[Federal Register Volume 71, Number 80 (Wednesday, April 26, 2006)]
[Rules and Regulations]
[Pages 24568-24571]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-3916]


-----------------------------------------------------------------------

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 707

RIN 3133-AC57


Truth in Savings

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: As required by the Truth in Savings Act, NCUA is finalizing 
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 
credit unions may use to pay members'' checks and allow other 
overdrafts when there are insufficient funds in the account.

DATES: This rule became effective December 8, 2005. To allow time for 
any necessary system modifications, however, the mandatory compliance 
date for the final rule is amended to October 1, 2006.

FOR FURTHER INFORMATION CONTACT: Moisette I. Green, Staff Attorney, at 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428 or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

I. The Interim Rule

    The Truth in Savings Act (TISA) requires financial institutions to 
disclose fees, the annual percentage yield, interest rate, and other 
terms associated with their accounts. 12 U.S.C. 4301 et seq. TISA also 
requires NCUA to promulgate regulations substantially similar to those 
promulgated by the Board of Governors of the Federal Reserve System 
(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 adopting a final rule substantially similar to the 
Federal Reserve's May 2005 rule that requires banks to make certain 
disclosures when they offer or promote courtesy overdraft protection 
services to consumers. 70 FR 29582 (May 24, 2005).
    The Federal Reserve's implementation of TISA, 12 CFR part 230 
(Regulation DD), 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. Regulation DD 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) include certain other 
disclosures in advertisements of courtesy overdraft services.
    In November 2005, the NCUA Board issued an interim final rule, with 
a 60-day comment period, that adopted revisions to part 707 and the 
accompanying official staff interpretation to comply with the Board's 
obligation under TISA. 70 FR 72895 (December 8, 2005). NCUA's interim 
rule was substantially similar to Regulation DD, except for some 
modifications to account for the unique nature of credit unions. The 
rule consolidated 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, NCUA established that compliance 
with the final rule would not become mandatory until July 1, 2006.

II. Public Comments

    The interim rule solicited comment about current courtesy overdraft 
services and the estimated burden of the new requirements. NCUA 
received 16 comments regarding the interim rule from: Seven credit 
unions, two credit union trade associations, five credit union leagues, 
a consumer protection group, and one consumer.
    Of the comments NCUA received from credit unions, two believed the 
rule was overly burdensome, and five requested additional time for 
compliance. Four officials from one credit union provided the same 
comment, which NCUA has counted as one, that the disclosure 
requirements of

[[Page 24569]]

the final rule are unduly burdensome and expensive. Another credit 
union commented on NCUA's Paperwork Reduction Act analysis and stated 
that NCUA had underestimated the burden to credit unions, especially as 
it relates to employee training. The Board notes that it has estimated 
eight hours for each credit union to undertake a one-time reprogramming 
and updating of their information systems and an additional forty hours 
to update advertising materials. As the required changes essentially 
are the identification of fees, the Board believes that employee 
training in this area will be minimal and did not identify a separate 
category of burden hours for training.
    Five credit unions commented that the July 1, 2006 mandatory 
compliance date did not give credit unions and their software providers 
sufficient time to make the necessary system changes and test their 
programs. They requested NCUA change the mandatory compliance date to 
January 1, 2007.
    One credit union trade association also commented on the short time 
between the rule's effective and the mandatory compliance dates and 
recommended NCUA change the date to December 31, 2006. Additionally, it 
requested NCUA clarify the requirements for periodic statements. While 
the substance of this final rule is unchanged, a brief summary of the 
rule appears below to help credit unions understand its requirements.
    The other credit union trade association specifically supported the 
regulation of courtesy overdraft programs under the TISA instead of 
under the Truth in Lending Act, 15 U.S.C. 1601 et seq. (TILA), but like 
the other trade association and the credit unions, objected to the July 
1, 2006 mandatory compliance date and requested a January 1, 2007 date. 
It also commented that NCUA should determine if there is flexibility in 
the rule due to the burden to credit unions and the likelihood required 
disclosures may confuse credit union members. The Board disagrees that 
credit union members will find the disclosures confusing but, as 
intended by the rule, the disclosures will provide important 
information to members about the fees associated with overdraft 
protection.
    The majority of the credit union leagues that commented on the 
final rule generally supported it, but suggested the mandatory 
compliance date should be January 1, 2007. Two leagues raised concerns 
with the definition of ``advertisement'' in Sec.  707.2(b), and one 
suggested NCUA provide a list of what constitutes ``advertising'' so 
credit unions will have a clear understanding of when the additional, 
cumulative disclosures are mandatory. Another league recommended NCUA 
use the term ``courtesy overdraft protection program'' to clarify that 
the rule covers only those programs in which a credit union pays a 
draft on behalf of a member and not the situation in which it transfers 
funds from another account to cover the draft. This same league also 
expressed concerns that the disclosures required if a credit union 
advertises its program may become excessive. The one league that 
opposed the final rule commented that credit unions already give its 
members sufficient disclosures.
    A nonprofit organization that specializes in consumer credit issues 
on behalf of low-income people, submitted the same comments it 
submitted during the Federal Reserve's rulemaking. This organization 
advocates the regulation of courtesy overdraft protection programs 
under TILA instead of TISA, commented that problems with bounce 
protection have increased since the Federal Reserve's rulemaking, and 
asked NCUA to consider TILA coverage for courtesy overdraft protection 
programs.
    While NCUA appreciates these comments, the Board must comply with 
TISA and adopt a rule that is similar to the Federal Reserve's 
Regulation DD. Additionally, the amendments to part 707 recognize that 
a courtesy overdraft service is a feature and term of a share account 
and the fees associated with the service are assessed against the share 
account. These rules under part 707 do not preclude a future 
determination by the Federal Reserve that TILA disclosures would also 
benefit consumers.
    The consumer who commented on this rulemaking expressed concern 
about the purpose of the rulemaking and questioned why the final rule 
required institutions to disclose fees for paid and returned items 
separately. The consumer was concerned that all institutions would not 
disclose the same fees or include the same fees in each total and does 
not believe the rule would help consumers who regularly pay fees for 
courtesy overdraft protection programs. The consumer also commented 
that the mandatory compliance date should be January 1, 2007.
    When the Board issued the interim rule, it adopted the July 1, 2006 
compliance date to track the Federal Reserve's amendments to Regulation 
DD. The Board appreciates, however, the concern about credit unions' 
ability to reprogram their systems in time to provide the required 
disclosures in periodic statements by July 1, 2006. The Board wants to 
ensure smaller credit unions that may not rely solely on software 
vendors have adequate time to comply with the new disclosure rules. 
Because TISA disclosures allow consumers to make meaningful comparisons 
between the competing claims of depository institutions regarding 
deposit accounts, the Board is also concerned that consumers may be 
disadvantaged by delaying the compliance date for credit unions, but 
any disadvantage to consumers caused by a delay is outweighed by the 
Board's concern that members receive accurate disclosures about their 
share accounts. Accordingly, the Board is amending the mandatory 
compliance date to October 1, 2006.

III. The Final Rule

    To comply with the Board's obligation under TISA, it is adopting 
the interim final revisions to part 707 and the accompanying official 
staff interpretation as a final rule. Because NCUA has made no 
substantive changes to the interim rule, the regulatory text has not 
been republished in the Federal Register. The following is a summary of 
the revisions to part 707 and the staff commentary. This rule tracks 
closely the Federal Reserve's recent amendments to Regulation DD, and 
was published with minor modifications to account for the unique nature 
of credit union payments of dividends as opposed to interest in the 
Federal Register in December 2005. 70 FR 29582 (May 24, 2005); 70 FR 
72895 (December 8, 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 courtesy 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. A transfer of available funds from another of a member's share 
accounts to cover an overdraft is not courtesy overdraft protection for 
the purposes of this rule. Generally, courtesy overdraft protection 
services allow a credit union to make an occasional, manual payment of 
an overdraft on a member's behalf. Some financial institutions have 
automated the decision and payment process however.
    Credit unions that provide courtesy overdraft protection, but do 
not

[[Page 24570]]

advertise it, must disclose fees debited from a share account on their 
periodic statements. If fees of the same type are imposed more than 
once in a statement period, then the fees may be itemized separately or 
grouped together and the total disclosed. Credit unions that advertise 
courtesy overdraft protection programs must separately disclose the 
total fees charged to an account for paying items when there are NSFs 
and the total fees for returning items unpaid for both the statement 
period and calendar year to date. Credit unions that do not provide 
courtesy overdraft protection or advertise the payment of overdrafts 
would not be required to provide the new periodic statement disclosures 
under the final rule.

Account-Opening Disclosures

    All credit unions that have a courtesy overdraft protection program 
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.

Advertising Rules

    Along with providing additional disclosures in periodic statements 
when they advertise courtesy overdraft protection, credit unions must 
include disclosures in their advertisements. For the purpose of 
courtesy overdraft protection, an advertisement is a commercial message 
that promotes the availability or terms of the service with a share 
account. To avoid confusion with traditional lines of credit, credit 
unions that promote the payment of overdrafts must include in their 
advertisements about the service:
    (1) The applicable fees or charges;
    (2) The categories of transactions covered;
    (3) The time period members have to repay or cover any overdraft; 
and
    (4) 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 final rule provides safe harbors from the advertising 
requirements similar to those for the periodic statement disclosure 
requirements. The advertising disclosure requirements would not apply 
to credit unions when they:
    (1) Promote a traditional line of credit;
    (2) Respond to a member-initiated inquiry;
    (3) Engage in an in-person discussion with a member;
    (4) Make disclosures required by federal or other applicable law;
    (5) Notify a member about a specific overdraft in their account;
    (6) Discuss their right to pay overdrafts in a share account 
agreement;
    (7) Provide a notice to a member that items overdrawing an account 
may trigger a fee; or
    (8) Provide educational materials.
    Advertising disclosures are not required on ATM receipts or for 
advertisements using broadcast media, billboards, or telephone response 
systems. 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.

Prohibiting Misleading Advertisements

    The rule extends TISA's prohibition against advertisements, 
announcements, or solicitations that are misleading or misrepresent the 
deposit agreement to communications with members about the terms of 
their existing accounts. The staff interpretation provides examples of 
advertisements that would ordinarily be deemed misleading.

IV. Regulatory Procedures

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 
courtesy overdraft services generally and to address concerns about 
advertised courtesy overdraft services in particular. The existing 
regulation is amended to require credit unions offering certain 
courtesy overdraft services to provide more complete information 
regarding those services. The Board believes that the revisions to part 
707 are within its authority to adopt provisions that carry out the 
purposes of the statute.
    There are other laws and regulations that credit unions must 
consider when administering an overdraft protection program, including 
the Equal Credit Opportunity Act, 15 U.S.C. 1691 et seq., 12 CFR part 
202 (Regulation B), and 12 CFR 701.21(c)(3). 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 are 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 
courtesy 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 courtesy overdraft services. 
Account-opening disclosures and marketing materials would describe more 
completely how fees may be triggered. Credit unions that provide 
courtesy 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. If a credit union promotes or advertises its courtesy 
overdraft protection program, the credit union must provide these 
disclosures for the statement period and for the calendar year to date 
for each account to which the credit union provides the service. 
Certain advertising

[[Page 24571]]

practices are prohibited, and additional disclosures on advertisements 
of courtesy overdraft services are required.
    The Board solicited comment on how the burden of disclosures on 
credit unions could be minimized, but received no suggestions. 
Therefore, NCUA is issuing a final rule with only clarifying 
modifications and no substantive changes.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, 44 U.S.C. 
3501 et seq., the Board submitted the information collection 
requirements contained in this final rule to the Office of Management 
and Budget (OMB). OMB approved the information collection on December 
28, 2005, under control number 3133-0134.
    NCUA estimated the total, continuing annual burden for the Truth in 
Savings program to be 12,076,057 hours for 9,128 credit unions. Two 
credit unions commented that the rule was overly burdensome, but 
provided no estimated costs, burden hours, or suggestions to minimize 
the burden.
    NCUA has a continuing interest in the public's opinions of our 
information collections. Interested parties may send comments regarding 
the burden estimate or any other aspect of the collection, including 
suggestions for reducing the burden, at any time, to Secretary of the 
Board, National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428, E-mail: [email protected], or Fax: 
(703) 518-6319. Send a copy of comments on the information collection 
to NCUA Desk Officer, Office of Management and Budget, New Executive 
Office Building, Washington, DC 20503, or fax (202) 395-6974 also. 
Include ``Comments on Part 707 Truth in Savings'' in the comments 
header.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. The final rule will not have substantial 
direct effects on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined that this rule does not constitute a policy that has 
federalism implications for purposes of the executive order.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this final rule would not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 
2681 (1998).

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996, 
Pub. L. 104-121, (SBREFA) provides generally for congressional review 
of agency rules. A reporting requirement is triggered in instances 
where NCUA issues a final rule as defined by Section 551 of the 
Administrative Procedure Act. 5 U.S.C. 551. The Office of Management 
and Budget has determined that this rule is not a major rule for 
purposes of SBREFA. As required by SBREFA, NCUA will file the 
appropriate reports with Congress and the General Accounting Office so 
that the rule may be reviewed.

List of Subjects in 12 CFR Part 707

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


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
Accordingly, the interim rule amending 12 CFR part 707, which was 
published at 70 FR 72898 on December 8, 2005, is adopted as a final 
rule without change.

    By the National Credit Union Administration Board on April 20, 
2006.
Mary F. Rupp,
Secretary of the Board.
[FR Doc. 06-3916 Filed 4-25-06; 8:45 am]
BILLING CODE 7535-01-P