[Federal Register Volume 73, Number 97 (Monday, May 19, 2008)]
[Proposed Rules]
[Pages 28739-28751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-10243]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 73, No. 97 / Monday, May 19, 2008 / Proposed 
Rules  

[[Page 28739]]



FEDERAL RESERVE SYSTEM

12 CFR Part 230

[Regulation DD; Docket No. R-1315]


Truth in Savings

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; request for public comment.

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SUMMARY: The Federal Reserve Board (Board) proposes to amend Regulation 
DD, which implements the Truth in Savings Act, and the staff commentary 
to the regulation, to provide additional disclosures about account 
terms and costs associated with overdrafts. The proposed amendments 
would set forth content and timing requirements for a notice to 
consumers about any right to opt out of an institution's overdraft 
service. Requirements for disclosing overdraft fees on periodic 
statements would be expanded to apply to all institutions and not 
solely to institutions that promote the payment of overdrafts. The 
proposed amendments also address balance disclosures provided in 
response to balance inquiries from consumers.

DATES: Comments must be received on or before July 18, 2008.

ADDRESSES: You may submit comments, identified by Docket No. R-1315, by 
any of the following methods:
     Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected]. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Benjamin K. Olson, Attorney, or Vivian 
W. Wong, Senior Attorney, or Ky Tran-Trong, Counsel, Division of 
Consumer and Community Affairs, Board of Governors of the Federal 
Reserve System, Washington, DC 20551, at (202) 452-2412 or (202) 452-
3667. For users of Telecommunications Device for the Deaf (TDD) only, 
contact (202) 263-4869.

SUPPLEMENTARY INFORMATION:

I. The Truth in Savings Act

    The Truth in Savings Act (TISA), 12 U.S.C. 4301 et seq., is 
implemented by the Board's Regulation DD (12 CFR part 230). The purpose 
of the act and regulation is to assist consumers in comparing deposit 
accounts offered by depository institutions, principally through the 
disclosure of fees, the annual percentage yield (APY), the interest 
rate, and other account terms. An official staff commentary interprets 
the requirements of Regulation DD (12 CFR part 230 (Supp. I)). Credit 
unions are governed by a substantially similar regulation issued by the 
National Credit Union Administration (NCUA).
    Under TISA and Regulation DD, account disclosures must be provided 
upon a consumer's request and before an account is opened. Institutions 
are not required to provide periodic statements; but if they do, the 
act requires that fees, yields, and other information be provided on 
the statements. Notice also must be provided to accountholders before 
an adverse change in account terms occurs and prior to the renewal of 
certificates of deposit (time accounts).
    TISA and Regulation DD contain rules for advertising deposit 
accounts. Under TISA, there is a prohibition against advertisements, 
announcements, or solicitations that are inaccurate or misleading, or 
that misrepresent the deposit contract. Institutions also are 
prohibited from describing an account as free (or using words of 
similar meaning) if a regular service or transaction fee is imposed, if 
a minimum balance must be maintained, or if a fee is imposed when a 
customer exceeds a specified number of transactions. In addition, the 
act and regulation impose substantive restrictions on institutions' 
practices regarding the payment of interest on accounts and the 
calculation of account balances.

II. Background on Overdraft Services and Regulatory Action to Date

    Historically, if a consumer engaged in a transaction that overdrew 
his or her account, the consumer's depository institution used its 
discretion on an ad hoc basis to determine whether to pay the 
overdraft, usually imposing a fee for paying the overdraft. The Board 
recognized this longstanding practice when it initially adopted 
Regulation Z in 1969 to implement the Truth in Lending Act (TILA). The 
regulation provided that these transactions are generally not covered 
under Regulation Z where there is no written agreement between the 
consumer and institution to pay an overdraft and impose a fee. See 12 
CFR 226.4(c)(3). The treatment of overdrafts in Regulation Z was 
designed to facilitate depository institutions' ability to accommodate 
consumers' transactions on an ad hoc basis.
    Over the years, most institutions have largely automated the 
overdraft payment process, including setting specific criteria for 
determining whether to honor overdrafts and limits on the amount of the 
coverage provided. From the industry's perspective, the benefits of 
overdraft, or bounced check, services include a reduction in the costs 
of manually reviewing individual items, as well as the consistent 
treatment for all customers with respect to overdraft payment 
decisions. Moreover, industry representatives assert that overdraft 
services are valued by consumers, particularly for check transactions, 
as they allow consumers to avoid additional fees that would be charged 
by the payee if the item was returned unpaid, and other adverse 
consequences, such as the furnishing of

[[Page 28740]]

negative information to a consumer reporting agency.\1\
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    \1\ See, e.g., Overdraft Protection: Fair Practices for 
Consumers: Hearing before the House Subcomm. on Financial 
Institutions and Consumer Credit, House Comm. on Financial Services, 
110th Cong. (2007) Overdraft Protection Hearing), (available at 
http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr0705072.shtml).
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    In contrast, consumer advocates believe overdraft transactions are 
a high-cost form of lending that traps low- and moderate-income 
consumers (particularly students and the elderly) into paying high 
fees. Moreover, consumer advocates note that consumers are enrolled in 
overdraft services automatically, often with no chance to opt out. In 
addition, consumer advocates believe that by honoring check and other 
types of overdrafts, institutions encourage consumers to rely on this 
service and thereby consumers incur greater costs in the long run than 
they would if the transactions were not honored. Consumer advocates 
also express concerns about debit card overdrafts where the dollar 
amount of the fee may far exceed the dollar amount of the overdraft, 
and multiple fees may be assessed in a single day for a series of 
small-dollar transactions.\2\
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    \2\ See, e.g., Overdraft Protection Hearing n.1; Jacqueline 
Duby, Eric Halperin & Lisa James, High Cost and Hidden From View: 
The $10 Billion Overdraft Loan Market, Ctr. Responsible Lending (May 
26, 2005) (noting that the bulk of overdraft fees are incurred by 
repeat users) (available at http://www.responsiblelending.org/pdfs/ip009-High_Cost_Overdraft-0505.pdf).
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    According to a recent report from the Government Accountability 
Office (GAO), the average cost of overdraft and insufficient funds fees 
has increased roughly 11 percent between 2000 and 2007 to just over $26 
per item, according to one estimate.\3\ The GAO also reported that 
large institutions on average charged between $4 and $5 more for 
overdraft and insufficient fund fees compared to smaller 
institutions.\4\ In addition, the GAO Bank Fees Report noted that a 
small number of institutions (primarily large banks) apply tiered fees 
to overdrafts, charging higher fees as the number of overdrafts in the 
account increases.\5\
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    \3\ See Bank Fees: Federal Banking Regulators Could Better 
Insure That Consumers Have Required Disclosure Documents Prior to 
Opening Checking or Savings Accounts, GAO Report 08-281 (January 
2008) (hereinafter, GAO Bank Fees Report). See also Bankrate 2007 
Checking Account Study, posted September 26, 2007 (available at: 
http://www.bankrate.com/brm/news/chk/chkstudy/20070924_bounced_check_fee_al.asp?caret=2e) (reporting an average overdraft fee of 
over $28.00 per item).
    \4\ See GAO Bank Fees Report at 16.
    \5\ According to the GAO, of the financial institutions that 
applied up to 3 tiers of fees in 2006, the average overdraft fees 
were $26.74, $32.53 and $34.74, respectively. See GAO Bank Fees 
Report at 14.
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    Overdraft services vary among institutions but typically share 
certain characteristics. Coverage is ``automatic'' for consumers who 
meet the institution's criteria (e.g., the account has been open a 
certain number of days, the account is in ``good standing'', deposits 
are made regularly). While institutions generally do not underwrite on 
an individual account basis in determining whether to enroll the 
consumer in the service initially, most institutions will review 
individual accounts periodically to determine whether the consumer 
continues to qualify for the service, and the amounts that may be 
covered.
    Most overdraft program disclosures state that payment of an 
overdraft is discretionary on the part of the institution, and disclaim 
any legal obligation of the institution to pay any overdraft. 
Typically, the service is extended to also cover non-check 
transactions, including withdrawals at automated teller machines 
(ATMs), automated clearinghouse (ACH) transactions, debit card 
transactions at point-of-sale, pre-authorized automatic debits from a 
consumer's account, telephone-initiated funds transfers, and on-line 
banking transactions. A flat fee is charged each time an overdraft is 
paid, and commonly, institutions charge the same amount for paying the 
overdraft as they would if they returned the item unpaid. A daily fee 
also may apply for each day the account remains overdrawn.
    Where institutions vary most in their provision of overdraft 
services is the extent to which institutions inform consumers about the 
existence of the service or otherwise promote the use of the service. 
For those institutions that choose to promote the existence and 
availability of the service, they may also disclose to consumers, 
typically in a brochure or welcome letter, the aggregate dollar limit 
of overdrafts that may be paid under the service.
    As the availability and customer use of these overdraft services 
has increased, the federal banking agencies (Board, Federal Deposit 
Insurance Corporation (FDIC), NCUA, Office of the Comptroller of the 
Currency (OCC) and Office of Thrift Supervision (OTS)) have become 
concerned about aspects of the marketing, disclosure, and 
implementation of some of these services. In response to some of these 
concerns, the agencies published guidance on overdraft protection 
programs in February 2005.\6\ The Joint Guidance addresses three 
primary areas--safety and soundness considerations, legal risks, and 
best practices, while the OTS Guidance focuses on safety and soundness 
considerations and best practices. The best practices focus on the 
marketing and communications that accompany the offering of overdraft 
services, as well as the disclosure and operation of program features, 
including the provision of a consumer election or opt-out of the 
overdraft service. The agencies have also published a consumer brochure 
on overdraft services.\7\
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    \6\ See Interagency Guidance on Overdraft Protection Programs 
(Joint Guidance), 70 FR 9127 (Feb. 24, 2005) and OTS Guidance on 
Overdraft Protection Programs (OTS Guidance), 70 FR 8428 (Feb. 18, 
2005).
    \7\ The brochure entitled ``Protecting Yourself from Overdraft 
and Bounced-Check Fees,'' can be found at: http://www.federalreserve.gov/pubs/bounce/default.htm.
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    In May 2005, the Board separately issued revisions to Regulation DD 
and the staff commentary pursuant to its authority under the Truth in 
Savings Act (TISA) to address concerns about the uniformity and 
adequacy of institutions' disclosure of overdraft fees generally, and 
to address concerns about advertised overdraft services in particular. 
70 FR 29582 (May 24, 2005).\8\ The goal of the final rule was to 
improve the uniformity and adequacy of disclosures provided to 
consumers about overdraft and returned-item fees to assist consumers in 
better understanding the costs associated with the payment of 
overdrafts. In addition, the final rule addressed some of the Board's 
concerns about institutions' marketing practices with respect to 
overdraft services.
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    \8\ A substantively similar rule applying to credit unions was 
issued separately by the NCUA. 71 FR 24568 (Apr. 26, 2006). The NCUA 
previously issued an interim final rule in 2005. 70 FR 72895 (Dec. 
8, 2005).
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    Under the May 2005 final rule, which became effective July 1, 2006, 
all depository institutions are required to specify in their account 
disclosures the categories of transactions for which an overdraft fee 
may be imposed, and to include in their advertisements about overdraft 
services, certain information about the costs associated with the 
service and the circumstances under which the institution would not pay 
an overdraft. The Board's final rule also requires institutions that 
promote the payment of overdrafts in an advertisement to disclose 
separately on their periodic statements the total amount of fees or 
charges imposed on the account for paying overdrafts and the total 
amount of fees charged for returning items unpaid. These disclosures 
must be provided for the statement period and for the calendar

[[Page 28741]]

year to date. The final rule for the aggregate fee disclosures was 
narrower than the proposal, which would have applied the periodic 
statement requirements to all institutions, regardless of whether they 
market the payment of overdrafts.
    Notwithstanding the issuance of the February 2005 Joint Guidance 
and the Board's May 2005 final rule under Regulation DD, the Board 
remains concerned that consumers may not adequately understand the 
costs of overdraft services nor how overdraft services operate 
generally. The Board is thus proposing additional disclosure 
requirements pursuant to its authority under Sections 263, 264, 268 and 
269(a) of TISA to facilitate consumers' ability to make informed 
judgments about the use of their accounts. 12 U.S.C. 4302(e), 4303(b) & 
(d), 4307, 4308(a). The proposed requirements address disclosures to 
consumers about the costs associated with overdraft services on 
periodic statements and disclosures to consumers about account balances 
in response to consumer inquiries.
    In addition, as discussed elsewhere in this Federal Register, the 
Board, along with the OTS and the NCUA, are proposing to adopt 
substantive protections using their authority under the Federal Trade 
Commission Act (FTC Act) to address certain unfair or abusive 
protections associated with overdraft services.\9\ The Board's proposal 
would add a new Subpart D on overdraft services to the Board's 
Regulation AA, Unfair or Deceptive Acts or Practices (2008 Regulation 
AA Proposal) (12 CFR part 227). Among other things, the proposal would 
require institutions to provide consumers the ability to opt out of 
their institutions' payment of overdrafts. The Board is proposing to 
amend Regulation DD to ensure that consumers receive effective 
disclosures about their right to opt out of overdraft services, by 
setting forth certain content, format and timing requirements for the 
notice.\10\
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    \9\ For simplicity, this notice will refer only to the Board's 
proposal.
    \10\ While NCUA is not proposing amendments to its 12 CFR part 
707 in today's Federal Register, TISA requires NCUA to promulgate 
regulations substantially similar to Regulation DD. Accordingly, 
NCUA will issue amendments to part 707 following the Board's 
adoption of final rules under Regulation DD.
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    During this rulemaking process, Board staff has held discussions 
with representatives from banks, core systems providers, consumer 
groups, vendors of overdraft services, payment card associations, and 
industry trade associations. Board staff has also reviewed current 
account disclosures, and solicited input from members of the Board's 
Consumer Advisory Council regarding overdraft services.

III. Summary of Proposal

Disclosure of Consumer Opt-Out of Overdraft Services

    The Board is proposing amendments under Regulation DD to set forth 
content and format requirements for the notices that would be given to 
consumers informing them about their right to decline, or opt out of, 
their institution's overdraft service. The substantive opt-out 
requirement is proposed separately in today's Federal Register under 
the Board's authority under the FTC Act. Under the proposal, the notice 
must be provided to the consumer before the institution assesses any 
fees in connection with paying an overdraft, and subsequently during or 
for each statement period in which a fee is imposed (for example, on a 
notice sent promptly after an overdraft informing the consumer of that 
fact, or on each periodic statement reflecting an overdraft fee or 
charge). The notice following assessment of an overdraft fee would help 
to ensure that consumers are apprised of their opt-out rights at a time 
when the information may be most relevant, that is, after the consumer 
has overdrawn his or her account and received information about the 
costs of using the service. The content of the notice is discussed in 
more detail in the Section-by-Section Analysis below. The Board intends 
to conduct consumer testing on the proposed notice following the 
issuance of this proposal and review of comments received.

Disclosure of the Aggregate Costs of Overdraft Services on Periodic 
Statements

    As discussed above, the Board's May 2005 final rule under 
Regulation DD requires, among other things, institutions that promote 
the payment of overdrafts to provide consumers information about the 
aggregate costs of the overdraft service for the statement period and 
the calendar year to date. The Board is proposing to expand this 
provision to require all institutions, regardless of whether they 
promote the payment of overdrafts, to disclose aggregate cost 
information. The amendment is intended to provide all consumers that 
use overdraft services with additional information about fees to help 
them better understand the costs associated with their accounts. Under 
the current rule, institutions that do not promote their overdraft 
service may be reluctant to provide information about their service, 
including other alternatives to overdraft services, out of concern that 
such disclosures might trigger the aggregate fee disclosure 
requirements. Thus, the proposal would promote greater transparency 
about the costs and terms of overdraft services for all institutions. 
The proposed rule would also add format requirements to help make the 
aggregate fee disclosures are more effective and noticeable to 
consumers.

Balance Inquiries

    To ensure that consumers are not confused or misled about the 
amount of funds in their account when they request their balance, the 
Board proposes to require that institutions generally disclose only the 
amount of funds available for the consumer's immediate use or 
withdrawal, without incurring an overdraft. This rule would apply to 
balance inquiries made through any automated system, including, but not 
limited to, an ATM, Internet web site, and telephone response system. 
Institutions would be permitted to provide a second balance that 
includes any additional funds that an institution may advance to cover 
an overdraft if this fact is also prominently disclosed to the 
consumer, along with that balance information.

IV. Section-by-Section Analysis

Section 230.10 Opt-Out Disclosure Requirements for Overdraft Services

    The February 2005 Joint Guidance recommended as a best practice 
that where overdraft protection is provided automatically, institutions 
should offer consumers the option of ``opting out'' of the overdraft 
service with a clear consumer disclosure of this option. See 70 FR at 
9132. As discussed separately in this Federal Register, the Board is 
proposing to exercise its authority under the FTC Act to require 
institutions to provide consumers with a right to opt out of an 
institution's overdraft service before assessing a fee or charge for 
the service. Proposed Sec.  230.10 sets forth content and timing 
requirements for the notice to ensure that the opt-out right is 
disclosed effectively to consumers. The Board anticipates that any 
final actions taken under the FTC Act and TISA will be issued 
simultaneously after the Board has reviewed comments received on the 
proposals.
    To facilitate compliance, Sample Form B-10 provides a model form 
institutions may use to satisfy their disclosure obligations under the 
proposed rule. Following issuance of the proposal, the Board intends to 
conduct consumer testing to determine

[[Page 28742]]

how well consumers understand and can use the proposed opt-out notice.
10(a) General Rule
    Proposed Sec.  230.10(a) states the general rule that if a 
depository institution provides a consumer the right to opt out of the 
institution's payment of overdrafts pursuant to the institution's 
payment of overdrafts on the consumer's account pursuant to the 
institution's overdraft service, the institution must provide notice of 
that right in writing. As noted above, the Board is separately 
proposing, pursuant to its authority under the FTC Act, to require 
institutions to provide consumers with a right to opt out of the 
institution's overdraft service before assessing a fee or charge for 
the service. Section 230.10 generally sets forth requirements regarding 
the content and timing requirements for providing this opt-out. See 
proposed comment 10-1.
10(b) Format and Content
    Under proposed Sec.  230.10(b), institutions are required to 
include in their opt-out notice specified information about the 
institution's overdraft service. The new disclosures are proposed 
pursuant to the Board's authority under TISA Sections 264, 268, and 
269. 12 U.S.C. 4303(b) & (d), 4308. Consistent with TISA's purpose, the 
proposal would require institutions to provide disclosures about the 
terms of deposit accounts to assist consumers in comparing accounts. 
Specifically, the proposed disclosures relate to the fees that are 
assessed against consumer accounts for the payment of overdrafts, the 
conditions under which the fees are imposed, how consumers can avoid 
such fees by opting out, and the availability of potentially less 
costly alternatives.
    Under proposed Sec.  230.10(b)(1), the notice must state the 
categories of transactions for which an overdraft fee may be imposed. 
For example, if the institution pays overdrafts created by check, ATM 
withdrawals and point-of-sale debit card transactions, it must indicate 
this fact. See comment 4(b)(4)-5.
    Under the proposal, the notice must also include information about 
the costs of the institution's overdraft service. See proposed Sec.  
230.10(b)(2). In addition to stating the dollar amount of any fees or 
charges imposed on the account for paying overdraft items, including 
daily fees, institutions would also be required to inform consumers in 
the notice that overdraft fees could be charged in connection with an 
overdraft as low as $1, or the lowest dollar amount for which the 
institution could charge a fee. This latter disclosure is intended to 
make consumers aware, in some cases, that the per item overdraft fee 
may far exceed the amount of the overdraft. See proposed Sec.  
230.10(b)(3).
    In the February 2005 Joint Guidance, the federal banking agencies 
recommended that institutions consider imposing a cap on consumers' 
potential daily costs from the overdraft program, such as a limit on 
the number of overdraft transactions subject to a fee per day, or a 
dollar limit on the total fees that will be imposed per day. See 70 FR 
at 9132. The Board is proposing to require additional disclosures about 
the maximum costs that could be incurred in connection with an 
institution's overdraft service. Under the proposal, institutions must 
disclose any daily dollar limits on the amount of overdraft fees or 
charges that may be assessed in addition to any limits for the 
statement period. If the institution does not limit the amount of fees 
that can be imposed either for a single day or for a statement period, 
it must disclose that fact. See proposed Sec.  230.10(b)(4). The Board 
intends that both this disclosure about fee limits as well as the 
notice that overdraft fees in some cases will exceed the amount of the 
overdraft would alert consumers to the potentially high costs of 
overdraft services, so that they may more effectively determine whether 
the service's terms and features are suited to their needs, or whether 
other alternatives would be more appropriate.
    Proposed Sec.  230.10(b)(5) requires institutions to inform a 
consumer of the right to opt out of the institution's payment of 
overdrafts, including the method(s) that the consumer may use to 
exercise the opt-out right.\11\ Such methods may include providing a 
toll-free telephone number that the consumer may call to opt out or 
allowing the consumer to mail in the opt-out request. See proposed 
comment 10(b)-2. Comment is requested as to whether institutions should 
be required to provide a form with a check-off box that consumers may 
mail in to opt out. Comment is also requested regarding whether 
consumers should also be allowed to opt out electronically, provided 
that the consumer has agreed to the electronic delivery of information.
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    \11\ Under the Board's Regulation AA proposal in today's Federal 
Register, an institution would be required to allow consumers to opt 
out of the institution's overdraft service for all transaction 
types. In addition, the proposal would require the institution to 
allow consumers to opt out of the payment of overdrafts resulting 
only from ATM withdrawals and point-of-sale debit card transactions.
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    Proposed Sec.  230.10(b)(6) incorporates the February 2005 Joint 
Guidance recommendation that when describing an overdraft protection 
program, institutions should inform consumers generally of other 
overdraft services and credit products, if any, that are available. 
These alternatives may include transfers from other accounts held at 
the institution, overdraft lines of credit, or transfers from a credit 
card issued by the institution. In some cases, these alternatives may 
be less costly than the overdraft service offered by the institution. 
Under the proposed rule, institutions must state whether it offers any 
alternatives for the payment of overdrafts. If one of the alternatives 
that the institution offers is an overdraft line of credit, it must 
state this fact. Institutions may also, but are not required to, list 
any additional alternatives they may offer to overdraft services.
    In some cases, institutions may wish to explain to consumers the 
consequences of opting out of overdraft services. For example, the 
institution may explain that if a consumer opts out and writes a check 
that overdraws an account, the institution may still charge a fee if 
the check is returned, and that the merchant may also assess a fee. 
Proposed comment 10(b)-3 permits institutions to briefly describe the 
consequences of opting out. Of course, institutions should not 
represent that the payment of overdrafts is guaranteed or assured if 
they are not. See comment 8(a)-10.ii.
    Comment is requested regarding whether the proposed content 
requirements provide sufficient information for consumers to evaluate 
effectively whether an institution's overdraft service meets their 
needs. In addition, the Board's proposal would require that all opt-out 
notices contain the same content, regardless of when the notice is 
provided. As further discussed below, the Board is requesting comment 
whether the content requirements should differ when the opt-out notice 
is provided after an overdraft fee has been charged to the consumer's 
account.
    Proposed Sec.  230.10(b) also requires institutions to provide the 
opt-out notice in a format substantially similar to Sample Form B-10 to 
ensure that the opt-out content is segregated from other disclosures 
provided by the institution and noticeable by the consumer. The Board 
recognizes, however, that institutions may need flexibility in 
formatting disclosures, depending on where and when the disclosure is 
provided. For example, if the opt-out notice is included in disclosures 
provided at account opening,

[[Page 28743]]

segregating the required content from other disclosures may 
overemphasize the importance of the disclosure to the consumer in 
comparison to other information about the account that the consumer is 
given at that time. In contrast, consumers may benefit from a more 
conspicuous opt-out notice when the notice is provided on the periodic 
statement once the consumer has incurred fees. As noted above, the 
Board expects to conduct consumer testing of the proposed sample form 
following issuance of this proposal, which may include exploring how 
the opt-out notice may be presented in a manner that complies with the 
regulation's general clear and conspicuous requirements under Sec.  
230.3, including formatting methods.
10(c) Timing
    Proposed Sec.  230.10(c) sets forth timing requirements for 
providing an opt-out notice. The opt-out notice must initially be 
provided before the overdraft service is provided and overdraft fees 
are imposed on the consumer's account. For example, notice may be given 
at the time of account opening, either as part of the deposit account 
agreement or in a stand-alone document. Some institutions, however, do 
not enroll consumers in their overdraft service until some time after 
account opening, after the consumer has maintained his or her account 
in good standing for a certain period of time. Thus, institutions may 
provide the opt-out notice closer to the time in which overdraft 
services would be added to the consumer's account. The proposed rule 
would allow this later notice so long as it is provided, and the 
consumer has a reasonable opportunity to exercise the opt-out right, 
before the institution imposes any fees in connection with paying an 
overdraft.
    The Board believes that providing an opt-out notice only at account 
opening may have limited effectiveness. For example, consumers may not 
focus on the significance of the information at account opening because 
they may assume they will not overdraw the account.\12\ Thus, under 
both the Board's 2008 Regulation AA proposal and this proposed rule, 
institutions must also provide consumers notice of the right to opt-out 
of their institution's payment of overdrafts at a time when the 
consumer is more likely to be focused on the cost impact of the 
service, specifically after the consumer has overdrawn the account and 
fees have been assessed on the account. Proposed Sec.  230.10(c)(2)(i) 
generally requires institutions to provide a notice meeting the content 
requirements of Sec.  230.10(b) on each periodic statement reflecting 
the assessment of any overdraft fee or charge. In addition, pursuant to 
authority under section 269 of TISA, the proposed rule requires that if 
the notice is included on the periodic statement, it must be provided 
in close proximity to the aggregate fee disclosures required under 
Sec.  230.11(a) to ensure that these related disclosures are presented 
together.
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    \12\ This behavior is referred to as ``hyperbolic discounting.'' 
See Angela Littwin, Beyond Usury: A Study of Credit-Card Use and 
Preference Among Low-Income Consumers, 80 Tex. L. Rev. 451, 467-478 
(2008) (discussing consumers' tendency to underestimate their future 
credit card usage when they apply for a card and thereby failing to 
adequately anticipate the costs of the product, and citing Shane 
Frederick, George Loewenstein & Ted O'Donoghue, Time Discounting and 
Time Preference: A Critical Review, 40 J. Econ. Literature 351, 366-
67 (2002); Ted O'Donoghue & Matthew Rabin, Doing It Now or Later, 89 
Am. Econ. Rev. 103, 103, 111 (1999) (explaining people's preference 
for delaying unpleasant activities and accepting immediate rewards 
despite their knowledge that the delay may lessen potential future 
rewards or increase potential adverse consequences)).
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    Alternatively, many institutions notify consumers promptly after 
paying an overdraft of the fact of the overdraft and the amount the 
consumer's account is overdrawn. While this separate notice is not 
required by Regulation DD (it is considered a best practice under the 
February 2005 Joint Guidance), institutions providing an opt-out notice 
at this time would also be deemed to comply with the timing 
requirements of this proposed rule. See proposed Sec.  
230.10(c)(2)(ii). Institutions that elect to provide the opt-out 
disclosure on a separate notice sent following the institution's 
payment of an overdraft need only provide the opt-out notice once per 
statement period. For example, assume a statement cycle is for a 
calendar month. If a consumer overdraws on the account at the beginning 
of the month and receives an opt-out notice shortly after the overdraft 
is paid, the institution is not required to provide another opt-out 
notice for any additional overdrafts that occur during that statement 
period.
    As noted above, the Board's proposal would require that 
institutions provide the same content in proposed Sec.  230.10(b) for 
all opt-out notices to ensure uniform notices and because consumers may 
not see the initial opt-out notice. However, the Board is cognizant of 
the compliance burden imposed on institutions from the proposed content 
requirements. In addition, the Board recognizes that consumers may not 
require all of the information in proposed Sec.  230.10(b) in the 
notices following an individual overdraft. For example, the consumer 
may not need to be reminded that he or she may incur an overdraft fee 
for a small dollar overdraft if the periodic statement reflects both 
the fee and the amount of the transaction that caused the consumer to 
overdraw the account. Similarly, the amount of the fee may not need to 
be included in the opt-out notice if the transaction history on the 
statement reflects fees charged to the account, including for paying an 
overdraft.
    Comment is requested on the content requirements of the opt-out 
notice, and the burden to institutions and benefits to consumers of 
providing all of the proposed content in each notice, including the 
information about alternatives to overdraft services. Comment is also 
requested regarding whether consumers should receive the same content 
for all opt-out notices, regardless of when a notice is provided, or 
whether the rule should permit institutions to exclude some of the 
required content in subsequent notices. For example, if the information 
about alternatives to overdraft services is retained generally, should 
this information be excluded from periodic statements. In addition, 
comment is requested on the burden to institutions of requiring that 
the opt-out disclosures appear in close proximity to the fees. The 
Board also intends to explore these issues through its consumer testing 
of the opt-out notice following the issuance of this proposal.
    The Board anticipates that the requirement to provide notice before 
overdraft fees are assessed would apply only to accounts opened after 
the effective date of the final rule. Thus, depository institutions 
would not be required to provide initial opt-out notices to existing 
customers. Nonetheless, the requirement to provide subsequent notice of 
the opt-out after the consumer has overdrawn the account and fees have 
been assessed on the account would apply to all accounts after the 
effective date of the final rule, including those existing as of the 
effective date of the rule.

Section 230.11 Additional Disclosure Requirements Regarding Overdraft 
Services

11(a) Disclosure of Total Fees on Periodic Statements
Applicability of Aggregate Fee Disclosures
    Although periodic statements are not required under TISA, 
institutions that do provide such statements are required to disclose 
fees or charges imposed on

[[Page 28744]]

the account during the statement period. See 12 U.S.C. 4307(3) and 12 
CFR 230.6(a)(3). Section 230.11(a) further requires institutions that 
promote the payment of overdrafts in an advertisement to provide 
aggregate dollar amount totals for overdraft fees and for returned item 
fees, both for the statement period as well as for the calendar year to 
date. Under the proposed rule, Sec.  230.11(a) is amended to require 
all institutions to provide these fee disclosures, whether or not they 
promote the payment of overdrafts.
    As originally proposed in May 2004, all institutions would have 
been required to separately disclose the total dollar amount of 
overdraft fees and the total dollar amount of returned-item fees for 
the statement period and for the calendar year to date. Most industry 
commenters opposed the proposal, stating that it would be costly and 
provide little benefit to consumers. The majority of industry 
commenters stated that if the Board adopted such a requirement, it 
should apply to all institutions and not just institutions that market 
overdraft services. Some of these commenters stated that a rule based 
on ``marketing'' would be too vague, while others asserted that if the 
Board believed the cost disclosures are useful, they would be just as 
beneficial to consumers regardless of whether the overdraft service is 
marketed. See 70 FR at 29,588.
    In limiting the aggregate fee disclosures to institutions that 
market overdraft services in the May 2005 final rule, the Board stated 
its intention to avoid imposing compliance burdens on institutions that 
pay overdrafts infrequently, such as institutions that only pay 
overdrafts on an ad hoc basis. See 70 FR at 29,589. To address industry 
concerns that a rule based on marketing would be too vague to 
administer, the final rule also specified certain types of 
communications and practices that would not trigger the requirement for 
disclosing aggregate fees on periodic statements, including responding 
to consumer-initiated inquiries about deposit accounts or overdrafts or 
making disclosures that are required by federal or other applicable 
law. See Sec.  230.10(a)(2).
    Since issuance of the May 2005 final rule, Board staff and staff of 
other federal banking agencies have received a number of questions and 
requests for more guidance about when an institution is deemed to be 
promoting the payment of overdrafts in an advertisement to trigger the 
aggregate fee disclosure requirements. Compliance issues have most 
often been raised by financial institutions that are concerned that 
implementing the best practices recommended by the February 2005 Joint 
Guidance may lead to a determination that they are promoting their 
overdraft service. For example, Board staff has received a number of 
inquiries about how institutions may provide notices informing 
consumers about their ability to opt out of an institution's overdraft 
service without being considered to be promoting the service. 
Similarly, an institution may want to inform consumers of less costly 
alternatives to the institution's overdraft service as recommended by 
the February 2005 Joint Guidance, but refrain from doing so because 
they may inadvertently trigger the aggregate fee disclosure 
requirements under Sec.  230.11(a). Based on further analysis, the 
Board is concerned that limiting the scope of the rule to institutions 
that market the service may have led to the unintended consequence of 
discouraging transparency by depository institutions regarding their 
overdraft payment practices.
    In addition, although the rule's application only to institutions 
that market overdraft services was intended to avoid imposing 
compliance burdens on institutions that pay overdrafts infrequently, 
the Board is concerned that the vast majority of institutions may no 
longer pay overdrafts on an entirely ``ad hoc'' basis, but rather 
automate most of their overdraft payment decision process, leading to 
more frequent payment of overdrafts. Available data reviewed by Board 
staff indicates that the percentage of accountholders with one or more 
overdrafts paid during a calendar year appears to be consistent across 
institutions, whether or not an institution promotes its overdraft 
service. Thus, a significant number of consumers who use overdraft 
services on a regular basis do not receive the benefit of the aggregate 
fee disclosures which might otherwise help them in evaluating their 
approach to account management and determine whether other types of 
accounts or services would be more appropriate for their needs. 
Moreover, the Board notes that the ability of consumers to compare 
effectively the terms of accounts is potentially undercut by a rule 
that distinguishes between institutions that promote overdraft services 
and those that do not.
    In light of the concerns noted above, the Board is proposing to 
require all institutions to provide aggregate dollar amount totals of 
fees for paying overdrafts and for fees for returning items unpaid on 
periodic statements provided to consumers, pursuant to its authority 
under Sections 268 and 269 of TISA. See Sec.  230.11(a)(1). As under 
the current rule, institutions must provide these totals for both the 
statement period and the calendar year to date. See Sec.  230.11(a)(2). 
Comment is requested on the potential benefits to consumers and 
compliance burden for institutions for the proposed approach.

Format of Aggregate Fee Disclosures

    Board staff's review of current periodic statement disclosures for 
institutions that promote overdraft services indicates the aggregate 
fee totals are often disclosed in a manner that may not be effective in 
informing consumers of the totals. Accordingly, pursuant to its 
authority under Section 269 of TISA, the Board is proposing to require 
that these disclosures be provided in close proximity to fees 
identified under Sec.  230.6(a)(3). See proposed Sec.  230.11(a)(3). 
For example, the aggregate fee totals could appear immediately after 
the transaction history on the periodic statement reflecting the fees 
that have been imposed on the account during the statement period. The 
proposed format requirement has been informed to a significant degree 
by the Board's consumer testing in the context of credit card 
disclosures. In that testing, consumers consistently reviewed 
transactions identified on their periodic statements and noticed totals 
for fees and interest charges when they were grouped together with 
transactions. See 72 FR at 32996. Similarly, the Board believes that 
the requirement to provide the aggregate cost disclosures for overdraft 
and returned item fees will be more noticeable to consumers when 
grouped together with the itemized fees, thus enabling them to act as 
appropriate to manage their accounts effectively. In addition, the 
proposed rule requires the information to be presented in a tabular 
format similar to the proposed interest charge and fees total 
disclosures under the Board's June 2007 proposal under Regulation Z. 
See 72 FR at 32996, 33052; proposed 12 CFR 226.7(b)(6). The proposal 
includes two alternatives for Sample Form B-11 to illustrate how 
institutions may provide the aggregate cost information on their 
periodic statements. Following issuance of this proposal, the Board 
intends to conduct additional consumer testing to test the format, 
placement, and content of this periodic statement disclosure.
    The proposal contains additional revisions to the provisions in 
Sec.  230.11(a) and accompanying staff commentary to reflect the 
revised scope of institutions subject to the disclosure requirement, 
including deletion as unnecessary of the

[[Page 28745]]

examples in Sec.  230.11(a)(2) of communications that would not trigger 
the aggregate fee disclosure requirement.
11(b) Advertising Disclosures for Overdraft Services
    Section 230.11(b) contains a list of communications about the 
payment of overdrafts that are not subject to additional advertising 
disclosures. The Board proposes to add a new example under Sec.  
230.11(b) to include the proposed opt-out notice under Sec.  230.10 of 
this rule. See proposed Sec.  230.11(b)(2)(xii).
11(c) Disclosure of Account Balances
    Section 230.11(b)(1) currently requires institutions that promote 
the payment of overdrafts to include certain disclosures in their 
advertisements about the service to avoid confusion between overdraft 
services and traditional lines of credit. The May 2005 final rule 
provided additional guidance in the staff commentary in the form of 
examples of institutions promoting the payment of overdrafts and stated 
that an institution must include the additional advertising disclosures 
if it ``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 institution's 
Internet site.'' See comment 11(b)-1.iii; see also Sec.  230.11(b)(1); 
70 FR at 29,590. To facilitate responsible use of overdraft services 
and ensure that consumers receive accurate information about their 
account balances, the Board is proposing additional restrictions on 
account balances that may be disclosed in response to a consumer 
inquiry. Specifically, to avoid consumer confusion with respect to 
account balances disclosed in response to an inquiry, proposed Sec.  
230.11(c) would prohibit institutions from including in the consumer's 
disclosed balance any funds the institution may provide to cover an 
overdraft item. The proposed provision would apply to any automated 
system used by an institution to provide balance information. The 
proposed rule would not apply to in-person discussions or telephone 
discussions or Internet chats with live personnel due to concerns about 
the compliance burden associated with monitoring individual 
conversations and responses. Of course, such discussions may not be 
deceptive.
    The proposed provision implements the prohibition in TISA Sec.  
263(e) (12 U.S.C. 4303(e)) on misleading or inaccurate advertisements, 
announcement, or solicitations relating to a deposit account. Thus, 
under proposed Sec.  230.11(c), institutions must disclose an account 
balance that solely includes funds that are available for the 
consumer's immediate use or withdrawal, and may not include any 
additional amount that the institution may provide to cover an 
overdraft. For example, as part of its overdraft service, an 
institution may add a $500 cushion or overdraft limit to the consumer's 
account balance when determining whether to pay an overdrawn item; the 
additional $500 could not be included in this balance disclosed to the 
consumer in response to an inquiry. The proposed provision incorporates 
a best practice recommended by the February 2005 Joint Guidance. 
Similarly, as provided in the February 2005 Joint Guidance, 
institutions may, at their option, disclose a second balance that 
includes funds that may be advanced through the institution's overdraft 
service, provided that the institution prominently discloses at the 
same time that the second balance includes funds provided by the 
institution to cover overdrafts.
    Proposed comment 11(c)-1 clarifies that for purposes of this 
provision, the institution may, but need not, include funds that are 
deposited in the consumer's account, such as from a check, but that are 
not yet made available for withdrawal in accordance with the funds 
availability rules under the Board's Regulation CC (12 CFR part 229). 
Similarly, the balance may, but need not, include any funds that are 
held by the bank to satisfy a prior obligation of the consumer (for 
example, to cover a hold for an ATM or debit card transaction that has 
been authorized but for which the bank has not settled). The proposed 
comment recognizes that the methods used by depository institutions for 
determining the balances that are available for the consumer's use or 
withdrawal may vary significantly by institution. For example, smaller 
institutions may only consider a balance that reflects the ledger 
balance for the consumer's account at the end of the previous day after 
the institution has completed its processing activities. Other 
institutions may update the balance on a near-or real-time basis to 
reflect recent transactions that have been authorized, but have not 
been presented for settlement. The proposed comment is intended to make 
clear that institutions are not expected to reconfigure their internal 
systems to provide ``real-time'' balance disclosures. Regardless of the 
transactions that are reflected in the account balance disclosed to 
consumers, the proposed rule is intended only to require that the 
balance must not include any additional amounts that the institution 
may provide to pay an overdraft.
    Proposed comment 11(c)-2 provides that the balance disclosure 
requirement applies to any automated system through which the consumer 
requests a balance, including, but not limited to, a telephone response 
machine (such as an interactive voice response system), at an ATM (both 
on the ATM screen and on receipts), or on an institution's Internet 
site (other than live chats with an account representative). The 
proposed comment further clarifies that the reference to ATM inquiries 
applies equally to inquiries at ATMs owned or operated by a consumer's 
account-holding institution, as well as to inquiries at foreign ATMs, 
including those operated by non-depository institutions.
    While the Board considered addressing concerns about potentially 
deceptive balances under its separate rulemaking authority under 
Section 5(a) of the FTC Act (15 U.S.C. 45(n)), the Board is proposing 
to address this issue under its TISA authority because such rules (if 
similarly adopted under the NCUA's separate authority under TISA, see 
12 CFR part 707) would also extend to state-chartered credit 
unions.\13\ Nevertheless, the Board believes that adoption of this rule 
under TISA would not preclude a separate determination by a federal 
banking agency that it is a deceptive practice under the FTC Act to 
disclose a single balance that includes funds that an institution may 
provide to cover an overdraft, if the institution does not state that 
fact.
---------------------------------------------------------------------------

    \13\ The Board notes that rules promulgated by the NCUA under 
the FTC Act do not apply to state-chartered credit unions. As noted 
above, following the Board's adoption of final rules under 
Regulation DD, NCUA intends to issue substantially similar 
amendments to 12 CFR part 707.
---------------------------------------------------------------------------

V. Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
generally requires an agency to perform an assessment of the impact a 
rule is expected to have on small entities.
    However, under section 605(b) of the RFA, 5 U.S.C. 605(b), the 
regulatory flexibility analysis otherwise required under section 604 of 
the RFA is not required if an agency certifies, along with a statement 
providing the factual basis for such certification, that the rule will 
not have a significant economic impact on a substantial number of small 
entities. Based on its analysis and for the reasons stated below, the 
Board believes that this proposed rule will not

[[Page 28746]]

have a significant economic impact on a substantial number of small 
entities. A final regulatory flexibility analysis will be conducted 
after consideration of comments received during the public comment 
period.
    1. Statement of the need for, and objectives of, the proposed rule. 
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 consumers to make 
meaningful comparisons between different accounts and also allow 
consumers 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).
    The Board is revising Regulation DD to set forth content, timing 
and format requirements for a notice provided to consumers about their 
right to opt out of an institution's overdraft service. The proposed 
requirements are intended to ensure that consumers receive effective 
disclosures about the opt-out right. In addition, current requirements 
for disclosing totals for overdraft and returned item fees on periodic 
statements would be expanded to apply to all institutions and not 
solely to institutions that promote the payment of overdrafts. Thus, 
all consumers that use overdraft services will receive additional 
information about fees to help them better understand the costs 
associated with their accounts, regardless of whether the service is 
marketed to them. Lastly, the proposed rule would ensure that consumers 
are not misled about the funds they have available for a transaction by 
requiring institutions that provide balance information through an 
automated system in response to a consumer inquiry, to only include 
funds available for the consumer's immediate use or withdrawal pursuant 
to the terms of the account agreement, and not any funds that may be 
advanced through the institution's overdraft service.
    2. Small entities affected by the proposed rule. Approximately 
12,117 depository institutions in the United States that must comply 
with TISA have assets of $150 million or less and thus are considered 
small entities for purposes of the RFA, based on 2007 call report data. 
Approximately 4,774 are institutions that must comply with the Board's 
Regulation DD; approximately 7,343 are credit unions that must comply 
with NCUA's Truth in Savings regulations which must be substantially 
similar to the Board's Regulation DD.
    Under the proposed rule, all small depository institutions that pay 
overdrafts will have to revise their disclosures both at account 
opening (or before the overdraft service is provided) and on periodic 
statements, to reflect the proposed consumer right to opt out. (The 
rule provides alternative means for complying with the periodic 
statement opt-out disclosure requirement, such as by providing the opt-
out disclosure on a notice sent promptly after an overdraft. To the 
extent a depository institution elects to comply with this alternative 
means, it will have to revise those disclosures, as appropriate.) The 
Board notes, however, that some depository institutions likely already 
provide some form of consumer opt-out based on their implementation of 
best practices under the February 2005 Joint Guidance.
    In addition, institutions that did not previously revise their 
periodic statement disclosures to comply with the prior May 2005 
Regulation DD amendments because they did not promote their overdraft 
service will need to do so to reflect aggregate overdraft and aggregate 
returned-item fees for the statement period and year to date. Lastly, 
institutions will have to reprogram their automated systems to provide 
balances that exclude additional funds the institution may provide to 
cover an overdraft in response to consumer balance inquiries, if the 
institution has not done so as previously recommended by the February 
2005 Joint Guidance.
    3. Recordkeeping, reporting, and compliance requirements. The 
proposed revisions to Regulation DD require all depository institutions 
to provide consumers notice of their right to opt out of the 
institution's overdraft service before the service is provided, and on 
each periodic statement reflecting an overdraft fee or charge (or 
alternatively, on a notice sent promptly after an overdraft informing 
the consumer of that fact). In addition, as discussed in more detail 
above, institutions that have not previously provided total dollar 
amounts of fees imposed on the account for paying overdrafts and total 
dollar amounts of fees for returning items unpaid will be required to 
do so for both the statement period and the calendar year to date. 
Disclosures of account balances that include funds that the institution 
may provide to cover an overdraft will be prohibited, unless the 
institution specifically discloses that fact.
    4. Other federal rules. The Board has not identified any federal 
rules that duplicate, overlap, or conflict with the proposed revisions 
to Regulation DD.
    5. Significant alternatives to the proposed revisions. The Board 
solicits comment about additional ways to reduce regulatory burden 
associated with this proposed rule.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the rule 
under the authority delegated to the Federal Reserve by the Office of 
Management and Budget (OMB). The collection of information that is 
subject to the PRA by this proposed rulemaking is found in 12 CFR part 
230. The Federal Reserve may not conduct or sponsor, and an 
organization is not required to respond to, this information collection 
unless the information collection displays a currently valid OMB 
control number. The OMB control number is 7100-0271.
    This information collection is required to provide benefits for 
consumers and is mandatory (15 U.S.C. 1601 et seq.). Since the Board 
does not collect any information, no issue of confidentiality arises. 
The respondents/recordkeepers are creditors and other entities subject 
to Regulation DD, including for-profit financial institutions and small 
businesses.
    Section 269 of the Truth in Savings Act (TISA) (12 U.S.C. 4308) 
authorizes the Board to issue regulations to carry out the provisions 
of TISA. TISA and Regulation DD require depository institutions to 
disclose yields, fees, and other terms concerning deposit accounts to 
consumers at account opening, upon request, and when changes in terms 
occur. Depository institutions that provide periodic statements are 
required to include information about fees imposed, interest earned, 
and the annual percentage yield earned during those statement periods. 
The act and regulation mandate the methods by which institutions 
determine the account balance on which interest is calculated. They 
also contain rules about advertising deposit accounts. To ease the 
compliance cost (particularly for small entities), model clauses and 
sample forms are appended to the regulation. Depository institutions 
are required to retain evidence of compliance for twenty-four months, 
but the regulation does not specify types of records that must be 
retained.
    Regulation DD applies to all depository institutions except credit 
unions. Credit unions are covered by a substantially similar rule 
issued by the National Credit Union Administration. Under the PRA, the 
Federal Reserve accounts for the paperwork burden associated with 
Regulation DD only for

[[Page 28747]]

Board-supervised institutions. Regulation DD defines Board-regulated 
institutions as: State member banks, branches and agencies of foreign 
banks (other than federal branches, federal agencies, and insured state 
branches of foreign banks), commercial lending companies owned or 
controlled by foreign banks, and organizations operating under section 
25 or 25A of the Federal Reserve Act. Other federal agencies account 
for the paperwork burden imposed on the depository institutions for 
which they have administrative enforcement authority.
    As mentioned in the preamble, the proposed rulemaking sets forth 
content, timing and format requirements for a notice provided to 
consumers about their right to opt out of an institution's overdraft 
service. Current requirements for disclosing totals for overdraft and 
returned item fees on periodic statements would be extended to apply to 
all institutions and not solely to institutions that promote the 
payment of overdrafts. The proposed rule would also require 
institutions that provide balance information in response to a balance 
inquiry by the consumer, to only include funds available for the 
consumer's immediate use or withdrawal without incurring an overdraft, 
and not any funds added through the institution's overdraft service.
    The Board estimates that 1,172 respondents regulated by the Board 
would take, on average, 40 hours (one business week) to re-program and 
update their systems to comply with the proposed disclosure 
requirements. These disclosure requirements include opt-out disclosures 
for overdraft services (Sec.  230.10), disclosure of total fees on 
periodic statements (Sec.  230.11(a)), and disclosure of account 
balances (Sec.  230.11(c)). The Board estimates the total annual one-
time burden to be 46,880 hours and believes that, on a continuing 
basis, there would be no increase in burden as the proposed disclosures 
would be sufficiently accounted for once incorporated into the current 
account disclosures (Sec.  230.4) and periodic statement disclosure 
(Sec.  230.6). To ease the compliance cost model clauses, B-10 consumer 
opt-out from overdraft services sample form (Sec.  230.10) and B-11 
aggregate overdraft and returned item fees sample form (Sec.  230.11), 
are proposed in Appendix B.
    The current total annual burden is estimated to be 176,177 hours 
for 1,172 Board-covered institutions. The proposed total annual burden 
is estimated to be 223,057 hours, an increase of 46,880 hours.
    The other federal financial agencies are responsible for estimating 
and reporting to OMB the total paperwork burden for the institutions 
for which they have administrative enforcement authority. They may, but 
are not required to, use the Board's burden estimates. Using the 
Board's method, the total estimated annual burden for all financial 
institutions subject to Regulation DD, including Board-supervised 
institutions, would be approximately 2,898,548 hours. The proposed 
amendments would impose a one-time increase in the estimated annual 
burden for all institutions subject to Regulation DD by 772,000 hours 
to 3,670,548 hours. The above estimates represent an average across all 
respondents and reflect variations between institutions based on their 
size, complexity, and practices. All covered institutions, including 
depository institutions (of which there are approximately 19,300), 
potentially are affected by this collection of information, and thus 
are respondents for purposes of the PRA.
    Comments are invited on: (1) Whether the proposed collection of 
information is necessary for the proper performance of the Board's 
functions; including whether the information has practical utility; (2) 
the accuracy of the Board's estimate of the burden of the proposed 
information collection, including the cost of compliance; (3) ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and (4) ways to minimize the burden of information 
collection on respondents, including through the use of automated 
collection techniques or other forms of information technology. 
Comments on the collection of information should be sent to Michelle 
Shore, Federal Reserve Board Clearance Officer, Division of Research 
and Statistics, Mail Stop 151-A, Board of Governors of the Federal 
Reserve System, Washington, DC 20551, with copies of such comments sent 
to the Office of Management and Budget, Paperwork Reduction Project 
(7100-0271), Washington, DC 20503.

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
changes to the text of the regulation and staff commentary. New 
language is shown inside bold-faced arrows, while language that would 
be deleted is set off with bold-faced brackets.

List of Subjects in 12 CFR Part 230

    Advertising, Banks, Banking, Consumer protection, Reporting and 
recordkeeping requirements, Truth in savings.

Authority and Issuance

    For the reasons set forth in the preamble, the Board proposes to 
amend Regulation DD, 12 CFR part 230, and the Official Staff 
Commentary, as set forth below:

PART 230--TRUTH IN SAVINGS (REGULATION DD)

    1. The authority citation for part 230 continues to read as 
follows:

    Authority: 12 U.S.C. 4301 et seq.

    2. Section 230.1 is amended by revising paragraph (a) to read as 
follows:


Sec.  230.1  Authority, purpose, coverage, and effect on state laws.

    (a) Authority. This regulation, known as Regulation DD, is issued 
by the Board of Governors of the Federal Reserve System to implement 
the Truth in Savings Act of 1991 (the act), contained in the Federal 
Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. 3201 
et seq., Pub. L. 102-242, 105 Stat. 2236). Information-collection 
requirements contained in this regulation have been approved by the 
Office of Management and Budget under the provisions of 44 U.S.C. 3501 
et seq. and have been assigned OMB No. [lsqbb]7100-0255[rsqbb] 
[rtrif]7100-0271[ltrif].
* * * * *
    3. Section 230.10 is added to read as follows:


Sec.  230.10  [rtrif]Opt-out disclosure requirements for overdraft 
services.

    (a) General rule. If a depository institution provides a consumer 
the right to opt out of the institution's payment of overdrafts 
pursuant to the institution's overdraft service, as defined in 12 CFR 
227.31(c), the institution must provide written notice of that right in 
accordance with the requirements of this section.
    (b) Format and content. The notice described in paragraph (a) of 
this section must use a format substantially similar to Sample Form B-
10, and include the following information:
    (1) Overdraft policy. The categories of transactions for which a 
fee for paying an overdraft may be imposed;
    (2) Fees imposed. The dollar amount of any fees or charges imposed 
for paying checks or other items when there are insufficient or 
unavailable funds and the account becomes overdrawn;
    (3) Potential impact of fee in relation to overdraft amount. A 
statement that a fee may be charged for overdrafts as low as $1, or the 
lowest dollar amount for which the institution may charge an overdraft 
fee;
    (4) Limits on fees charged. The maximum amount of overdraft fees or

[[Page 28748]]

charges that may be assessed per day and per statement period, or, if 
applicable, that there is no limit to the fees that can be imposed;
    (5) Disclosure of opt-out right. An explanation of the consumer's 
right to opt out of the institution's payment of overdrafts, including 
the method(s) by which the consumer may exercise that right; and
    (6) Alternative payment options. As applicable, a statement that 
the institution offers other alternatives for the payment of 
overdrafts. In addition, if the institution offers a line of credit 
subject to the Board's Regulation Z (12 CFR part 226) for the payment 
of overdrafts, the institution must also state that fact. An 
institution may, but is not required to, list additional alternatives 
for the payment of overdrafts.
    (c) Timing. As applicable, the notice described in paragraph (a) of 
this section must be provided:
    (1) Prior to the institution's imposition of any fee for paying a 
check or other item when there are insufficient or unavailable funds in 
the consumer's account, provided that the consumer has a reasonable 
opportunity to exercise the opt-out right prior to the assessment of 
any fee for paying an overdraft; and
    (2)(i) On each periodic statement reflecting any fee(s) or 
charge(s) for paying an overdraft, in close proximity to the 
disclosures required by Sec.  230.11(a); or
    (ii) At least once per statement period on any notice sent promptly 
after the institution's payment of an overdraft.[ltrif]
    4. Section 230.11 is amended by revising the heading, paragraphs 
(a) (b)(2)(x) and (b)(2)(xi), and adding paragraphs (b)(2)(xii) and (c) 
to read as follows:


Sec.  230.11  Additional disclosure requirements [lsqbb]for 
institutions advertising the payment of overdrafts[rsqbb] [rtrif]for 
overdraft services.[ltrif]

    (a) [lsqbb]Periodic statement disclosures[rsqbb] [rtrif]Disclosure 
of total fees on periodic statements[ltrif]--(1) Disclosure of total 
fees[rsqbb] [rtrif]General[ltrif]. [lsqbb](i) Except as provided in 
paragraph (a)(2) of this section, if a depository institution promotes 
the payment of overdrafts in an advertisement, the[rsqbb] [rtrif]A 
depository[ltrif] institution must separately disclose on each periodic 
statement[rtrif], as applicable[ltrif]:
    [lsqbb](A)[rsqbb] [rtrif](i)[ltrif] 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
    [lsqbb](B)[rsqbb] [rtrif](ii)[ltrif] The total dollar amount for 
all fees imposed on the account for returning items unpaid.
    [lsqbb](ii)[rsqbb] [rtrif](2) Totals required.[ltrif] The 
disclosures required by [lsqbb]this[rsqbb] paragraph [rtrif](a)(1) of 
this section[ltrif] must be provided for the statement period and for 
the calendar year to date [lsqbb]for any account to which the 
advertisement applies[rsqbb];
    [rtrif](3) Format requirements. The aggregate fee disclosures 
required by paragraph (a) of this section must be disclosed in close 
proximity to fees identified under Sec.  230.6(a)(3), using a format 
substantially similar to Sample Form B-11 in appendix B.[ltrif]
    [lsqbb](2) Communications not triggering disclosure of total fees. 
The following communications by a depository institution do not trigger 
the disclosures required by paragraph (a)(1) of this section:
    (i) Promoting in an advertisement a service for paying overdrafts 
where the institution's payment of overdrafts will be agreed upon in 
writing and subject to the Board's Regulation Z (12 CFR part 226);
    (ii) Communicating (whether by telephone, electronically, or 
otherwise) about the payment of overdrafts in response to a consumer-
initiated inquiry about deposit 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 ATM, or an institution's Internet site, is not a response 
to a consumer-initiated inquiry for purposes of this paragraph;
    (iii) Engaging in an in-person discussion with a consumer;
    (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 consumer about a specific overdrawn item or the 
amount the account is overdrawn;
    (vi) Including in a deposit account agreement a discussion of the 
institution's right to pay overdrafts;
    (vii) Providing a notice to a consumer, 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 institution's overdraft service.
    (3) Time period covered by disclosures. An institution must make 
the disclosures required by paragraph (a)(1) of this section for the 
first statement period that begins after an institution advertises the 
payment of overdrafts. An institution 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 
shall cease to apply with respect to a deposit account two years after 
the date of an institution's last advertisement promoting the payment 
of overdrafts applicable to that account.
    (5) Acquired accounts. An institution 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 
institution 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 institution 
may, but is not required to, include fees imposed prior to acquisition 
of the account.[rsqbb]
    (b) * * *
* * * * *
    (2) * * *
    (x) A notice provided to a consumer, 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; [lsqbb]or[rsqbb]
    (xi) Informational or educational materials concerning the payment 
of overdrafts if the materials do not specifically describe the 
institution's overdraft service[lsqbb].[rsqbb][rtrif]; or
    (xii) An opt-out notice regarding the institution's payment of 
overdrafts under Sec.  230.10 of this part.[ltrif]
* * * * *
    [rtrif](c) Disclosure of account balances. In response to an 
account balance inquiry by a consumer through an automated system, an 
institution must provide a balance that solely includes funds that are 
available for the consumer's immediate use or withdrawal, and may not 
include additional amounts that the institution may provide to cover an 
item when there are insufficient or unavailable funds in the consumer's 
account. The institution may, at its option, disclose a second account 
balance that includes such an additional amount, if the institution 
prominently indicates that this balance includes funds provided by the 
institution to cover overdrafts.[ltrif]
    5. In Appendix B to Part 230, and new forms B-10 Overdraft Services 
Opt-Out Notice Sample Form and B-11 Aggregate Overdraft And Returned 
Item Fees Sample Form to read as follows:

[[Page 28749]]

Appendix B to Part 230--Model Clauses and Sample Forms

* * * * *
[GRAPHIC] [TIFF OMITTED] TP19MY08.004


[[Page 28750]]


[GRAPHIC] [TIFF OMITTED] TP19MY08.005

    6. In Supplement I to part 230:
    a. In Section 230.10, the heading is revised and new paragraphs 
1. through 3. are added.
    b. In Section 230.11 and Section 230.11(a), the headings are 
revised and paragraphs (a)(1)1. and (a)(1)2. are removed.
    c. In Section 230.11, paragraphs (a)(1)3. through (a)(1)8. are 
redesignated as paragraphs (a)(1)1. through (a)(1)6., respectively.
    d. In Section 230.11, new paragraphs (a)(1)2. and (a)(1)3. are 
revised.
    e. In Section 230.11, new paragraphs (c)1. and (c)2. are added.

Supplement I to Part 230--Official Staff Interpretations

* * * * *

Section 230.10 Opt-out Disclosure Requirements for the Payment of 
Overdrafts

    [rtrif]1. Disclosure of opt-out right. Section 230.10 sets forth 
the disclosures that must be provided if a depository institution 
provides a consumer the right to opt out of the institution's 
payment of overdrafts. Institutions may be required to provide 
consumers with the right to opt out in accordance with federal or 
other applicable law. See, e.g., Sec.  227.31(a) of the Board's 
Regulation AA (12 CFR part 227).
    2. Methods of opting out. Reasonable methods that a consumer may 
use to opt out of an institution's payment of overdrafts include 
mailing a form and calling a toll-free telephone number.
    3. Additional opt-out notice content. In the opt-out notice 
provided under Sec.  230.10(a) of this part, an institution may 
briefly describe the consequences of the consumer's election to opt 
out of the institution's payment of overdrafts. For example, the 
institution may state that if a consumer opts out, the consumer's 
payment may be denied, or returned unpaid, and that the consumer may 
incur returned item fees from both the institution as well as the 
payee.[ltrif]
* * * * *

Section 230.11 Additional Disclosures Regarding the Payment of 
Overdrafts

    (a) Disclosure of total fees on periodic statements.
    (a)(1) General.
* * * * *
    2. Fees for paying overdrafts. [lsqbb]An institution that 
advertises the payment of overdrafts[rsqbb] 
[rtrif]Institutions[ltrif] must disclose on periodic statements a 
total dollar amount for all fees charged to the account for paying 
overdrafts. The institution 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 charged when the 
institution has previously agreed in writing to pay items that 
overdraw the account and the service is subject to the Board's 
Regulation Z, 12 CFR part 226.
    3. Fees for returning items unpaid. [lsqbb]An institution that 
advertises the payment of overdrafts must disclose a[rsqbb] 
[rtrif]The[ltrif] total dollar amount [rtrif]of[ltrif] [lsqbb]for 
all[rsqbb] fees [rtrif]for returning items unpaid must include all 
fees[ltrif] charged to the account for dishonoring or returning 
checks or other items drawn on the account. The institution 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.
* * * * *
    [rtrif](c) Disclosure of account balances.
    1. Funds available for consumer's immediate use or withdrawal. 
For purposes of the balance disclosure requirement in Sec.  
230.11(c), an institution must generally disclose a balance that 
solely reflects the funds that are available for the consumer's 
immediate use or withdrawal, without the consumer incurring an 
overdraft. The balance disclosed may, but need not, include funds 
that are deposited in the consumer's account, such as from a check, 
that are not yet made available for withdrawal in accordance with 
the funds availability rules under the Board's Regulation CC (12 CFR 
part 229). In addition, the balance disclosed may, but need not, 
include any funds that are held by the institution to satisfy a 
prior obligation of the consumer (for example, to cover a hold for 
an ATM or debit card transaction that has been authorized but for 
which the bank has not settled).
    2. Balance inquiry channels. The balance disclosure requirement 
in Sec.  230.11 applies to any automated system through which the 
consumer requests a balance, including, but not limited to, a 
telephone response system, the institution's Internet site or an 
automated teller machine (ATM) (whether or not the ATM is owned or 
operated by the institution). If the balance is obtained at an

[[Page 28751]]

ATM, the disclosure requirement applies whether the balance is 
disclosed on the ATM screen or on a paper receipt.[ltrif]
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, May 2, 2008.
Jennifer J. Johnson,
Secretary of the Board.

 [FR Doc. E8-10243 Filed 5-16-08; 8:45 am]
BILLING CODE 6210-01-P