced checks, if the credit union also permits and charges a fee for 
ATM withdrawals and other electronic fund transfers that permit members 
to overdraw their account; and
    (5) Describing an account as ``free'' or ``no cost'' in an 
advertisement that also promotes a service for which there is a fee, 
including an overdraft service, unless the advertisement clearly and 
conspicuously indicates the cost associated with the service.

Possible Coverage Under the Truth in Lending Act (TILA)

    The amendments to part 707 recognize that an overdraft service is a 
feature and term of a share account, and that the fees associated with 
the service are assessed against the share account. The adoption of 
interim final rules under part 707 does not preclude a future 
determination by the Federal Reserve that TILA disclosures would also 
benefit consumers.

III. Regulatory Flexibility Analysis

    The Board has prepared a final regulatory flexibility analysis as 
required by the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). TISA 
was enacted, in part, for the purpose of requiring clear and uniform 
disclosures regarding deposit account terms and fees assessable against 
these accounts. Such disclosures allow members to make meaningful 
comparisons between different accounts and also allow members to make 
informed judgments about the use of their accounts. 12 U.S.C. 4301. 
TISA requires the Board to prescribe regulations to carry out the 
purpose and provisions of the statute. 12 U.S.C. 4308(a)(1), 4311(b). 
The Board is adopting revisions to part 707 to address the uniformity 
and adequacy of credit unions' disclosure of fees associated with 
overdraft services generally and to address concerns about advertised 
overdraft services in particular. The existing regulation is amended to 
require credit unions offering certain overdraft services to provide 
more complete information regarding those services. The Board believes 
that the revisions to part 707 are within the Board's authority to 
adopt provisions that carry out the purposes of the statute.
    There are other laws that credit unions must consider when 
administering an overdraft protection program. Although other laws and 
regulations may apply to credit unions' payment of overdrafts, the 
final revisions to part 707 do not duplicate or conflict with the 
requirements imposed by these laws. The Board has also considered the 
interagency guidance on overdraft protection programs issued in 
February 2005, and has determined that issuance of the final revisions 
to part 707 is consistent with the interagency guidance. 70 FR 9127 
(February 24, 2005).
    Approximately 2,666 of the credit unions in the United States that 
must comply with TISA have assets of $10 million or less and thus are 
considered small entities for purposes of the Regulatory Flexibility 
Act, based on 2004 call report data. The Board believes that almost all 
small credit unions that offer accounts where overdraft or returned-
item fees are imposed currently send periodic statements on those 
accounts, although the number of small credit unions that promote their 
overdraft services is unknown. For those credit unions that promote the 
payment of overdrafts in an advertisement, periodic statement 
disclosures will need to be revised to display aggregate overdraft and 
aggregate returned-item fees for the statement period and year to date. 
All small credit unions will have to review, and perhaps revise 
account-opening disclosures and marketing materials.
    The revisions to part 707 require all credit unions to provide more 
complete information to members regarding overdraft services. Account-
opening disclosures and marketing materials would describe more 
completely how fees may be triggered. Credit unions that provide 
overdraft services must separately disclose on periodic statements the 
total dollar amount of fees and charges imposed on the account for 
paying overdrafts and the total dollar amount for returning items 
unpaid. These disclosures must be provided for the statement period and 
for the calendar year to date for each account to which the service is 
provided. Certain advertising practices are prohibited, and additional 
disclosures on advertisements of overdraft services are required.
    The Board is soliciting comment on how the burden of disclosures on 
credit unions could be minimized. The interim final rule limits the 
requirement to disclose aggregate totals for overdraft and returned-
item fees for the statement period and the calendar year to date to 
credit unions that provide ad hoc payments of overdrafts or promote the 
payment of overdrafts in an advertisement, thereby encouraging the 
routine use of the service. It also specifies certain practices that 
would not trigger the new overdraft disclosures. The safe harbors 
provide additional certainty to credit unions in determining whether 
compliance with the rule is required in particular circumstances. 
Consistent with the rule requiring periodic statement disclosures, the 
interim final rule also provides safe harbors to specify circumstances 
when a credit union would not be required to provide additional 
advertising disclosures.
    Under the interim final rule, credit unions are permitted to 
provide an illustrative list of categories by which overdrafts may be 
created to generally eliminate the need to provide a change-in-terms 
notice each time a new channel for creating overdrafts is added. The 
interim final rule also provides additional guidance regarding the 
types of fees that should be included in the total dollar amount of 
fees and charges imposed on the account for paying overdrafts and in 
the total dollar amount for returning items unpaid.

IV. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, 44 U.S.C. 
3501 et seq., the Board has submitted the information collection 
requirements contained in this interim final rule to the Office of 
Management and Budget (OMB). The NCUA may not conduct or sponsor, and 
an organization is not required to respond to, this information 
collection unless it displays a currently valid OMB control number. The 
current OMB control number for the Truth in Savings program is 3133-
0134. This information collection will be revised to include the 
requirements of this interim final rule.
    The collection of information that is revised by this rulemaking is 
found in 12 CFR part 707 and Appendix C. This

[[Page 72898]]

collection is mandatory to evidence compliance with the requirements of 
part 707 and TISA. 15 U.S.C. 4301 et seq. Credit unions must retain 
records for twenty-four months. This regulation applies to all types of 
credit unions, not just federally-insured credit unions.
    The revisions provide that credit unions offering certain overdraft 
payment services must provide more complete information regarding those 
services. Account-opening disclosures and other marketing materials 
describe more completely how fees may be triggered. Credit unions that 
promote the payment of overdrafts must separately disclose on periodic 
statements the total dollar amount of fees and charges imposed on the 
account for paying overdrafts and the total dollar amount of fees 
charged to the account for returning items unpaid. These disclosures 
must be provided for the statement period and for the calendar year to 
date for each account to which an advertisement applies. Certain 
advertising practices are prohibited, and additional disclosures in 
advertisements for the payment of overdrafts are required. Although the 
interim final rule adds these requirements, it is expected that these 
revisions would not significantly increase the ongoing paperwork burden 
of credit unions. However, respondents would face a one-time burden to 
reprogram and update their systems to include these new notice 
requirements.
    There are an estimated 9,128 credit unions. The NCUA estimates that 
it will take the respondents, on average, 8 hours or one business day 
to make these one-time system changes. Additionally, Respondents would 
also face a one-time burden to revise and update their advertising 
materials. NCUA estimates that it will take approximately 40 hours, one 
business week to update these materials. NCUA estimates respondents 
will incur a burden of 12,514,201 hours meeting the requirements of 
this interim final rule. NCUA estimates that the total, continuing 
annual burden for the Truth in Savings program to be 12,076,057 hours. 
Prior to this interim final rule, NCUA estimated the annual burden to 
be 10,467,679 hours. The annual burden under this interim final rule 
will increase 1,608,378 burden hours.
    NCUA invites comment on:
    (1) The accuracy of NCUA's estimate of the burden of the 
information collection;
    (2) Ways to minimize the burden of the information collection on 
credit unions, including the use of automated collection techniques or 
other forms of information technology; and
    (3) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information. 
Interested may submit comments regarding the information collection 
requirements in this rule. Comments must be received within 30 days 
from the publication of this interim final rule. Include ``Comments on 
Part 707 Truth in Savings'' in the comments header and send them to 
NCUA using one of the methods described above and to: NCUA Desk 
Officer, Office of Management and Budget, New Executive Office 
Building, Washington, DC 20503, Fax number: (202) 395-6974.

List of Subjects in 12 CFR Part 707

    Advertising, Consumer protection, Credit unions, Reporting and 
recordkeeping requirements, Truth in savings.

    By the National Credit Union Administration Board on November 
29, 2005.
Mary F. Rupp,
Secretary of the Board.

0
For the reasons set forth in the preamble, the Board amends 12 CFR part 
707 as set forth below:

PART 707--TRUTH IN SAVINGS

0
1. The authority citation for part 707 continues to read as follows:

    Authority: 12 U.S.C. 4311.

0
2. Section 707.2 is amended by revising paragraph (b) to read as 
follows:


Sec.  707.2  Definitions.

* * * * *
    (b) Advertisement means a commercial message, appearing in any 
medium, that promotes directly or indirectly:
    (1) The availability or terms of, or a deposit in, a new account; 
and
    (2) For purposes of Sec.  707.8(a) and Sec.  707.11 of this part, 
the terms of, or a deposit in, a new or existing account.
* * * * *

0
3. Section 707.6 is amended by republishing paragraph (b) introductory 
text and revising paragraph (b)(3) to read as follows:


Sec.  707.6  Periodic statement disclosures.

* * * * *
    (b) Statement disclosures. If a credit union mails or delivers a 
periodic statement, the statement must include the following 
disclosures:
* * * * *
    (3) Fees imposed. Fees required to be disclosed under Sec.  
707.4(b)(4) of this part that were debited from the account during the 
statement period. The fees must be itemized by type and dollar amounts. 
Except as provided in Sec.  707.11(a)(1) of this part, when fees of the 
same type are imposed more than once in a statement period, a credit 
union may itemize each fee separately or group the fees together and 
disclose a total dollar amount for all fees of that type.
* * * * *

0
4. Section 707.8 is amended by revising paragraph (a), and adding a new 
paragraph (f) to read as follows:


Sec.  707.8  Advertising.

    (a) Misleading or inaccurate advertisements. An advertisement must 
not:
    (1) Be misleading or inaccurate or misrepresent a credit union's 
account agreement; or
    (2) Refer to or describe an account as ``free'' or ``no cost'' or 
contain a similar term if any maintenance or activity fee may be 
imposed on the account. The word ``profit'' must not be used in 
referring to dividends or interest paid on an account.
* * * * *
    (f) Additional disclosures in connection with the payment of 
overdrafts. Credit unions that promote the payment of overdrafts in an 
advertisement must include in the advertisement the disclosures 
required by Sec.  707.11(b) of this part.
* * * * *

0
5. Section 707.11 is added to read as follows:


Sec.  707.11  Additional disclosure requirements for credit unions 
advertising the payment of overdrafts.

    (a) Periodic statement disclosures. (1) Disclosure of Total Fees. 
(i) Except as provided in paragraph (a)(2) of this section, if a credit 
union promotes the payment of overdrafts in an advertisement, the 
credit union must separately disclose on each periodic statement:
    (A) The total dollar amount for all fees or charges imposed on the 
account for paying checks or other items when there are insufficient 
funds and the account becomes overdrawn; and
    (B) The total dollar amount for all fees imposed on the account for 
returning items unpaid.
    (ii) The disclosures required by this paragraph must be provided 
for the statement period and for the calendar year to date, for any 
account to which the advertisement applies.
    (2) Communications not triggering disclosure of total fees. The 
following communications by a credit union do not trigger the 
disclosures required by paragraph (a)(1) of this section:

[[Page 72899]]

    (i) Promoting in an advertisement a service for paying overdrafts 
where the credit union's payment of overdrafts will be agreed upon in 
writing and subject to part 226 of this title (Regulation Z);
    (ii) Communicating, whether by telephone, electronically, or 
otherwise, about the payment of overdrafts in response to a member-
initiated inquiry about share accounts or overdrafts. Providing 
information about the payment of overdrafts in response to a balance 
inquiry made through an automated system, such as a telephone response 
machine, an automated teller machine (ATM), or a credit union's 
Internet site, is not a response to a member-initiated inquiry for 
purposes of this paragraph;
    (iii) Engaging in an in-person discussion with a member;
    (iv) Making disclosures that are required by Federal or other 
applicable law;
    (v) Providing a notice or including information on a periodic 
statement informing a member about a specific overdrawn item or the 
amount the account is overdrawn;
    (vi) Including in a share account agreement a discussion of the 
credit union's right to pay overdrafts;
    (vii) Providing a notice to a member, such as at an ATM, that 
completing a requested transaction may trigger a fee for overdrawing an 
account, or providing a general notice that items overdrawing an 
account may trigger a fee; or
    (viii) Providing informational or educational materials concerning 
the payment of overdrafts if the materials do not specifically describe 
the credit union's overdraft service.
    (3) Time period covered by disclosures. A credit union must make 
the disclosures required by paragraph (a)(1) of this section for the 
first statement period that begins after a credit union advertises the 
payment of overdrafts. A credit union may disclose total fees imposed 
for the calendar year by aggregating fees imposed since the beginning 
of the calendar year, or since the beginning of the first statement 
period that year for which such disclosures are required.
    (4) Termination of promotions. Paragraph (a)(1) of this section 
becomes inapplicable with respect to a share account two years after 
the date of a credit union's last advertisement promoting the payment 
of overdrafts related to that account.
    (5) Acquired accounts. A credit union that acquires an account must 
thereafter provide the disclosures required by paragraph (a)(1) of this 
section for the first statement period that begins after the credit 
union promotes the payment of overdrafts in an advertisement that 
applies to the acquired account. If disclosures under paragraph (a)(1) 
of this section are required for the acquired account, the credit union 
may, but is not required to, include fees imposed before acquisition of 
the account.
    (b) Advertising disclosures for overdraft services. (1) 
Disclosures. Except as provided in paragraphs (b)(2),(b)(3), and (b)(4) 
of this section, any advertisement promoting the payment of overdrafts 
must disclose in a clear and conspicuous manner:
    (i) The fee or fees for the payment of each overdraft;
    (ii) The categories of transactions for which a fee for paying an 
overdraft may be imposed;
    (iii) The time period by which the member must repay or cover any 
overdraft; and
    (iv) The circumstances under which the credit union will not pay an 
overdraft.
    (2) Communications about the payment of overdrafts not subject to 
additional advertising disclosures. Paragraph (b)(1) of this section 
does not apply to:
    (i) An advertisement promoting a service where the credit union's 
payment of overdrafts will be agreed upon in writing and subject to 
part 226 of this title (Regulation Z);
    (ii) A communication by a credit union about the payment of 
overdrafts in response to a member-initiated inquiry about share 
accounts or overdrafts. Providing information about the payment of 
overdrafts in response to a balance inquiry made through an automated 
system, such as a telephone response machine, ATM, or a credit union's 
Internet site, is not a response to a member-initiated inquiry for 
purposes of this paragraph;
    (iii) An advertisement made through broadcast or electronic media, 
such as television or radio;
    (iv) An advertisement made on outdoor media, such as billboards;
    (v) An ATM receipt;
    (vi) An in-person discussion with a member;
    (vii) Disclosures required by Federal or other applicable law;
    (viii) Information included on a periodic statement or a notice 
informing a member about a specific overdrawn item or the amount the 
account is overdrawn;
    (ix) A term in a share account agreement discussing the credit 
union's right to pay overdrafts;
    (x) A notice provided to a member, such as at an ATM, that 
completing a requested transaction may trigger a fee for overdrawing an 
account, or a general notice that items overdrawing an account may 
trigger a fee; or
    (xi) Informational or educational materials concerning the payment 
of overdrafts if the materials do not specifically describe the credit 
union's overdraft service.
    (3) Exception for ATM screens and telephone response machines. The 
disclosures described in paragraphs (b)(1)(ii) and (b)(1)(iv) of this 
section are not required in connection with any advertisement made on 
an ATM screen or using a telephone response machine.
    (4) Exception for indoor signs. Paragraph (b)(1) of this section 
does not apply to advertisements for the payment of overdrafts on 
indoor signs as described by Sec.  707.8(e)(2) of this part, provided 
that the sign contains a clear and conspicuous statement that fees may 
apply and that members should contact an employee for further 
information about applicable fees and terms. For purposes of this 
paragraph (b)(4), an indoor sign does not include an ATM screen.

0
6. Amend Appendix C to part 707 as follows:
0
a. Under Sec.  707.2 Definitions, under (b) Advertisement, the 
introductory sentence to paragraph 2 is republished, paragraph 2.iv is 
revised, and new paragraphs 2.v through 2.vii are added.
0
b. Under Sec.  707.4 Account disclosures, under (b)(4) Fees, a new 
paragraph 6 is added.
0
c. Under Sec.  707.6 Periodic statement disclosures, under (b)(3) Fees 
imposed, paragraph 2 is revised.
0
d. Under Sec.  707.8 Advertising, under (a) Misleading or inaccurate 
advertisements, a new paragraph 10 is added.
0
e. A new Sec.  707.11 Additional disclosure requirements for credit 
unions advertising the payment of overdrafts, is added in numerical 
order.
    The additions and revisions read as follows:

Appendix C To Part 707--Official Staff Interpretations

* * * * *


Sec.  707.2  Definitions.

* * * * *

(b) Advertisement

* * * * *
    2. Other messages. Examples of messages that are not advertisements 
are--
* * * * *
    iv. For purposes of Sec.  707.8(b) of this part through Sec.  
707.8(e) of this part, information given to members about

[[Page 72900]]

existing accounts, such as current rates recorded on a voice-response 
machine or notices for automatically renewable time account sent before 
renewal.
    v. Information about a particular transaction in an existing 
account.
    vi. Disclosures required by Federal or other applicable law.
    vii. A share account agreement.
* * * * *


Sec.  707.4  Account Disclosures.

* * * * *

(b) Content of account disclosures

* * * * *

(b)(4) Fees

* * * * *
    6. Fees for overdrawing an account. Under Sec.  707.4(b)(4) of this 
part, credit unions must disclose the conditions under which a fee may 
be imposed. In satisfying this requirement credit unions must specify 
the categories of transactions for which an overdraft fee may be 
imposed. An exhaustive list of transactions is not required. It is 
sufficient for a credit union to state that the fee applies to 
overdrafts ``created by check, in-person withdrawal, ATM withdrawal, or 
other electronic means.'' Disclosing a fee ``for overdraft items'' 
would not be sufficient.
* * * * *


Sec.  707.6  Periodic statement disclosures.

* * * * *

(b) Statement Disclosures

* * * * *
    (b)(3) Fees imposed
* * * * *
    2. Itemizing fees by type. In itemizing fees imposed more than once 
in the period, credit unions may group fees if they are the same type. 
See Sec.  707.11(a)(1) of this part regarding certain fees that must be 
grouped when a credit union promotes the payment of overdrafts. When 
fees of the same type are grouped together, the description must make 
clear that the dollar figure represents more than a single fee, for 
example, ``total fees for checks written this period.'' Examples of 
fees that may not be grouped together are--
    i. Monthly maintenance and excess-activity fees.
    ii. ``Transfer'' fees, if different dollar amounts are imposed, 
such as $.50 for deposits and $1.00 for withdrawals.
    iii. Fees for electronic fund transfers and fees for other 
services, such as balance-inquiry or maintenance fees.
    iv. Fees for paying overdrafts and fees for returning checks or 
other items unpaid.
* * * * *


Sec.  707.8  Advertising.

(a) Misleading or inaccurate advertisements

* * * * *
    10. Examples. Examples of advertisements that would ordinarily be 
misleading, inaccurate, or misrepresent the deposit contract are:
    i. Representing an overdraft service as a ``line of credit,'' 
unless the service is subject to 12 CFR part 226 (Regulation Z).
    ii. Representing that the credit union will honor all checks or 
authorize payment of all transactions that overdraw an account, with or 
without a specified dollar limit, when the credit union retains 
discretion at any time not to honor checks or authorize transactions.
    iii. Representing that members with an overdrawn account can 
maintain a negative balance when the terms of the account's overdraft 
service require members promptly to return the share account to a 
positive balance.
    iv. Describing a credit union's overdraft service solely as 
protection against bounced checks when the credit union also permits 
overdrafts for a fee for overdrawing their accounts by other means, 
such as ATM withdrawals, debit card transactions, or other electronic 
fund transfers.
    v. Advertising an account-related service for which the credit 
union charges a fee in an advertisement that also uses the word 
``free'' or ``no cost'' or a similar term to describe the account, 
unless the advertisement clearly and conspicuously indicates that there 
is a cost associated with the service. If the fee is a maintenance or 
activity fee under Sec.  707.8(a)(2) of this part, however, an 
advertisement may not describe the account as ``free'' or ``no cost'' 
or contain a similar term even if the fee is disclosed in the 
advertisement.
* * * * *


Sec.  707.11  Additional disclosure requirements for credit unions 
advertising the payment of overdrafts.

    (a) Periodic statement disclosures.
    (a)(1) Disclosure of total fees.
    1. Examples of credit unions advertising the payment of overdrafts. 
A credit union would trigger the periodic statement disclosures if it:
    i. Promotes the credit union's policy or practice of paying some 
overdrafts, unless the service would be subject to 12 CFR part 226 
(Regulation Z), in advertisements using broadcast media, brochures, 
telephone solicitations ,or electronic mail, or on Internet sites, ATM 
screens or receipts, billboards, or indoor signs. But see, Sec.  
707.11(a)(2) of this part regarding communications about the payment of 
overdrafts that would not trigger periodic statement disclosures;
    ii. Includes a message on a periodic statement informing the member 
of an overdraft limit or the amount of funds available for overdrafts. 
For example, a credit union that includes a message on a periodic 
statement informing the member of a $500 overdraft limit or that the 
member has $300 remaining on the overdraft limit, is promoting an 
overdraft service;
    iii. Discloses an overdraft limit or includes the dollar amount of 
an overdraft limit in a balance disclosed by any means, including on an 
ATM receipt or on an automated system, such as a telephone response 
machine, ATM screen, or the credit union's Internet site.
    2. Applicability of periodic statement disclosures. The periodic 
statement disclosures apply to all accounts for which the credit union 
has advertised the payment of overdrafts. For example, if an 
advertisement promoting the payment of overdrafts specifies the types 
of accounts to which the advertisement applies, the credit union would 
not be required to provide the periodic statement disclosures for other 
types of accounts offered by the credit union for which the 
advertisement does not apply. If an advertisement does not specify the 
types of accounts to which it applies, the advertisement would be 
considered to apply to all of a credit union's share accounts.
    3. Transfer services. The overdraft services covered by Sec.  
707.11(a)(1) of this part do not include a service providing for the 
transfer of funds from another share account of the member to permit 
the payment of items without creating an overdraft, even if a fee is 
charged for the transfer.
    4. Fees for paying overdrafts. A credit union that advertises the 
payment of overdrafts must disclose on periodic statements a total 
dollar amount for all fees charged to the account for paying 
overdrafts. The credit union must disclose separate totals for the 
statement period and for the calendar year to date. The total dollar 
amount includes per-item fees as well as interest charges, daily or 
other periodic fees, or fees charged for maintaining an account in 
overdraft status, whether the overdraft is by check or by other means. 
It also includes fees charged when there are insufficient funds because 
previously deposited funds are subject to a hold or are uncollected. It 
does not include fees for transferring funds from another account to 
avoid an overdraft, or fees

[[Page 72901]]

charged when the credit union has previously agreed in writing to pay 
items that overdraw the account and the service is subject to 12 CFR 
part 226 (Regulation Z).
    5. Fees for returning items unpaid. A credit union that advertises 
the payment of overdrafts must disclose a total dollar amount for all 
fees charged to the account for dishonoring or returning checks or 
other items drawn on the account. The credit union must disclose 
separate totals for the statement period and for the calendar year to 
date. Fees imposed when deposited items are returned are not included.
    6. Waived fees. In some cases, a credit union may provide a 
statement for the current period reflecting that fees imposed during a 
previous period were waived and credited to the account. Credit unions 
may, but are not required to, reflect the adjustment in the total for 
the calendar year to date. Such adjustments should not affect the total 
disclosed for fees imposed during the current statement period.
    7. Totals for the calendar year to date. Some credit unions' 
statement periods do not coincide with the calendar month. In such 
cases, the credit union may disclose a calendar year-to-date total by 
aggregating fees for 12 monthly cycles, starting with the period that 
begins during January and finishing with the period that begins during 
December. For example, if statement periods begin on the 10th day of 
each month, the statement covering December 10, 2006 through January 9, 
2007 may disclose the year-to-date total for fees imposed from January 
10, 2006 through January 9, 2007. Alternatively, the credit union could 
provide a statement for the cycle ending January 9, 2007, showing the 
year-to-date total for fees imposed January 1, 2006 through December 
31, 2006.
    8. Itemization of fees. A credit union may itemize each fee in 
addition to providing the disclosures required by Sec.  707.11(a)(1) of 
this part.

(a)(3) Time period covered by disclosures

    1. Periodic statement disclosures. The disclosures under Sec.  
707.11(a)(1) of this part must be included on periodic statements 
provided by a credit union reflecting the first statement period that 
begins after the credit union advertises the payment of overdrafts. For 
example, if a member's statement period typically closes on the 15th of 
each month, a credit union that promotes the payment of overdrafts on 
July 1, 2006, must provide the disclosures required by Sec.  
707.11(a)(1) of this part on subsequent periodic statements for that 
member beginning with the statement reflecting the period from July 16, 
2006 through August 15, 2006. Only credit unions that promote the 
payment of overdrafts in an advertisement on or after July 1, 2006 must 
provide disclosures on periodic statements under Sec.  707.11(a)(1) of 
this part.

(a)(5) Acquired accounts

    1. Examples. As provided in Sec.  707.11(a)(5) of this part, a 
credit union that acquires share accounts through merger must provide 
the disclosures required by paragraph (a)(1) of this section for the 
first statement period that begins after the credit union promotes the 
payment of overdrafts in an advertisement that applies to the acquired 
account. If the acquiring credit union does not advertise the payment 
of overdrafts, or the advertisement does not apply to the acquired 
accounts, the credit union need not provide the disclosures required by 
Sec.  707.11(a)(1) of this part for the acquired accounts, even if the 
credit union that previously held the accounts advertised the payment 
of overdrafts with respect to those accounts.

(b) Advertising disclosures in connection with overdraft services

    1. Examples of credit unions promoting the payment of overdrafts. A 
credit union must include the advertising disclosures in Sec.  
707.11(b)(1) of this part if the credit union:
    i. Promotes the credit union's policy or practice of paying 
overdrafts, unless the service would be subject to 12 CFR part 226 
(Regulation Z). This includes advertisements using print media such as 
newspapers or brochures, telephone solicitations, electronic mail, or 
messages posted on an Internet site. But see, Sec.  707.11(b)(2) of 
this part for communications that are not subject to the additional 
advertising disclosures;
    ii. Includes a message on a periodic statement informing the member 
of an overdraft limit or the amount of funds available for overdrafts. 
For example, a credit union that includes a message on a periodic 
statement informing the member of a $500 overdraft limit or that the 
member has $300 remaining on the overdraft limit, is promoting an 
overdraft service.
    iii. Discloses an overdraft limit or includes the dollar amount of 
an overdraft limit in a balance disclosed on an automated system, such 
as a telephone response machine, ATM screen, or the credit union's 
Internet site. See, however, Sec.  707.11(b)(3) of this part.
    2. Transfer services. The overdraft services covered by Sec.  
707.11(b)(1) of this part do not include a service providing for the 
transfer of funds from another share account of the member to permit 
the payment of items without creating an overdraft, even if a fee is 
charged for the transfer.
    3. Electronic media. The exception for advertisements made through 
broadcast or electronic media, such as television or radio, does not 
apply to advertisements posted on a credit union's Internet site, on an 
ATM screen, provided on telephone response machines, or sent by 
electronic mail.
    4. Fees. The fees that must be disclosed under Sec.  707.11(b)(1) 
of this part include per-item fees as well as interest charges, daily 
or other periodic fees, and fees charged for maintaining an account in 
overdraft status, whether the overdraft is by check or by other means. 
The fees also include fees charged when there are insufficient funds 
because previously deposited funds are subject to a hold or are 
uncollected. The fees do not include fees for transferring funds from 
another account to avoid an overdraft or fees charged when the credit 
union has previously agreed in writing to pay items that overdraw the 
account and the service is subject to 12 CFR part 226 (Regulation Z).
    5. Categories of transactions. An exhaustive list of transactions 
is not required. Disclosing that a fee may be imposed for covering 
overdrafts ``created by check, in-person withdrawal, ATM withdrawal, or 
other electronic means would satisfy the requirements of Sec.  
707.11(b)(1)(ii) of this part where the fee may be imposed in these 
circumstances. See comment 4(b)(4)-5 of this part.
    6. Time period to repay. If a credit union reserves the right to 
require a member to pay an overdraft immediately or on demand instead 
of affording members a specific time period to establish a positive 
balance in the account, a credit union may comply with Sec.  
707.11(b)(1)(iii) of this part by disclosing this fact.
    7. Circumstances for nonpayment. A credit union must describe the 
circumstances under which it will not pay an overdraft. It is 
sufficient to state, as applicable: ``Whether your overdrafts will be 
paid is discretionary and we reserve the right not to pay. For example, 
we typically do not pay overdrafts if your account is not in good 
standing, or you are not making regular deposits, or you have too many 
overdrafts.''
    8. Advertising an account as ``free.'' If the advertised account-
related service is an overdraft service subject to the requirements of 
Sec.  707.11(b)(1) of this

[[Page 72902]]

part, credit unions must disclose the fee or fees for the payment of 
each overdraft, not merely that a cost is associated with the overdraft 
service, as well as other required information. Compliance with comment 
8(a)--10.v is not sufficient.
* * * * *
[FR Doc. 05-23711 Filed 12-7-05; 8:45 am]
BILLING CODE 7535-01-P