[Federal Register Volume 74, Number 220 (Tuesday, November 17, 2009)]
[Rules and Regulations]
[Pages 59033-59056]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-27474]



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  Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / 
Rules and Regulations  

[[Page 59033]]



FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-1343]


Electronic Fund Transfers

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule; official staff commentary.

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SUMMARY: The Board is amending Regulation E, which implements the 
Electronic Fund Transfer Act, and the official staff commentary to the 
regulation, which interprets the requirements of Regulation E. The 
final rule limits the ability of a financial institution to assess an 
overdraft fee for paying automated teller machine (ATM) and one-time 
debit card transactions that overdraw a consumer's account, unless the 
consumer affirmatively consents, or opts in, to the institution's 
payment of overdrafts for these transactions.

DATES: The rule is effective January 19, 2010, with a mandatory 
compliance date of July 1, 2010.

FOR FURTHER INFORMATION CONTACT: Dana Miller, Attorney, Ky Tran-Trong, 
Counsel, or Vivian Wong, Senior Attorney, 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. Statutory Background

    The Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.) (EFTA or 
Act), enacted in 1978, provides a basic framework establishing the 
rights, liabilities, and responsibilities of participants in electronic 
fund transfer (EFT) systems. The EFTA is implemented by the Board's 
Regulation E (12 CFR part 205). Examples of the types of transactions 
covered by the Act and regulation include transfers initiated through 
an ATM, point-of-sale (POS) terminal, automated clearinghouse (ACH), 
telephone bill-payment plan, or remote banking service. The Act and 
regulation provide for the disclosure of terms and conditions of an EFT 
service; documentation of EFTs by means of terminal receipts and 
periodic statements; limitations on consumer liability for unauthorized 
transfers; procedures for error resolution; certain rights related to 
preauthorized EFTs; and restrictions on the unsolicited issuance of 
access devices.
    The official staff commentary (12 CFR part 205 (Supp. I)) 
interprets the requirements of Regulation E to facilitate compliance 
and provides protection from liability under Sections 915 and 916 of 
the EFTA for financial institutions and other persons subject to the 
Act who act in conformity with the Board's official interpretations. 15 
U.S.C. 1693m(d)(1). The commentary is updated periodically to address 
significant questions that arise.

 II. Background on Overdraft Services

Historical Overview of Overdraft Services

    Historically, if a consumer tried to make a payment using a check 
that would overdraw his or her deposit account, the consumer's 
financial institution used its discretion on an ad hoc basis to 
determine whether to pay the overdraft. If an overdraft was paid, the 
institution usually imposed a fee on the consumer's account. In recent 
years, many institutions have automated the overdraft payment process, 
which reduces costs and ensures consistent treatment of consumers.\1\ 
Automation is used to apply specific criteria for determining whether 
to honor overdrafts and to set limits on the amount of coverage 
provided.
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    \1\ According to the FDIC's Study of Bank Overdraft Programs, 
nearly 70 percent of banks surveyed implemented their automated 
overdraft program after 2001. See FDIC Study of Bank Overdraft 
Programs at 8 (November 2008) (FDIC Study) (available at: http://www.fdic.gov/bank/analytical/overdraft/FDIC138_Report_FinalTOC.pdf). ATM and POS overdrafts arose from automated overdraft 
programs.
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    Overdraft services vary among institutions but often share certain 
common characteristics. In most cases, consumers that meet a depository 
institution's criteria are automatically enrolled in overdraft 
services. While institutions generally do not underwrite on an 
individual account basis when enrolling the consumer in an overdraft 
service, most institutions review individual accounts periodically to 
determine whether the consumer continues to qualify for the service and 
the amount of overdraft coverage provided. Most institutions disclose 
that the payment of overdrafts is discretionary, and that the 
institution has no legal obligation to pay any overdraft. Many 
institutions offer their customers alternative overdraft protection 
plans, such as a link to a savings account or an overdraft line of 
credit. These programs, for which the consumer must qualify and enroll, 
are distinguishable from the financial institution's overdraft service.
    In the past, institutions generally provided overdraft coverage 
only for check transactions. In recent years, however, the service has 
been extended to cover overdrafts resulting from non-check 
transactions, including ATM withdrawals, debit card transactions at 
POS, on-line transactions, preauthorized transfers, and ACH 
transactions.\2\ Generally, institutions charge a flat fee each time an 
overdraft is paid, although some larger institutions have a tiered fee 
structure and charge higher fees as the number of overdrafts increases. 
Institutions commonly charge the same amount for paying check and ACH 
overdrafts as they would if they returned the item unpaid. Some 
institutions also impose a fee for each day the account remains 
overdrawn.
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    \2\ Eighty-one percent of banks surveyed that operate automated 
overdraft programs now allow overdrafts to be paid at ATMs and POS 
debit card terminals. See FDIC Study at 10.
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    According to a recent report from the Government Accountability 
Office (GAO), the average cost of overdraft and insufficient funds fees 
was just over $26 per item in 2007.\3\ The GAO also

[[Page 59034]]

reported that large institutions on average charged between $4 and $5 
more for overdraft and insufficient fund fees compared to smaller 
institutions.\4\
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    \3\ See Bank Fees: Federal Banking Regulators Could Better 
Ensure That Consumers Have Required Disclosure Documents Prior to 
Opening Checking or Savings Accounts, GAO Report 08-281, at 14 
(January 2008) (GAO Report). See also ``Consumer Overdraft Fees 
Increase During Recession: First-Time Phenomenon,'' Press release, 
Moebs $ervices (July 15, 2009) (Moebs 2009 Pricing Survey Press 
Release) (available at: http://www.moebs.com/AboutUs/Pressreleases/tabid/58/ctl/Details/mid/380/ItemID/65/Default.aspx) (reporting an 
average overdraft fee of $26).
    \4\ See GAO Bank Fees Report at 16. Another recent survey 
suggests that the cost difference in overdraft fees between small 
and large institutions may be larger than reported by the GAO, 
however. See Moebs 2009 Pricing Survey Press Release (reporting that 
banks with more than $50 billion in assets charged on average $35 
per overdrawn check compared to $26 for all institutions).
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Industry and Consumer Advocate Perspectives

    From the industry's perspective, automated overdraft services 
enable institutions to reduce the cost of manually reviewing individual 
items, and also ensure that all consumers are treated consistently with 
respect to overdraft payment decisions. Industry representatives 
observe that overdraft services provide access to funds in urgent 
situations and prevent embarrassment and inconvenience at the point-of-
sale.\5\ Some industry representatives have indicated that a majority 
of debit transactions that are authorized into overdraft later settle 
into good funds, without fees being assessed on the consumer's account.
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    \5\ See ABA Survey: More Consumers Avoid Overdraft Fees, Press 
Release, American Bankers Association (Sept. 9, 2009) (ABA Survey) 
(available at: http://www.aba.com/Pressrss/090909ConsumerSurveyOverdraftFees.htm) (reporting survey results 
indicating that of those consumers who had paid an overdraft fee in 
the past 12 months, 96 percent wanted the payment covered).
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    In contrast, consumer advocates assert that overdraft transactions 
are a high-cost form of lending that trap low- and moderate-income 
consumers into paying high fees. Consumer advocates also state that 
consumers are often enrolled in overdraft services automatically 
without their consent. In addition, consumer advocates believe that by 
honoring overdrafts, institutions encourage consumer reliance on the 
service and therefore, consumers incur greater costs in the long run 
than they would if the transactions were not honored. Consumer 
advocates have noted, for example, that historically, institutions 
declined a consumer's request for an ATM withdrawal or debit card 
transaction if the consumer did not have sufficient funds in his or her 
account. Today, however, institutions are more likely to cover those 
overdrafts and assess a fee on the consumer's account for doing so. 
According to consumer advocates, this practice can be particularly 
costly in connection with debit card overdrafts because the dollar 
amount of the fee is likely to considerably exceed the dollar amount of 
the overdraft.\6\ In addition, multiple fees may be assessed in a 
single day for a series of small-dollar transactions. Because of these 
costs, consumer advocates contend that most consumers would prefer that 
their bank decline ATM or debit card transactions if the transactions 
would overdraw their account.\7\
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    \6\ 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., at 72 (2007) (Overdraft Protection Hearing) (available 
at: http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr0705072.shtml) (testimony noting that as recently as 2004, 80 
percent of banks still declined ATM and debit card transactions 
without charging a fee when account holders did not have sufficient 
funds in their account).
    \7\ See Leslie Parrish, Consumers Want Informed Choice on 
Overdraft Fees and Banking Options, Ctr. for Responsible Lending 
(April 16, 2008) (available at: http://www.responsiblelending.org/overdraft-loans/research-analysis/final-caravan-survey-4-16-08.pdf) 
(reporting the results of a survey indicating that 80 percent of 
consumers would prefer that a debit card transaction be declined if 
a $5 purchase would result in an overdraft and an accompanying $34 
fee); Consumers Union, Financial Regulation Poll (February 13, 2009) 
(Consumers Union Poll) (available at: http://www.federalreserve.gov/SECRS/2009/March/20090317/R-1343/R-1343_031209_12532_455058226232_1.pdf) (65% of consumers would prefer that an ATM or 
debit card transaction be denied if it would result in an 
overdraft).
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Previous Agency Actions

    In February 2005, the Board, along with the other federal banking 
agencies, issued guidance on overdraft protection programs in response 
to the increased availability and customer use of overdraft protection 
services (Joint Guidance).\8\ The Joint Guidance addresses three 
primary areas--safety and soundness considerations, legal risks, and 
best practices.\9\ The best practices described in the Joint Guidance 
address 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 consumer choice to opt out of the 
overdraft service.
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    \8\ See Interagency Guidance on Overdraft Protection Programs, 
70 FR 9127, Feb. 24, 2005.
    \9\ The Office of Thrift Supervision (OTS) issued separate 
guidance that focuses on safety and soundness considerations and 
best practices. OTS Guidance on Overdraft Protection Programs, 70 FR 
8428, Feb. 18, 2005.
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    In May 2005, the Board revised Regulation DD and the staff 
commentary pursuant to its authority under the Truth in Savings Act 
(TISA) to provide uniformity and improve the adequacy of disclosures 
provided to consumers about overdraft and returned-item fees.\10\ The 
2005 Regulation DD revisions also addressed concerns about 
institutions' marketing of overdraft services.
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    \10\ 70 FR 29582, May 24, 2005.
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May 2008 FTC Act and Regulation DD Proposals; January 2009 Regulation 
DD Final Rule

    In May 2008, the Board, along with the OTS and the NCUA 
(collectively, the Agencies), proposed to exercise their authority 
under the Federal Trade Commission Act (FTC Act) to prohibit 
institutions from assessing any fees on a consumer's account in 
connection with an overdraft service, unless the consumer was given 
notice and the right to opt out of the service, and the consumer did 
not opt out.\11\ The proposed opt-out right would have applied to 
overdrafts resulting from all methods of payment, including checks, ACH 
transactions, ATM withdrawals, recurring payments, and POS debit card 
transactions. The proposed rule was intended to ensure that consumers 
understand overdraft services and have the choice to avoid the 
associated costs where such services do not meet their needs.
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    \11\ 73 FR 28904, May 19, 2008
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    The Board concurrently issued a proposal under Regulation DD (Truth 
in Savings), which set forth requirements on the delivery of the opt-
out notice, as well as a model opt-out form.\12\ The Regulation DD 
proposal required all institutions to provide aggregate totals for 
overdraft fees and for returned item fees for the periodic statement 
period and the year-to-date. The Regulation DD proposal also addressed 
account balance disclosures provided to consumers through automated 
systems, such as ATMs and on-line banking services. In January 2009, 
the Board published the revisions to Regulation DD in final form 
addressing the aggregate fee and balance disclosures, with an effective 
date of January 1, 2010.\13\
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    \12\ 73 FR 28730, May 19, 2008.
    \13\ 74 FR 5584, January 29, 2009.
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    Based on the Board's review of comments received with respect to 
the 2008 FTC Act and Regulation DD proposals, the results of consumer 
testing, and its own analysis, the Board concluded that concerns about 
consumer choice regarding overdraft services should be addressed under 
the EFTA and Regulation E. First, participants in consumer testing 
indicated that they would prefer to have their checks paid into 
overdraft, because those transactions represented important bills. In 
contrast, consumer testing indicated that many participants would 
prefer to have ATM withdrawals and debit card transactions declined if

[[Page 59035]]

they had insufficient funds, rather than incur an overdraft fee, 
because those transactions tend to be more discretionary in nature.
    Second, a consumer will generally be charged the same fee by the 
financial institution whether or not a check is paid; yet, if the 
institution covers an overdrawn check, the consumer may avoid other 
adverse consequences, such as the imposition of additional merchant 
returned item fees.\14\ For ATM and one-time debit card transactions, 
however, if the transaction is declined because the consumer's account 
contains insufficient funds, the consumer would not incur any merchant 
returned item fees and would avoid any fees assessed by the financial 
institution.
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    \14\ According to one survey, the average merchant fee for a 
returned check is $25. See ``National Survey Reveals Retail 
Merchants' Bad-Check Fees Double Consumer Penalties for 
Overdrafts,'' Press release, Moebs $ervices (July 28, 2009) 
(available at: http://www.moebs.com/AboutUs/Pressreleases/tabid/58/ctl/Details/mid/380/ItemID/66/Default.aspx). See also FDIC Study at 
16 n.18.
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    Third, consumer testing indicated that many consumers are unaware 
that they can incur overdrafts at the ATM or at POS, and that they 
believe instead that their transactions will be declined.\15\ 
Consequently, consumers may overdraw their accounts based on the 
erroneous belief that a transaction would be paid only if the consumer 
has sufficient funds in the account to cover it.
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    \15\ See also Consumers Union Poll at 9 (48% of consumers polled 
incorrectly thought ATM transaction would be declined if they 
attempted to overdraw).
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    Finally, the Board believed it was appropriate to focus the 
proposal on ATM and one-time debit card transactions because these 
transactions have been a key driver behind the growth in the volume and 
cost of overdraft fees--particularly POS/debit overdraft transactions, 
which according to one study accounted for 41% of surveyed 
institutions' insufficient funds transactions.\16\ With respect to 
debit card transactions in particular, the amount of fees assessed may 
substantially exceed the amount overdrawn.\17\ Given the costs 
associated with overdraft services in these circumstances, consumers 
may prefer to have these transactions declined.
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    \16\ FDIC Study at 78-79.
    \17\ See Overdraft Protection Hearing at 72 (stating that 
consumers pay $1.94 in fees for every one dollar borrowed to cover a 
debit card POS overdraft).
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    Accordingly, the Board published a revised proposal in January 2009 
to amend Regulation E and the official staff commentary accompanying 
the regulation.\18\
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    \18\ 74 FR 5212, January 29, 2009.
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III. The Board's Proposed Revisions to Regulation E

Summary of Proposal

    The January 2009 Regulation E proposal was intended to assist 
consumers in understanding how overdraft services provided by their 
institutions operate and to ensure that consumers have the opportunity 
to limit the overdraft costs associated with ATM and one-time debit 
card transactions where such services do not meet their needs.\19\ The 
proposal established a consumer's right to opt out of, or into, an 
institution's payment of overdrafts with respect to ATM withdrawals and 
one-time debit card transactions. The proposal also addressed debit 
holds placed by an institution on a consumer's funds in an amount 
exceeding the actual transaction amount.
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    \19\ Id.
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    The Board proposed two alternative approaches for giving consumers 
a choice regarding an institution's payment of overdrafts for ATM and 
one-time debit card transactions. The first approach would prohibit 
account-holding financial institutions from assessing overdraft fees or 
charges on a consumer's account for paying an overdraft on an ATM 
withdrawal or one-time debit card transaction (whether at POS, on-line 
or by telephone), unless the consumer is given notice and a reasonable 
opportunity to opt out of the institution's overdraft service in 
connection with those transactions, and the consumer does not opt out. 
Under this approach, the opt-out notice would be provided to the 
consumer at account opening (or any time before any overdraft fees are 
assessed) and again in each periodic statement cycle in which the 
institution assesses a fee or charge to the consumer's account for 
paying an overdraft.
    The second approach would prohibit an account-holding financial 
institution from assessing any fees on a consumer's account for paying 
an ATM withdrawal or one-time debit card transaction that overdraws the 
account, unless the consumer is provided notice and a reasonable 
opportunity to opt in, or affirmatively consent, to the service, and 
the consumer opts in. Under this approach, opt-in notices would not 
have to be provided again to consumers who opt in when the financial 
institution pays overdrafts on these transactions and assesses a fee on 
the consumer's account. The proposed opt-in rule would apply to all 
consumers, including accounts existing prior to the mandatory 
compliance date. However, the Board solicited comment on a hybrid 
approach that would apply an opt-out to existing accounts and an opt-in 
to accounts opened on or after the mandatory compliance date.
    The proposal provided two alternatives for implementing the 
consumer's choice for both the opt-out and opt-in approaches. Under one 
alternative, the proposal would require an institution to provide 
consumers who do not opt in an account that has the same terms, 
conditions, or features that are provided to consumers who elect to 
have overdraft coverage for ATM withdrawals and one-time debit card 
transactions, except for features that limit the institution's payment 
of such overdrafts. Under the second alternative, institutions could 
vary the terms, conditions, or features of the account that does not 
permit the payment of ATM and one-time debit card overdrafts, provided 
that the differences are not so substantial that they would discourage 
a reasonable consumer from exercising his or her right to opt out of 
the payment of such overdrafts (or compel a reasonable consumer to opt 
in).
    Further, the Board proposed to permit, or alternatively to 
prohibit, (1) conditioning the payment of checks, ACH transactions, or 
other types of transactions that overdraw the consumer's account on the 
consumer not opting out of (or opting into) the institution's overdraft 
service with respect to ATM and one-time debit card transactions, or 
(2) declining to pay checks, ACH transactions, or other types of 
transactions that overdraw the consumer's account because the consumer 
has opted out of (or not opted into) the institution's overdraft 
service for ATM and one-time debit card transactions. To facilitate 
compliance, the proposal provided model forms that institutions could 
use to satisfy their disclosure obligations.
    The Board also proposed to prohibit institutions from assessing an 
overdraft fee where the overdraft would not have occurred but for a 
debit hold placed on funds in an amount that exceeds the actual 
transaction amount and where the merchant can determine the actual 
transaction amount within a short period of time after authorization of 
the transaction.

Overview of Public Comments

    The Board received over 20,700 comment letters on the proposal, 
including approximately 16,000 form letters. The majority of the 
comment letters were submitted by individual consumers. The remaining 
comment letters were submitted by banks, savings

[[Page 59036]]

associations, credit unions, industry trade associations, industry 
processors and vendors, consumer advocates, members of Congress, other 
federal banking agencies, state and local governments and regulators, 
and others. Many commenters reiterated comments made in response to the 
2008 FTC Act proposal.\20\
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    \20\ 74 FR at 5214.
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    Some consumer advocates, federal and state regulators, and others 
generally expressed support for the more narrowly tailored approach 
under Regulation E. However, some other consumer advocates urged the 
Board to reconsider using its authority under the FTC Act to provide, 
at a minimum, the right to opt out of the payment of overdrafts with 
respect to checks, ACH, and recurring debit card transactions.
    Industry commenters generally supported the Board's decision to 
issue a proposal under Regulation E, rather than pursuant to the FTC 
Act. Many industry commenters argued that consumers derive substantial 
benefits from overdraft services, and expressed concern about the 
operational feasibility of limiting the opt-out, or opt-in, right only 
to overdrafts paid in connection with ATM withdrawals and one-time 
debit card transactions.
    In response to the proposed opt-out and opt-in alternatives, 
consumer advocates, members of Congress, federal and state regulators, 
and the overwhelming majority of individual consumers who commented 
urged the Board to adopt the proposed opt-in approach. These commenters 
argued that the harm to consumers from overdraft fees outweigh any 
benefits. Further, these commenters maintained that most consumers 
would prefer to have an ATM or one-time debit card transaction 
declined, rather than trigger one or more overdraft fees. These 
commenters also stated that an opt-in should apply to all account 
holders.
    In contrast, the majority of industry commenters favored the 
proposed opt-out approach. These commenters maintained that an opt-out 
regime would more effectively provide consumers the benefits of 
overdraft services while causing fewer disruptions to consumers and 
other participants in the banking system. Further, these commenters 
argued that any opt-in requirement should apply only to new accounts.
    Consumer advocates and federal and state banking regulators 
supported the proposed prohibition on conditioning the payment of 
overdrafts for checks, ACH transactions, or other types of transactions 
on the consumer also affirmatively consenting to the institution's 
payment of overdrafts for ATM withdrawals and one-time debit card 
transactions. These commenters stated that consumers would otherwise 
feel compelled to opt into the institution's overdraft service in order 
to have check and ACH overdrafts paid. For similar reasons, these 
commenters argued that institutions should be required to provide 
consumers who do not opt into the institution's overdraft service for 
ATM and one-time debit card transactions an account with identical 
terms, conditions and features as an account provided to consumers who 
do opt in. In contrast, industry commenters supported the alternative 
permitting conditioning the opt-in, because it would be costly to 
implement a system that pays overdrafts for certain types of 
transactions but not others. These commenters also urged the Board to 
permit institutions to vary the account terms, conditions, and features 
for consumers who do not opt in.
    Consumer group commenters stated that the Board should not provide 
any exceptions to the prohibition on fees, even if overdrafts are 
inadvertently paid due to delays in transaction processing and 
settlement. Industry commenters, on the contrary, supported the 
proposed exceptions. Many industry commenters urged the Board to 
provide for additional exceptions for transactions for which 
authorization is not requested at the time of the transaction.

Consumer Testing

    Following the January 2009 proposal, the Board engaged a testing 
consultant, Macro International, Inc. (Macro), to revise and test the 
proposed model opt-out notice and the newly proposed opt-in notice. 
Four additional rounds of interviews were conducted with a diverse 
group of consumers between May and September 2009. Testing was 
conducted at various locations across the United States. The findings 
from each round of interviews were incorporated in revisions to the 
model forms for the following round of testing.
    In general, after reviewing the model disclosures, testing 
participants understood the concept of overdraft coverage, and that 
they would be charged fees if their institution paid their overdrafts. 
Consistent with previous testing efforts undertaken in connection with 
the 2008 FTC Act proposal, participants generally indicated that they 
would want their checks paid into overdraft. The majority of 
participants also indicated that they would prefer an opt-in over an 
opt-out even if they would choose to have ATM and one-time debit card 
transactions paid.\21\
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    \21\ See Design and Testing of Overdraft Notices: Phase Two, 
Macro International, October 12, 2009.
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IV. Summary of Final Rule

    The Board is adopting a final rule under Regulation E and the 
official staff commentary to assist consumers in understanding how 
overdraft services provided by their institutions operate. The rule 
gives consumers the opportunity to limit the overdraft costs associated 
with ATM and one-time debit card transactions, where such services do 
not meet their needs. The following is a summary of the final rule and 
related commentary provisions. The revisions are discussed in greater 
detail in the section-by-section analysis below.

Opt-In Approach

    The final rule requires institutions to provide consumers with the 
right to opt in, or affirmatively consent, to the institution's 
overdraft service for ATM and one-time debit card transactions. Under 
the final rule, notice of the opt-in right must be provided, and the 
consumer's affirmative consent obtained, before fees or charges may be 
assessed on the consumer's account for paying such overdrafts. The opt-
in requirement applies to both existing and new accounts. Based on 
comments received and consumer testing efforts, the final rule adopts a 
revised model form that institutions may use to satisfy the notice 
requirement.
    The final rule also prohibits institutions from conditioning the 
payment of overdrafts for checks, ACH transactions, or other types of 
transactions on the consumer also affirmatively consenting to the 
institution's payment of overdrafts for ATM and one-time debit card 
transactions. Institutions are also prohibited from declining to pay 
check, ACH transactions, or other types of transactions that overdraw 
the consumer's account because the consumer has not opted into the 
institution's overdraft service for ATM and one-time debit card 
transactions. For consumers who do not affirmatively consent to the 
institution's overdraft service for ATM and one-time debit card 
transactions, the final rule requires institutions to provide those 
consumers with the same account terms, conditions, and features that 
they provide to consumers who do affirmatively consent, except for the 
overdraft service for ATM and one-time debit card transactions.
    The final rule does not adopt the proposed exception to the fee

[[Page 59037]]

prohibition for transactions authorized on an institution's reasonable 
belief that the consumer's account has sufficient funds to cover the 
transaction. The final rule also does not adopt the proposed exception 
for transactions where a merchant or other payee presents a debit card 
transaction by paper-based means, rather than electronically using a 
card terminal, and the institution has not previously authorized the 
transaction.

Debit Holds

    The Board is not adopting the proposed provisions on debit holds. 
The proposal put the obligation on financial institutions to address 
concerns about overdrafts caused by debit holds. However, upon further 
consideration, the Board believes that a more comprehensive approach 
that involves financial institutions, card networks, and merchants may 
be required to effectively address these problems. The Board will 
continue to monitor developments with respect to debit holds and assess 
whether to take further action.

V. Legal Authority

    The Board is adopting the final rule pursuant to its authority 
under Sections 904(a) and 904(c) of the EFTA (15 U.S.C. 1693b). Section 
904(a) of the EFTA authorizes the Board to prescribe regulations 
necessary to carry out the purposes of the title. The express purposes 
of the EFTA are to establish ``the rights, liabilities, and 
responsibilities of participants in electronic fund transfer systems'' 
and to provide ``individual consumer rights.'' See EFTA Section 902(b); 
15 U.S.C. 1693. In addition, Section 904(c) of the EFTA provides that 
regulations prescribed by the Board may contain any classifications, 
differentiations, or other provisions, and may provide for such 
adjustments or exceptions for any class of electronic fund transfers, 
that the Board deems necessary or proper to effectuate the purposes of 
the title, to prevent circumvention or evasion, or to facilitate 
compliance.
    The legislative history of the EFTA makes clear that the Board has 
broad regulatory authority. According to the Senate Report, regulations 
are ``essential to the act's effectiveness'' and ``[permit] the Board 
to modify the act's requirements to suit the characteristics of 
individual EFT services. Moreover, since no one can foresee EFT 
developments in the future, regulations would keep pace with new 
services and assure that the act's basic protections continue to 
apply.'' \22\
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    \22\ S. Rep. No. 95-1273, 95th Cong., 2d Sess., at 26 (Oct. 4, 
1978).
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    The final opt-in rule is intended to carry out the express purposes 
of the EFTA by: (a) Establishing notice requirements to help consumers 
better understand the cost of overdraft services for certain EFTs; and 
(b) providing consumers with a choice as to whether they want overdraft 
services for ATM and one-time debit card transactions in light of the 
costs associated with those services. The final opt-in rule's 
prohibition on conditioning the opt-in and limitations on how the opt-
in may be implemented have been designed to prevent circumvention or 
evasion of the requirement to provide the consumer with meaningful 
choice regarding overdraft services. The final rule does not require 
financial institutions to pay overdrafts on checks, and does permit 
them to offer consumers a choice regarding overdraft services for 
checks.
    The disclosures implementing the opt-in requirement are issued 
pursuant to the Board's authority under Sections 904(b) and 905 of the 
EFTA. 15 U.S.C. 1693b(b) and 1693c.

VI. Section-by-Section Analysis

Section 205.12 Relation to Other Laws

    Section 205.12(a) explains the relationship between Regulation E 
and Regulation Z when an access device permits a consumer to obtain an 
extension of credit incident to an EFT. In general, Regulation E 
governs the issuance of access devices and the addition of an EFT 
service to an accepted credit card, and Regulation Z governs the 
issuance of a combined credit card and access device and the addition 
of a credit feature to an accepted credit card. See Sec.  205.12(a). 
The final rule is adopted substantially as proposed to clarify that 
both the issuance of an access device with an overdraft service and the 
addition of an overdraft service to an accepted access device are 
governed by Regulation E.
    Currently, Sec.  205.12(a)(1)(ii) states that the EFTA and 
Regulation E govern the ``issuance of an access device that permits 
credit extensions (under a preexisting agreement between a consumer and 
a financial institution) only when the consumer's account is overdrawn 
or to maintain a specified minimum balance in the consumer's account.'' 
As the Board stated in the original March 1979 final rule, this 
provision (originally in Sec.  205.4(c)) was intended to clarify that 
Regulation E, rather than Regulation Z, applies to the issuance of 
``access devices that are also credit cards solely by virtue of their 
capacity to access an existing overdraft credit line attached to the 
consumer's account.'' 61 FR 18468, 18472, March 28, 1979.
    When the rule was originally adopted, the primary means of covering 
overdrafts incurred in connection with EFTs was through an overdraft 
line of credit linked to a debit card or other access device. Today, 
however, consumers are more likely to have these overdrafts covered by 
their institution's overdraft service, rather than by a separate 
overdraft line of credit. Commenters generally agreed with the proposed 
rule and commentary. Some consumer advocates, however, argued that 
overdraft services should be subject to TILA and Regulation Z.
    In the final rule, the Board is amending Sec.  205.12(a)(1)(ii) 
substantially as proposed, with non-substantive edits for clarity, to 
provide that Regulation E governs the issuance of an access device that 
permits extensions of funds under an overdraft service (as defined 
below under Sec.  205.17). New Sec.  205.12(a)(1)(iii) provides that 
Regulation E also covers the addition of an overdraft service to a 
previously accepted access device. See also comment 12(a)-2. Comment 
12(a)-3 clarifies that the addition of an overdraft service to an 
accepted access device does not constitute the addition of a credit 
feature under Regulation Z.
    In addition, the Board is amending Sec.  205.12(a)(1)(i) as 
proposed, to conform the regulation to reflect the January 2009 
redesignation of the definition of the term ``accepted credit card'' 
under Regulation Z. See 12 CFR 226.12, comment 226.12-2. Finally, 
current Sec.  205.12(a)(1)(iii), which provides that Regulation E's 
liability limits and error resolution rules also apply to extensions of 
credit under an overdraft line of credit, is redesignated as Sec.  
205.12(a)(1)(iv) and revised, as proposed, to include a reference to 
overdraft services.

Section 205.17 Requirements for Overdraft Services

    To ensure consumers are given a meaningful choice regarding 
overdraft services, Sec.  205.17 requires institutions to provide 
consumers with the right to opt in, or affirmatively consent, to the 
institution's overdraft service for ATM and one-time debit card 
transactions. Under the final rule, notice of the opt-in right must be 
provided, and the consumer's affirmative consent obtained, before fees 
or charges may be assessed on the consumer's account for paying such 
overdrafts. The final rule also prescribes how the consumer's opt-in 
choice must be implemented. The

[[Page 59038]]

opt-in requirement applies to all consumers, including account holders 
who opened accounts prior to the mandatory compliance date of July 1, 
2010.
Background
    Consumers are often enrolled in overdraft services automatically 
without their consent. Thus, in the February 2005 Joint Guidance on 
overdraft protection services, the Board and the other federal banking 
agencies recommended as a best practice that institutions obtain a 
consumer's affirmative consent to receive overdraft protection. 
Alternatively, the Joint Guidance stated that where overdraft 
protection is provided automatically, institutions should provide 
consumers the opportunity to opt out of the overdraft program and 
provide consumers with a clear disclosure of this option.\23\
---------------------------------------------------------------------------

    \23\ 70 FR at 9132. The OTS made similar recommendations in its 
separate guidance. See 70 FR at 8431.
---------------------------------------------------------------------------

    Although many institutions provide consumers the right to opt out 
of overdraft services, this practice is not uniform across all 
institutions.\24\ Even where an opt-out right is provided, institutions 
may not clearly disclose this right to consumers, or may make it 
difficult for consumers to exercise this right. For example, some 
institutions may disclose the opt-out right in a clause in their 
deposit agreement, which many consumers may not notice or may not 
consider relevant because they do not expect to overdraw their 
accounts. In other cases, the opt-out provisions may not be written in 
clearly understandable language.
---------------------------------------------------------------------------

    \24\ According to the FDIC's Study of Bank Overdraft Programs, 
75.1% of institutions surveyed permit consumers to opt out of their 
automated overdraft program, while 11.1% of institutions require 
consumers to opt in. According to the FDIC, banks that do not 
promote automated programs were less likely to give consumers either 
the option to opt in or to opt out of the automated overdraft 
program. See FDIC Study at 27. See also Moebs 2009 Pricing Survey 
Press Release (reporting that 86% of institutions that offer 
overdraft services allow the consumer to opt out).
---------------------------------------------------------------------------

    In the January 2009 Regulation E proposal, the Board proposed to 
provide consumers with the right to opt out of, or in the alternative, 
opt into the payment of overdrafts with respect to their ATM 
withdrawals and one-time debit card transactions. The Board proposed to 
apply the new rules to both existing and new accounts, but solicited 
comment on a hybrid approach which would permit institutions to offer 
an opt-out to existing accounts.
    Consumer advocates, members of Congress, federal and state 
regulators, and the overwhelming majority of individual consumers who 
commented urged the Board to adopt the proposed opt-in alternative that 
would require institutions to obtain a consumer's affirmative consent 
before fees could be charged for paying an overdraft. These commenters 
argued that any benefit from permitting ATM and debit card overdrafts 
to be paid without prior consumer consent was far outweighed by the 
harm to consumers stemming from overdraft fees, which may be 
significantly higher than the transactions causing the overdraft. 
Further, these commenters maintained that most consumers would prefer 
to have an ATM or one-time debit card transaction declined rather than 
pay one or more overdraft fees.
    In contrast, the majority of industry commenters favored the 
proposed opt-out approach. These commenters contended that an opt-out 
regime would provide consumers the benefits of overdraft services while 
causing fewer disruptions to consumers and other participants in the 
banking system. Industry commenters also remained concerned about the 
operational feasibility and costs of an opt-in. For the following 
reasons, the Board adopts an opt-in approach in the final rule.
Discussion
    Due to various factors such as consumer inertia and the difficulty 
in anticipating future costs, consumers may end up with suboptimal 
outcomes even when given a choice. As some studies have suggested, 
consumers are likely to adhere to the established default rule, that 
is, the outcome that would apply if the consumer takes no action.\25\ 
Under an opt-out rule, consumers would default to having their 
financial institution's automatic overdraft coverage, resulting in some 
consumers incurring overdraft fees even if their preferred course would 
be for ATM and debit card transactions to be declined. The opposite 
would be true with an opt-in rule. Specifically, consumers could avoid 
fees for a service they did not request.
---------------------------------------------------------------------------

    \25\ See, e.g., Brigette Madrian and Dennis Shea, ``The Power of 
Suggestion: Inertia in 401(k) Participation and Savings Behavior,'' 
116 Quarterly Journal of Economics 1149 (2001); Gabriel D. Carroll, 
James J. Choi et al., ``Optimal Defaults and Active Decisions,'' 
Quarterly Journal of Economics (forthcoming November 2009) (both 
studies of automatic enrollment in 401(k) savings plans indicating a 
significant increase in employee participation if the default rule 
provides that a consumer is automatically enrolled in the plan 
unless they opt out, instead of requiring employees to affirmatively 
agree to participate in the plan).
---------------------------------------------------------------------------

    The Board believes that, on balance, an opt-in rule creates the 
optimal result for consumers with respect to ATM and one-time debit 
card transactions. First, the cost to consumers of overdraft fees 
assessed in connection with ATM and debit card overdrafts is 
significant.\26\ For one-time debit card transactions in particular, 
the amount of the fee assessed may substantially exceed the amount 
overdrawn.\27\ If the consumer incurs multiple debit card overdrafts in 
one day, fees may accrue into the hundreds of dollars. Many consumers 
may prefer such transactions not to be paid.
---------------------------------------------------------------------------

    \26\ According to the FDIC Study, the median dollar amount for 
debit card transactions resulting in an overdraft is $20. See FDIC 
Study at 78-79. This compares to the average cost of overdraft and 
insufficient funds fees of over $26 per item in 2007, as reported by 
the GAO Report. GAO Report at 14. See also FDIC Study at 15, 18 
(reporting a median per item overdraft fee of $27 for banks 
surveyed). The FDIC Study also reported that POS/debit overdraft 
transactions accounted for the largest share of all surveyed 
institutions' insufficient funds transactions (41.0%). FDIC Study at 
78-79.
    \27\ Eric Halperin, Lisa James and Peter Smith, Debit Card 
Danger: Banks Offer Little Warning and Few Choices as Customers Pay 
a High Price for Debit Card Overdrafts, Ctr. for Responsible Lending 
at 8 (Jan. 25, 2007) (estimating that the median amount by which a 
consumer overdraws his or her account for a debit card purchase is 
$17, and that consumers pay $1.94 in fees for every one dollar 
borrowed to cover a debit card POS overdraft).
---------------------------------------------------------------------------

    Second, an opt-in rule that is limited to ATM and one-time debit 
card transactions may result in fewer adverse consequences for 
consumers than a rule applicable to a broader range of transactions. 
While a check or ACH transaction that is returned for insufficient 
funds might cause the consumer to incur a merchant fee for the returned 
item, in addition to an insufficient funds fee assessed by the 
consumer's financial institution, a declined ATM or debit card 
transaction does not result in any fees to the consumer.
    Third, available research indicates that the large majority of 
overdraft fees are paid by a small portion of consumers who frequently 
overdraw their accounts.\28\ These consumers may have difficulty both 
repaying overdraft fees and bringing their account current, which may 
in turn cause them to incur additional overdraft fees. An opt-in 
approach could therefore best prevent these consumers from entering 
into a harmful cycle of repeated overdrafts.
---------------------------------------------------------------------------

    \28\ Seventy-five percent of consumers did not overdraw their 
accounts at all during the survey year; consumers who overdrew their 
accounts five or more times per year paid 93% of all overdraft fees. 
See FDIC Study at iv.
---------------------------------------------------------------------------

    Fourth, many consumers may not be aware that they are able to 
overdraft at an ATM or POS. Debit cards have been promoted as budgeting 
tools, and a means for consumers to pay for goods and services without 
incurring additional debt. Additionally, the ability

[[Page 59039]]

to overdraft at an ATM or POS is a relatively recent development. 
Consequently, consumers may unintentionally overdraw their account 
based on the erroneous belief that a transaction would be paid only if 
the consumer has sufficient funds in the account to cover it. With an 
opt-in approach, consumers who do not opt in will be less likely to 
incur unanticipated overdraft fees.
    Finally, the opt-in approach is consistent with consumer 
preference, as indicated by the Board's consumer testing. Continued 
consumer testing after the publication of the January 2009 proposal was 
consistent with prior testing efforts, with many participants stating 
that they would prefer to have ATM withdrawals and debit card 
transactions declined if they had insufficient funds, rather than incur 
an overdraft fee. Similarly, an overwhelming majority of consumer 
commenters also expressed their preference for an opt-in approach.
    The Board recognizes that, for some consumers, coverage of 
occasional overdrafts and paying occasional overdraft fees may be 
preferable to having transactions declined. Such consumers could be 
precluded from completing important transactions when there are 
insufficient funds in the consumer's account if the consumer has not 
opted in and the consumer does not have another means of payment.
    Some industry representatives commented that a majority of debit 
card transactions authorized into overdraft later settle into good 
funds. In advocating an opt-out approach, these commenters argued that 
a consumer's failure to opt in would result in declined transactions 
even when, a majority of the time, the consumer would not have been 
assessed overdraft fees on his or her account.
    While an opt-in approach may result in the denial of some 
transactions which would otherwise have settled into good funds, the 
Board notes that the overall impact of the final rule on the number of 
declined transactions is difficult to quantify, as it depends on a 
number of factors. This includes an institution's processing 
procedures, such as whether credits are processed before debits, and 
funds availability policies. Because direct deposits pose little risk 
of failing to clear, as compared to a deposited check, institutions may 
also authorize transactions based on pending amounts. As more 
institutions shift towards real-time clearing, there will be less lag 
time between transaction authorization and clearing. For customer 
service reasons, financial institutions also have an incentive to 
minimize the circumstances under which transactions are declined. 
Moreover, the effect may be limited, as the consumer could choose to 
opt into overdraft coverage after the first declined transaction.
    Industry commenters also argued that overdraft fees--which 
constitute a significant percentage of financial institutions' deposit 
service charges--subsidize other checking account features consumers 
enjoy, such as maintenance fee-free checking accounts, or free on-line 
bill payment. Because an opt-in requirement would likely result in 
reduced overdraft fee income, these commenters argued that an opt-in 
rule would result in either higher fees or a reduction in account 
features or bank services for all consumers.
    To the extent institutions adjust their pricing policies to respond 
to the potential loss of income from overdraft fees, some consumers may 
experience increases in certain upfront costs as a result of the final 
opt-in rule. Nonetheless, the Board believes that giving consumers the 
choice to avoid the high cost of overdraft fees, and the increased 
transparency in overdraft pricing that would result from an opt-in 
rule, outweigh the potential increase in upfront costs. In addition, 
some consumers will continue to be able to avoid monthly maintenance or 
other account fees as a result of meeting minimum balance requirements 
or having other product relationships with the bank.
    The Board also solicited comment on a hybrid approach consisting of 
an opt-out rule for existing accounts and an opt-in rule for new 
accounts. Under this approach, an institution could continue to pay 
overdrafts (and assess fees) for ATM withdrawals and one-time debit 
card transactions for existing account holders who have not opted out, 
but would be prohibited from assessing fees or charges for paying such 
overdrafts on new account holders who have not affirmatively consented 
to the institution's overdraft service. The final rule applies the opt-
in approach to all consumers.
    Industry commenters preferred the hybrid approach to an opt-in 
approach for existing accounts, stating that some consumers may 
overlook the opt-in notice, but nonetheless prefer to have their 
overdrafts covered. In such cases, these consumers may be confused or 
angry when a transaction they expect to go through is denied after the 
effective date. In contrast, consumer group commenters stated that 
existing account holders should receive the same opt-in protections as 
new customers, because customer turnover is very low from year to year.
    The final rule provides an opt-in right for both new and existing 
accounts. The Board believes it is appropriate to apply the opt-in 
approach to existing accounts for several reasons. First, the annual 
consumer account attrition rate is low. One report estimates that only 
14% of financial institution customers leave their institutions each 
year.\29\ Thus, application of the opt-in rule only to new customers 
would mean that a significant number of consumers would not receive the 
protections provided by an opt-in. In addition, consumers who have an 
existing account, and then open a new account after the rule's 
mandatory compliance date, would receive inconsistent treatment with 
regard to their accounts, which could lead to consumer confusion. 
Further, a hybrid approach would require institutions to maintain two 
systems over time for new and existing accounts, which could be costly 
for some institutions. While some consumers with existing accounts may 
be surprised if, contrary to their expectations, their ATM and one-time 
debit card transactions are not paid into overdraft, these customers 
would subsequently be able to opt in. For those consumers who are 
unaware that they can overdraft at an ATM or at point-of-sale, however, 
an opt-in rule would have little impact on their expectations with 
respect to the coverage currently provided to them. Timing requirements 
for new and existing accounts are described in the discussion of Sec.  
205.17(c) below.
---------------------------------------------------------------------------

    \29\ Celent, ``Customer Attrition in Retail Banking: the US, 
Canada, the UK, and France,'' Press Release (Jan. 2, 2003) 
(available at: http://reports.celent.com/PressReleases/20030102/CustomerAttrition.htm).
---------------------------------------------------------------------------

A. Definition--Sec.  205.17(a)
    Proposed Sec.  205.17(a) defined ``overdraft service'' to mean a 
service under which a financial institution assesses a fee or charge on 
a consumer's account held by the institution for paying a transaction 
(including a check or other item) when the consumer has insufficient or 
unavailable funds in the account. The term was intended to cover 
circumstances when an institution assesses a fee for paying an 
overdraft pursuant to any automated program or service, whether 
promoted or not, or as a non-automated, ad hoc accommodation. The 
proposed definition excluded an institution's payment of overdrafts 
pursuant to a line of credit subject to the Board's Regulation Z, 
including transfers from a credit card account, a home equity line of 
credit, or an overdraft line of credit. The proposed definition also 
excluded overdrafts paid pursuant to a service

[[Page 59040]]

that transfers funds from another account of the consumer (including 
any account that may be jointly held by the consumer and another 
person) held at the institution. These methods of covering overdrafts 
were excluded because they require the express agreement of the 
consumer. Commenters generally supported proposed Sec.  205.17(a). 
Accordingly, the Board is adopting Sec.  205.17(a) with one 
modification.
    The final rule includes a new Sec.  205.17(a)(3) to address a 
suggestion that the Board revise the definition of ``overdraft 
services'' to also exclude credit secured by margin securities in 
brokerage accounts extended by Securities and Exchange Commission-
registered broker-dealers. Margin credit is exempt from the 
requirements of TILA and Regulation Z in recognition that similar 
substantive consumer protections already apply to such credit through 
federal securities law. See 15 U.S.C. 1603(2); 12 CFR 226.3(d). Also, 
margin credit is typically offered pursuant to a written agreement 
between a consumer and a broker. Accordingly, final Sec.  205.17(a)(3) 
clarifies that the term ``overdraft services'' does not include a line 
of credit or other transaction exempt from Regulation Z pursuant to 12 
CFR 226.3(d).
B. Opt-In Requirement--Sec.  205.17(b)
    For the reasons discussed above, the Board is adopting an opt-in 
rule. The general rule is implemented in Sec.  205.17(b).
17(b)(1) General Rule and Scope of Opt-In
    Proposed Sec.  205.17(b)(1) set forth the general rule prohibiting 
an account-holding institution from assessing a fee or charge on a 
consumer's account held at the institution for paying an ATM withdrawal 
or a one-time debit card transaction pursuant to the institution's 
overdraft service, unless the consumer is provided with a notice 
explaining the institution's overdraft service for such transactions 
and a reasonable opportunity to affirmatively consent, or opt in, to 
the service, and the consumer affirmatively consents, or opts in, to 
the service. If the consumer opts in, the institution would be required 
to provide written confirmation of the consumer's consent.
    The proposed opt-in applied to any ATM withdrawal, including 
withdrawals made at proprietary or foreign ATMs. The proposed opt-in 
also applied to any one-time debit card transaction, regardless of 
whether the consumer uses a debit card at a point-of-sale (for example, 
at a merchant or a store), in an on-line transaction, or in a telephone 
transaction.\30\
---------------------------------------------------------------------------

    \30\ For clarity, this has been added as comment 17(b)-1.iii.
---------------------------------------------------------------------------

    In the final rule, the Board adopts the opt-in approach and scope 
generally as proposed, with modifications to enhance the consumer's 
right to revoke consent, and certain additional clarifications. The 
opt-in rule applies to all accounts covered by Regulation E, including 
payroll card accounts, to the extent overdraft fees may be imposed for 
ATM or one-time debit card transactions.
    Several commenters requested that the Board clarify the kinds of 
ATM transactions that are subject to the rule. The Board understands 
that consumers use ATMs not only for withdrawing cash, but also for 
inter-account transfers, bill payments, and even postage stamp 
purchases. Therefore, the Board believes the opt-in rule should apply 
to all transactions originating at an ATM, and not just withdrawals. 
Accordingly, the final rule has been revised, as applicable, to apply 
to ``ATM transactions'' more generally, in addition to one-time debit 
card transactions as proposed.'' See, e.g., Sec.  205.17(b)(1).
    The final rule does not apply to other types of transactions, 
including check transactions and recurring debits. As discussed above 
with respect to checks, the payment of overdrafts for these 
transactions may enable consumers to avoid other adverse consequences 
that could result if such items are returned unpaid, such as returned 
item fees charged by the merchant. Consumers may also be more likely to 
use checks, ACH and recurring debit card transactions to pay for 
significant household expenses, such as utilities and rent. In the 
Board's consumer testing, participants generally indicated that they 
were more likely to pay important bills using checks, ACH, and 
recurring debits, and to use debit cards on a one-time basis for their 
discretionary purchases.
    The opt-in requirement also does not apply to ACH transactions. For 
example, if the consumer provides his or her checking account number to 
authorize an ACH transfer on-line or by telephone, the institution 
would be permitted to pay the item if it overdraws the consumer's 
account and to assess a fee for doing so, even if the consumer has not 
opted into the payment of overdrafts for ATM or one-time debit card 
transactions. Like checks and recurring debits, consumers may use ACH 
transactions to pay for significant household expenses. The Board notes 
that in many cases, ACH transactions serve as a replacement for check 
transactions, such as where a check is converted to a one-time ACH 
debit to the consumer's account. In addition, consumers could avoid 
merchant returned item fees if ACH transactions are paid into 
overdraft.
    Several commenters requested that the Board explicitly exclude 
decoupled debit transactions from the scope of transactions covered by 
the final rule. Decoupled debit cards are debit cards offered by 
institutions other than the account-holding institution that consumers 
use as they would any other debit card. Transactions for these cards 
originate as debit card transactions paid by the card issuer, but are 
received and processed by the account-holding institution as ACH 
transactions. The final rule prohibits a financial institution that 
holds a consumer's account from assessing a fee for paying an ATM or 
one-time debit card transaction. Accordingly, overdraft fees charged by 
the account-holding financial institution for a decoupled debit 
transaction processed via ACH are not generally subject to the opt-in 
requirement of the final rule. For clarity, new comment 17(b)-1.i 
states that Sec.  205.17(b)(1) applies to ATM and one-time debit card 
transactions made with a debit card issued by or on behalf of the 
account-holding institution.\31\
---------------------------------------------------------------------------

    \31\ The Board understands that currently, issuers of decoupled 
debit cards do not assess consumers overdraft fees because they do 
not seek authorization from the account-holding institution and do 
not know the consumer's balance before paying the transaction.
---------------------------------------------------------------------------

    Industry commenters generally objected to the proposed rule's 
differentiation between one-time debit card transactions and recurring 
debit card transactions. These commenters stated that they currently do 
not have technology in place to distinguish between these types of 
transactions, and that such a change would be difficult and costly to 
implement. In addition, they stated that the proposed rule could lead 
to consumer confusion as to how transactions will be treated, because 
some consumers may pay their bills on a transaction-by-transaction 
basis using a debit card number each time a bill is due rather than 
establishing payment as a recurring debit.
    The Board recognizes that applying the opt-in rule to one-time 
debit card transactions will result in some bill payments being 
declined if the consumer does not opt-in, to the extent consumers pay 
bills on a transaction-by-transaction basis using a debit card number. 
Nonetheless, the Board

[[Page 59041]]

believes that the rule as adopted will address the majority of bill 
payments that consumers would prefer to have paid, because recurring 
debit card transactions are established primarily for bill payments, 
while one-time debit card transactions tend to be discretionary 
purchases. The Board also believes that this approach provides a 
bright-line approach that will facilitate compliance.
    Industry commenters also argued that, even if their systems could 
differentiate between one-time and recurring transactions, such 
differentiation cannot be done reliably because merchants may not 
correctly code transactions as one-time or recurring. The Board 
recognizes that institutions cannot fully implement a consumer's choice 
without proper coding of the transaction by the merchant. Thus, the 
Board is adopting a safe harbor in new comment 17(b)-1.ii to explain 
that a financial institution complies with the rule if it adapts its 
systems to identify debit card transactions as either one-time or 
recurring. If it does so, the financial institution may rely on the 
transaction's coding by merchants, other institutions, and other third 
parties as a one-time or recurring debit card transaction.
    Several industry commenters stated that the rule and model language 
should focus on the ``authorization'' of ATM and one-time debit card 
transactions, rather than ``payment'' of such transactions. The final 
rule generally retains the language regarding ``payment'' of ATM and 
one-time debit card transactions as proposed. While an institution 
decides whether or not to authorize an overdraft, fees are typically 
charged for the institution's payment of the transaction. Additionally, 
in some instances, transactions are not submitted for authorization 
before the transaction is presented for payment (for example, where a 
transaction is below the floor limits established by card network rules 
requiring authorization). As discussed below, the final rule does not 
provide an exception allowing overdraft fees to be charged for payment 
of a transaction that overdraws the consumer's account where 
authorization was not requested by the merchant or other party. 
Moreover, some transactions that are authorized into overdraft settle 
into good funds and do not result in overdraft fees.
    However, the final rule and commentary include the word 
``authorize'' where necessary for accuracy. For example, Sec.  
205.17(b)(4) provides an exception to financial institutions that have 
a policy and practice of declining to ``authorize and pay'' any ATM or 
one-time debit card transactions under certain conditions. In addition, 
as discussed below, the model form has been revised to include the term 
``authorization'' in certain places.
    Comment 17(b)-2, renumbered from proposed comment 17(b)-1, is 
adopted substantially as proposed to clarify that a financial 
institution may pay overdrafts for ATM and one-time debit card 
transactions even if a consumer has not affirmatively consented or 
opted in to the institution's overdraft service. However, if the 
consumer has not opted into the service, the financial institution is 
prohibited from assessing a fee or charge for paying the overdraft. The 
comment also clarifies that the rule does not limit the institution's 
ability to debit the consumer's account for the amount of the 
overdraft, provided that the institution is permitted to do so by 
applicable law.
    Some industry commenters expressed concern that consumers will 
believe that an opt-in creates a contractual right to payment of 
overdrafts. The Board adopts comment 17(b)-3, renumbered from proposed 
comment 17(b)-2, substantially as proposed, to clarify that Sec.  
205.17 does not require an institution to authorize or pay any 
overdrafts on an ATM or one-time debit card transaction even if a 
consumer affirmatively consents to the institution's overdraft service 
for such transactions. Additionally, as discussed below, the model form 
adopted by the Board contains language describing the discretionary 
nature of an opt-in.
    A few commenters recommended that the Board define ``overdraft 
fee'' to exclude fees assessed on accounts that maintain a negative 
balance for an extended period (often referred to as ``sustained'' 
overdraft fees). The Board believes, however, that any fee charged on 
an account for an overdraft should be subject to the rule, including 
but not limited to a per item, per occurrence, daily, sustained 
overdraft, or negative balance fee. A consumer who inadvertently 
overdraws his or her account may not learn about the overdraft until 
several days after the occurrence of the overdraft and so may 
unknowingly accrue additional fees. Therefore, the Board believes all 
overdraft fees should be within the scope of the rule.
    A few commenters suggested the possibility that financial 
institutions may create new fees for declining ATM or one-time debit 
card transactions. While the final rule does not address declined 
transaction fees, the Board notes that such fees could raise 
significant fairness issues under the FTC Act, because the institution 
bears little, if any, risk or cost to decline authorization of an ATM 
or one-time debit card transaction.
17(b)(1)(i) Notice Requirements
    Proposed Sec.  205.17(b)(1)(i) stated the institution must provide 
a consumer a notice explaining the institution's overdraft service for 
ATM withdrawals and one-time debit card transactions that is segregated 
from all other information, including other account disclosures. 
Proposed Sec.  205.17(b)(1)(i) also provided that the notice may not 
contain any information that is not specified or otherwise permitted by 
Sec.  205.17(d). For clarity, the final rule moves this portion of the 
requirement to Sec.  205.17(d).
    Some industry commenters argued that the notice does not need to be 
segregated from other account-opening disclosures, and urged the Board 
to provide institutions with flexibility concerning placement of the 
notice. Consumer group commenters supported the segregation 
requirement, arguing that segregation of the notice is essential to 
providing consumers a meaningful way to consent and thus to providing 
meaningful choice.
    To ensure that the consumer is able to make an informed choice when 
opting into overdraft services for ATM and one-time debit card 
transactions, and that the terms of the overdraft service are not 
obscured by other account information, the final rule retains a 
segregation requirement. In addition, as discussed below, the final 
rule requires that the method for providing consent, such as a 
signature line or check box, must be separate from other types of 
consents. These requirements are intended to ensure that opt-in 
information is not buried or obscured within other account documents 
and overlooked by the consumer. Otherwise, institutions could include 
information about the overdraft service in preprinted language in an 
account-opening disclosure, and a consumer might inadvertently consent 
to the institution's overdraft service by signing a signature card or 
other account-opening document on the cover page acknowledging 
acceptance of the account terms. The final rule also requires that 
notice be provided in writing, or if the consumer agrees, 
electronically.\32\
---------------------------------------------------------------------------

    \32\ Because the disclosures are not required to be in written 
form, electronic disclosures made under this section are not subject 
to compliance with the consumer consent and other applicable 
provisions of the Electronic Signatures in Global and National 
Commerce Act (15 U.S.C. 7001 et seq.), which only applies when 
information is required to be provided to a consumer in writing. The 
notice is, however, subject to Regulation E's general requirement 
that disclosures be clear and readily understandable and in a form 
the consumer may keep. See 12 CFR Sec.  205.4(a)(1).

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

[[Page 59042]]

    Several consumer advocates argued that, even with an opt-in, the 
Board should require subsequent notice of the right to opt in, and to 
revoke the opt-in, on consumers' periodic statements, similar to the 
proposed subsequent notice requirements with respect to the opt-out. 
The final rule does not require subsequent notices, as the Board 
believes such a requirement is unnecessary when the consumer has 
affirmatively elected to enroll in the overdraft service and, as 
discussed below, receives a record of their right to revoke their opt-
in.
17(b)(1)(ii) Reasonable Opportunity To Opt In
    Proposed Sec.  205.17(b)(1)(ii) stated that an institution must 
provide the consumer a reasonable opportunity to affirmatively consent 
to the institution's overdraft service for ATM withdrawals and one-time 
debit card transactions. Proposed comment 17(b)-3 contained three 
examples illustrating what constitutes a reasonable opportunity to 
affirmatively consent, including reasonable method(s) to provide 
affirmative consent. In addition, proposed comment 17(b)-4 provided 
guidance on obtaining a consumer's opt-in at account opening.
    Some industry commenters urged the Board to provide flexibility in 
how an opt-in could be provided, while consumer advocates and an 
association of state banking supervisors argued that consumers should 
be permitted a variety of methods to revoke an opt-in. Several industry 
commenters suggested that the methods for making and revoking a choice 
should be consistent. The final rule adopts Sec.  205.17(b)(1)(ii) 
substantially as proposed, but revises the related proposed commentary 
to provide further guidance on obtaining a consumer's affirmative 
consent. As discussed below, final Sec.  205.17(f) has been revised to 
address a consumer's ability to revoke consent.
    Final comment 17(b)-4, renumbered from 17(b)-3, has been revised to 
explain that a financial institution provides a consumer with a 
reasonable opportunity to provide affirmative consent when, among other 
things, it provides reasonable methods by which the consumer may 
affirmatively consent. The comment provides four examples of such 
reasonable methods.
    First, proposed comment 17(b)-3.i included providing a written form 
that the consumer can complete and mail. The comment, renumbered as 
comment 17(b)-4.i, is adopted as proposed.
    Proposed comment 17(b)-3.ii provided that an institution could also 
provide a toll-free telephone number that the consumer may call to 
provide affirmative consent. On the analogous proposed opt-out 
provision, the Board requested comment on whether the Board should 
require institutions to provide a toll-free telephone number. For cost 
and other reasons, industry commenters generally urged the Board not to 
require a toll-free telephone number in the opt-out context, while 
consumer advocates generally argued that a toll-free telephone number 
should be required.
    Throughout the Board's consumer testing, participants consistently 
stated they would prefer to make a telephone call to obtain information 
about their overdraft choices. Under an opt-out regime, requiring a 
toll-free number could help reduce barriers to consumers exercising 
their opt-out choice. Under an opt-in regime, however, institutions 
have an incentive to make it easy for consumers to opt in. Thus, the 
final commentary, renumbered as comment 17(b)-4.ii, provides offering a 
readily available telephone number as an example of a reasonable method 
for opting in, but does not require a toll-free telephone number.
    The Board's final rule also revises the proposed commentary on 
opting in on-line. Proposed 17(b)-3.iii illustrated that an institution 
may provide an electronic means for the consumer to affirmatively 
consent, such as a form that can be accessed and processed at an 
Internet Web site, provided that the institution directs the consumer 
to the specific Web site address where the form is located, rather than 
solely referring to the institution's home page. The final comment, as 
revised, does not include a requirement that institutions direct 
consumers to a specific Web site address because institutions have an 
incentive to facilitate consumer opt-ins. Rather, the focus of the 
comment is on the appropriate means of obtaining affirmative consent 
on-line. Therefore, the final comment, renumbered as comment 17(b)-
4.iii, provides, by way of example, that the institution could provide 
a form that can be accessed and processed at its Web site, where the 
consumer may click on a check box to provide consent and confirm that 
choice by clicking on a button affirming that consent.
    Because consumers often open accounts in person, the final rule 
includes a new example in comment 17(b)-4.iv, which provides that the 
institution could provide a form that the consumer can fill out and 
present in person at a branch or office to provide affirmative consent. 
See also comment 17(b)-5, discussed below.
    Proposed comment 17(b)-4 stated that an institution may provide an 
opt-in notice prior to or at account opening and require the consumer 
to decide whether to opt into the payment of ATM withdrawals or one-
time debit card transactions pursuant to the institution's overdraft 
service as a necessary step to opening an account. As an example, the 
proposed comment stated that institution could require the consumer 
prior to or at account-opening to choose between an account that does 
not permit the payment of ATM withdrawals or one-time debit card 
transactions pursuant to the institution's overdraft service and an 
account that permits the payment of such overdrafts.
    Industry commenters generally supported this proposed comment. Some 
consumer group commenters supported the proposed comment but expressed 
concern that institutions may attempt to steer consumers into the opt-
in account. For operational reasons, an institution may not want to set 
up an account for the consumer with overdraft services, only to have to 
implement the consumer's opt-in a short time later (if the consumer 
does not opt in concurrent with account-opening but decides to opt in 
shortly thereafter). Therefore, the Board adopts this comment generally 
as proposed, renumbered as comment 17(b)-5, but with an additional 
example to clarify that an institution is not required to implement a 
consumer's opt-in choice by establishing a second account, but could 
instead implement the consent at the account level (for example, 
through coding that indicates whether or not the consumer opts in).
    The institution could require the consumer, at account opening, to 
sign or check a box on a form (consistent with comment 17(b)-6, 
discussed below) indicating whether or not the consumer affirmatively 
consents at account opening. To facilitate consumer understanding, an 
institution may, but is not required, to provide a signature line or 
check box where the consumer can indicate that they decline to opt in. 
See Model Form A-9. Nonetheless, if the consumer does not check any box 
or provide a signature, the institution must assume that the consumer 
does not opt in. To address potential steering concerns, the Board has 
added guidance in the commentary, as discussed below.
17(b)(1)(iii) and (iv) Affirmative Consent; Written Confirmation
    Proposed Sec.  205.17(b)(1)(iii) stated that the financial 
institution must obtain the

[[Page 59043]]

consumer's affirmative consent to the institution's overdraft service, 
and must provide the consumer with written confirmation documenting the 
consumer's choice. For clarity, the final rule bifurcates these two 
requirements and incorporates the disclosure of the right to revoke 
consent into the written confirmation requirement. The final rule also 
adds commentary providing further guidance on obtaining affirmative 
consent and providing written confirmation.
    Section Sec.  205.17(b)(1)(iii) of the final rule requires the 
institution to obtain the consumer's affirmative consent, or opt-in, to 
the institution's payment of ATM or one-time debit card transactions 
pursuant to the institution's overdraft service. To address concerns 
that a consumer might inadvertently consent to an institution's 
overdraft service, new comment 17(b)-6 provides examples of ways in 
which a consumer's affirmative consent is or is not obtained. 
Specifically, comment 17(b)-6 clarifies that a financial institution 
does not obtain a consumer's affirmative consent by including 
preprinted language about the overdraft service in an account 
disclosure provided with a signature card or contract that the consumer 
must sign to open the account and that acknowledges the consumer's 
acceptance of the account terms. Nor does an institution obtain a 
consumer's affirmative consent by providing a signature card that 
contains a pre-selected check box indicating that the consumer is 
requesting the service. The Board is concerned that these methods of 
obtaining an opt-in may not reflect an informed, affirmative choice by 
the consumer. The institution could, however, provide a blank signature 
line or check box that the consumer could sign or select to indicate 
affirmative consent. Comment 17(b)-6 also states that such consents 
comply with the rule when they are obtained separately from other 
consents or acknowledgements; that is, the consent must be used solely 
to indicate the consumer's choice whether to opt into overdraft 
services, and not for other purposes such as to obtain consents for a 
financial institution's bill payment service.
    The final rule also requires that the institution provide the 
consumer with confirmation of the consumer's consent in writing, or if 
the consumer agrees, electronically. For clarity, the final rule 
includes this requirement as a new Sec.  205.17(b)(1)(iv). Industry 
commenters opposed the requirement that consumers receive written 
confirmation of their opt-in choice, stating that other protective 
mechanisms are already in place in the rule, and questioning the 
benefit of the written confirmation compared to the cost of providing 
the confirmation. Consumer advocates supported the requirement, stating 
that written confirmation is essential to the rule's effectiveness.
    The Board believes that written confirmation will help ensure that 
a consumer intended to opt into the overdraft service by providing the 
consumer with a written record of his or her choice. This is 
particularly important when a consumer opts in by telephone. New 
comment 17(b)(1)-7 permits an institution to comply with the 
requirement, for example, by providing a copy of a consumer's completed 
opt-in form or by sending a letter or other document to the consumer 
acknowledging that the consumer has elected to opt into the 
institution's service. The final rule permits the confirmation to be 
provided electronically, if the consumer agrees.
    Section 205.17(b)(1)(iv) also requires the written confirmation to 
include a statement informing the consumer of the right to revoke 
consent. To the extent an institution complies with Sec.  
205.17(b)(1)(iv) by providing a copy of the opt-in notice to the 
consumer, the institution may include a statement about the right to 
revoke in the opt-in notice. See also Sec.  205.17(d)(6).
17(b)(2) Conditioning Payment of Overdrafts on Consumer's Affirmative 
Consent
    Proposed Sec.  205.17(b)(2) contained two approaches to how an 
institution may offer the opt-in. Under one approach, an institution 
would be prohibited from conditioning the payment of any overdrafts for 
checks, ACH transactions, or other types of transactions on the 
consumer affirmatively consenting to the institution's payment of 
overdrafts for ATM withdrawals and one-time debit card transactions. 
The institution is also prohibited from declining to pay checks, ACH 
transactions, or other types of transactions because the consumer has 
not also affirmatively consented to the institution's overdraft service 
for ATM and one-time debit card transactions. Collectively, these 
practices are referred to as ``conditioning'' the consumer's opt-in.
    In light of the operational issues associated with a bifurcated 
opt-in, the alternative proposed approach would have expressly 
permitted institutions to condition the consumer's opt-in. The Board 
also sought comment on other approaches that might be more effective, 
or that would sufficiently balance concerns about consumers being 
effectively compelled to opt in against the operational difficulties of 
implementing the proposed prohibition. In the final rule, the Board 
adopts the first approach prohibiting conditioning the opt-in. In light 
of consumer preference to have their checks paid, the prohibition on 
conditioning is intended to ensure consumers have a meaningful opt-in 
choice regarding overdraft services for ATM and one-time debit card 
transactions.
    Consumer advocates and federal and state banking regulators 
supported a prohibition on conditioning the opt-in right, arguing that 
any kind of conditioning would compel consumers to opt in, because 
consumers prefer to have their check and ACH overdrafts paid.
    Industry commenters supported the approach that permitted 
conditioning of the opt-in right, for several reasons. First, these 
commenters argued that permitting conditioning would be easier for 
compliance and for consumer understanding. In addition, many commenters 
stated that processors do not currently have the technology to 
distinguish between paying overdrafts for some, but not all, payment 
channels, and that permitting conditioning would significantly mitigate 
technology and implementation costs. Specifically, industry commenters 
stated that most systems today could either pay overdrafts for all 
transaction types or pay overdrafts for none, but were not set up to 
pay overdrafts for certain transaction types (e.g., checks and ACH), 
but not others (e.g., ATM and POS debit card transactions). Some 
industry commenters also asserted that most systems today are unable to 
readily differentiate between POS debit card transactions and other 
types of debit card transactions, such as preauthorized transfers. Some 
commenters argued that implementation costs would lead some 
institutions, particularly community banks, to stop offering overdraft 
services altogether. However, other industry commenters stated that 
they could develop the technology with sufficient lead-time for 
mandatory compliance with the rule, for example, by providing an 
implementation period of 12 to 24 months.
    Although the Board acknowledges the operational concerns raised by 
industry commenters, the Board's consumer testing shows that many 
consumers would prefer that their account-holding financial institution 
cover overdrafts by check, ACH, or automatic bill pay. If conditioning 
were permitted, these consumers may feel compelled to opt into an 
institution's overdraft service for ATM and one-time debit card 
transactions in order to minimize the risk that checks and other 
important

[[Page 59044]]

bills would be returned unpaid. This could deprive consumers of a 
meaningful choice with respect to overdraft coverage for ATM and one-
time debit card transactions. Thus, the final rule prohibits 
conditioning the opt-in right.\33\
---------------------------------------------------------------------------

    \33\ Currently, some institutions offer customers an account 
feature whereby an institution, for a single monthly fee, may pay 
the consumer's overdrafts (at its discretion) without imposing an 
overdraft fee on a per item or per occurrence basis. An account with 
such a feature would be still subject to the restrictions of Sec.  
205.17(b)(2) and thus must provide consumers the choice to opt into 
the institution's payment of ATM and debit card overdrafts. The 
account would also be subject to the restrictions on variations in 
terms under Sec.  205.17(b)(3), discussed below.
---------------------------------------------------------------------------

    Similarly, as discussed in the proposal, institutions could also 
use discretion regarding the payment of overdrafts in such a manner as 
to prevent consumers from exercising a meaningful choice regarding 
overdraft services. Thus, comment 17(b)(2)-1 clarifies that the final 
rule generally requires an institution to apply the same criteria for 
deciding when to pay overdrafts for checks, ACH transactions, and other 
types of transactions, whether or not the consumer has affirmatively 
consented to the institution's overdraft service with respect to ATM 
and one-time debit card overdrafts. For example, if an institution's 
internal criteria would lead the institution to pay a check overdraft 
if the consumer had affirmatively consented to the institution's 
overdraft service for ATM and one-time debit card transactions, it must 
also apply the same criteria in a consistent manner in determining 
whether to pay the check overdraft if the consumer has not opted in.
    The Board recognizes that by prohibiting conditioning, many 
institutions will be required to reprogram systems to differentiate ATM 
and one-time debit card transactions from other transactions. 
Nonetheless, the Board believes that the consumer benefits provided by 
the prohibition on conditioning outweigh the associated costs. As 
discussed above, from a consumer's perspective, any benefits from 
overdrawing the consumer's account for ATM and one-time debit card 
transactions may be substantially outweighed by the costs associated 
with the overdraft.
    A few industry commenters suggested that the Board may not have the 
authority under Regulation E to prohibit institutions from declining 
checks or other items not subject the EFTA because the consumer has not 
also affirmatively consented to the institution's overdraft service. 
The Board disagrees. Comment 17(b)(2)-2 clarifies that the prohibition 
on conditioning does not require the institution to pay overdrafts on 
checks, ACH transactions, or other types of transactions in all 
circumstances. See also comment 17(b)-3. Rather, the provision simply 
prohibits institutions from circumventing the opt-in requirement of the 
final rule by prohibiting institutions from considering the consumer's 
decision not to opt in when deciding whether to pay overdrafts for 
checks, ACH, or other types of transactions. The Board believes the 
prohibition adopted under the final rule is necessary to preserve 
consumer choice with respect to ATM and one-time debit card 
transactions, and to prevent circumvention or evasion of the final 
rule. Accordingly, the prohibition on conditioning falls within the 
scope of the Board's authority under Sections 904(a) and 904(c) of the 
EFTA, as discussed in Part V above.
17(b)(3) Same Account Terms, Conditions and Features
    The Board proposed two alternatives under Sec.  205.17(b)(3) to 
address how financial institutions would be permitted to implement the 
consumer's opt-in. Under the first alternative, an institution would be 
required to provide consumers who do not affirmatively consent to the 
institution's overdraft service for ATM withdrawals and one-time debit 
card transactions an account with the same terms, conditions, and 
features that it provides to consumers who affirmatively consent, 
except for the features that limit the institution's payment of such 
overdrafts. Under the second alternative, an institution would be 
permitted to vary the terms, conditions, or features of the ``no opt-
in'' account only if the differences in the terms, conditions, or 
features are not so substantial as to effectively compel a reasonable 
consumer to affirmatively consent to the institution's payment of 
overdrafts on ATM withdrawals and one-time debit card transactions.
    Consumer advocates and federal officials supported the alternative 
requiring identical account terms, conditions, and features regardless 
of the consumer's opt-in choice. In addition to providing a clear 
standard for institutions to follow, these commenters argued that, if 
variations were allowed, it could be difficult to prohibit institutions 
from creating terms and conditions that would effectively compel 
consumers to opt in.
    Most industry commenters generally, but not uniformly, urged the 
Board to permit institutions to vary the terms, conditions, or features 
of the account, including pricing decisions. These commenters stated 
that institutions need flexibility in order to manage risk and to 
design products meeting the distinct needs of the customers who do not 
opt in. These commenters also maintained that pricing and features on 
an account are inextricably linked. Both consumer group commenters and 
industry commenters alike expressed concern that the ``reasonable 
consumer'' standard in the alternative permitting variations was too 
ambiguous.
    In the final rule, the Board adopts the first alternative 
prohibiting institutions from varying account terms, conditions, and 
features for consumers who do not opt in, substantially as proposed, 
and adds commentary to provide further guidance. The rule has been 
revised to clarify that the account terms, conditions and features must 
be the same, except for the overdraft service for ATM and one-time 
debit card transactions.\34\ The Board believes some institutions could 
otherwise effectively compel the consumer to provide affirmative 
consent to the institution's payment of overdrafts for ATM and one-time 
debit card transactions by providing consumers who do not opt in with 
less favorable terms, conditions, or features than consumers who do opt 
in. For example, an institution could provide an opt-in account with no 
monthly fee to consumers who opt in, but an account that assesses a 
monthly maintenance fee to consumers who do not opt in. Behavioral 
research suggests that consumers may choose the ``free'' opt-in 
account, even though the costs for overdrawing the account could end up 
being substantially higher than the monthly maintenance fee, because 
they may optimistically assume they will not overdraw the account and 
as a result, incur overdraft fees.\35\ In addition, consumers may 
prefer the possibility of paying an overdraft to the certainty of 
paying a monthly maintenance fee, even if the overdraft fee costs are 
higher than the monthly fee costs.
---------------------------------------------------------------------------

    \34\ The heading has been revised to ``Same Account Terms, 
Conditions, and Features'' to more accurately describe the final 
rule.
    \35\ This behavior is commonly referred to as ``hyperbolic 
discounting.'' See, e.g. Shane Frederick, et al., Time Discounting 
and Time Preference: A Critical Review, 40 J. Econ. Literature 351, 
366-67 (2002) (reviewing the literature on hyperbolic discounting).
---------------------------------------------------------------------------

    The proposed rule included fees and interest rates as examples of 
terms that could not be varied. However, because the rule is intended 
to be a broad prohibition, not limited to price differences, the Board 
is adding new comment 17(b)(3)-1 to provide a non-exclusive list of 
examples of terms, conditions, or features that cannot be

[[Page 59045]]

varied. These examples include fees and interest rates, minimum balance 
requirements, account features, such as on-line bill payment services, 
and the type of ATM or debit card provided to the account holder.
    Some industry commenters suggested that an appropriate variation in 
features might be to provide consumers who do not opt in with a card 
that has PIN-debit functionality but not signature-debit 
functionality.\36\ Nonetheless, PIN debit is available at far fewer 
merchant locations than signature debit.\37\ Consequently, if 
institutions were permitted to offer PIN-debit cards to consumers who 
do not opt in, consumers could feel compelled to choose the opt-in 
account in order to obtain a debit card with more functionality.
---------------------------------------------------------------------------

    \36\ With signature debit transactions, the merchant first 
obtains authorization, but may not submit the transaction for 
payment at a later time; thus, intervening transactions may cause 
the consumer to overdraw his or her account. PIN debit transactions 
are a part of a single message system with authorization and 
submission of the transaction occurring on a near-real-time basis, 
thus reducing the likelihood of overdrafts caused by intervening 
transactions.
    \37\ See, e.g., Fumiko Hayashi, Richard J. Sullivan, and Stuart 
E. Weiner, A Guide to the ATM and Debit Card Industry: 2006 Update, 
Federal Reserve Bank of Kansas City (2006) at 11.
---------------------------------------------------------------------------

    Section 205.17(b)(3) is not intended to interfere with state basic 
banking laws or other limited-feature bank accounts marketed to 
consumers who have historically had difficulty entering or remaining in 
the banking system. New comment 17(b)(3)-2 explains that Sec.  
205.17(b)(3) does not prohibit institutions from offering deposit 
account products with limited features, provided that the consumer is 
not required to open such an account because the consumer did not opt 
in. For example, institutions are not prohibited from offering a 
checking account designed to comply with state basic banking laws or 
designed for consumers who are not eligible for a full-service or other 
particular checking account because of their credit or other checking 
account history, which may include features limiting the payment of 
overdrafts. To the extent these more limited products permit the 
consumer to overdraft at ATMs or via a one-time debit card transaction, 
the consumer must be provided an opt-in under the final rule.\38\
---------------------------------------------------------------------------

    \38\ If these products do not permit overdrafts, the products 
are excluded from the requirements of Sec.  205.17(b)(1) by Sec.  
205.17(b)(4), discussed below.
---------------------------------------------------------------------------

    Nonetheless, institutions may not steer consumers who do not opt 
into an account with fewer features than the account for which the 
consumer initially applied. Comment 17(b)(3)-2 explains that a consumer 
who applies, and is otherwise eligible, for a particular deposit 
account product may not be provided an account with more limited 
features because the consumer has declined to opt in.
    As discussed in the proposal, some institutions may choose to 
implement a consumer's affirmative consent at the account level (for 
example, by setting up account coding that indicates whether or not the 
consumer has opted in). Other institutions, for operational reasons, 
may prefer to implement the consumer's choice via a back-room process 
by opening a different account for consumers who have not provided 
affirmative consent to the institution's overdraft service for ATM and 
one-time debit card transactions. The final rule permits both 
approaches.
17(b)(4) Exception to the Notice and Opt-In Requirements
    Proposed Sec.  205.17(b)(4) created an exception to the notice and 
opt-in requirement for institutions that have a policy and practice of 
declining to pay any ATM withdrawals or one-time debit card 
transactions for which authorization is requested, when the institution 
has a reasonable belief that the consumer's account does not have 
sufficient funds available to cover the transaction at the time of the 
authorization request. Both consumer group and industry commenters 
generally supported this proposed exception.
    Section 205.17(b)(4) is modified from the proposal for clarity. The 
final rule provides that the requirements of Sec.  205.17(b)(1) do not 
apply to institutions that have a policy and practice of declining to 
authorize and pay any ATM or one-time debit card transactions when the 
institution has a reasonable belief at the time of the authorization 
request that the consumer does not have sufficient funds available to 
cover the transaction.
    A few industry commenters suggested that the Board clarify that the 
exception should be applied at the account level, rather than at the 
institution level, in the event that only some of the institution's 
products or business lines qualify for the exception. Section 
205.17(b)(4) of the final rule provides that financial institutions may 
apply the exception on an account-by-account basis. New comment 
17(b)(4)-1 explains that if a financial institution has a policy and 
practice of declining to authorize and pay any ATM or one-time debit 
card transactions with respect to one type of deposit account offered 
by the institution, when the institution has a reasonable belief at the 
time of the authorization request that the consumer does not have 
sufficient funds available to cover the transaction, that account is 
not subject to Sec.  205.17(b)(1), even if other accounts that the 
institution offers are subject to the rule. For example, if the 
institution offers three types of checking accounts, and the 
institution has such a policy and practice with respect to only one of 
the three types of accounts, that one type of account is not subject to 
the notice requirement. However, the other two types of accounts 
offered by the institution remain subject to the notice requirement.
17(b)(5) Exceptions to the Fee Prohibition
    In some circumstances, an institution may be unable to avoid paying 
a transaction that overdraws a consumer's account. This can occur, for 
example, when a debit card transaction is authorized, but intervening 
transactions reduce the funds in the checking account before the debit 
card transaction clears. Under network rules, the institution is 
required to pay the transaction.
    The Board proposed two limited exceptions to the fee prohibition 
under Sec.  205.17(b)(5) to allow institutions to assess a fee or 
charge for paying an ATM or debit card overdraft even if the consumer 
has not affirmatively consented to the overdraft service. Under the 
first exception, an institution would be permitted to assess an 
overdraft fee or charge, notwithstanding the absence of the consumer's 
affirmative consent, if the institution has a reasonable belief that 
there are sufficient funds available in the consumer's account at the 
time it authorizes an ATM or one-time debit card transaction. Under the 
second exception, an institution would be permitted to assess an 
overdraft fee or charge, notwithstanding the absence of the consumer's 
affirmative consent, where a merchant or payee presents a debit card 
transaction for payment by paper-based means, rather than 
electronically using a card terminal, and the institution has not 
previously authorized the transaction. Proposed comments 17(b)(5)-1 
through -3 contained examples illustrating the proposed exceptions for 
the opt-in approach.
    Consumer group commenters stated that the Board should not provide 
any exceptions to the prohibition on fees, even if overdrafts are 
inadvertently paid due to delays in transaction processing and 
settlement, notwithstanding the consumer's declining to opt in. They 
argued that consumers who do not opt

[[Page 59046]]

in expect that they will not be charged overdraft fees for ATM or one-
time debit card transactions. Instead, these commenters contended that 
institutions, card processors, and merchants should resolve operational 
issues among themselves. Industry commenters, on the contrary, 
supported the proposed exceptions. Many industry commenters urged the 
Board to provide additional exceptions for transactions not submitted 
for authorization at the time of the transaction, such as for 
transactions that are not submitted because they are below the floor 
limits established by card network rules requiring authorization. These 
commenters argued that systems currently do not identify whether 
authorization was previously sought for a particular transaction. Some 
of these commenters suggested that consumers could be adequately 
protected through disclosures at the merchant stating that transactions 
are not submitted for authorization below a particular dollar amount. 
Many industry commenters also urged the Board to broaden the rule to 
permit fees to be assessed if an overdraft was paid when the 
institution used a stand-in processor to authorize the transaction, 
because the card network was temporarily off-line.
    The final rule does not adopt the proposed exceptions to the 
prohibition on fees. The Board believes that consumers who make the 
choice not to opt in may reasonably expect an ATM or one-time debit 
card transaction to be declined if there are insufficient funds in 
their account, and that they will not be charged overdraft fees. 
Adopting exceptions to the prohibition on fees would undermine the 
consumer's ability to understand the institution's overdraft practices 
and make an informed choice.
    The Board recognizes that financial institutions and consumers have 
imperfect information as to the balance in the account at the time of 
the transaction. Financial institutions face operational limitations in 
processing transactions, and in tracking the consumer's actual balance, 
because transactions may not be processed in real-time. Similarly, even 
if a consumer checked his or her balance prior to a transaction, the 
balance may not be updated, so the consumer may inadvertently overdraw 
his or her account on the belief funds are available. On balance, the 
Board believes financial institutions are in a better position to 
mitigate the information gap by developing improved processing and 
updating systems, as they have in recent years, and as the Board 
expects they will continue to do over time.
    The rule does not, however, prohibit financial institutions from 
paying overdrafts for ATM and one-time debit card transactions even if 
a consumer has not affirmatively consented or opted in to the 
institution's overdraft service, so long as a fee is not imposed. For 
example, under network rules, financial institutions must pay 
authorized debit card transactions, even if at settlement intervening 
transactions by the consumer have reduced the consumer's available 
balance below the authorized amount of the transaction. To address any 
safety and soundness concerns, and as discussed above, institutions may 
debit the consumer's account for the amount of the overdraft, provided 
that the institution is permitted to do so by applicable law. See 
comment 17(b)-2.
C. Timing--Sec.  205.17(c)
    Proposed Sec.  205.17(c) would generally require that a financial 
institution provide an opt-in notice to the consumer about the 
institution's overdraft service before the institution assessed any fee 
or charge on the consumer's account for paying an ATM withdrawal or 
one-time debit card transaction pursuant to the institution's overdraft 
service. However, once a consumer has opted in, financial institutions 
would not be required to provide a notice regarding the institution's 
overdraft service following the assessment of any overdraft fees or 
charges to the consumer's account. The proposed provision would apply 
differently depending on when the account is opened. For new accounts 
opened on or after the effective date of the final rule, the opt-in 
notice would have to be provided (and consent obtained) prior to the 
assessment of any fee or charge on the consumer's account for paying an 
ATM withdrawal or one-time debit card transaction pursuant to the 
institution's overdraft service. For existing accounts, the proposed 
rule would permit institutions to either provide an opt-in notice to 
all of its account holders on or with the first periodic statement sent 
after the effective date of the final rule, or following the first 
assessment of an overdraft fee or charge to the consumer's account on 
or after the effective date of the final rule. Further, under proposed 
Sec.  205.17(g), if an existing account holder had not affirmatively 
consented to the service within 60 days after the institution sent the 
opt-in notice, the institution would have to cease assessing any fees 
or charges on the consumer's account for paying such overdrafts, unless 
permitted by one of the exceptions in proposed Sec.  205.17(b)(5).
    Most comments focused on whether existing account holders should be 
subject to the opt-in rule, or should be subject to a separate opt-out 
rule. These comments, and the Board's decision to provide an opt-in 
right, are discussed above.
    The final rule provides an opt-in right for new and existing 
accounts, but modified from the proposal. As discussed below, the final 
rule sets an effective date of January 19, 2010, with a mandatory 
compliance date of July 1, 2010. The proposed timing provisions of the 
rule have been consolidated for clarity into final Sec.  205.17(c)(1) 
with respect to existing account holders, and final Sec.  205.17(c)(2) 
with respect to new account holders.
    For accounts opened prior to July 1, 2010, final Sec.  205.17(c)(1) 
states that the financial institution must not assess any fees or 
charges on a consumer's account on or after August 15, 2010 for paying 
an ATM or one-time debit card transaction pursuant to the overdraft 
service, unless the institution has complied with Sec.  205.17(b)(1) 
and obtained the consumer's affirmative consent. For accounts opened on 
or after July 1, 2010, Sec.  205.17(c)(2) states that the financial 
institution must comply with Sec.  205.17(b)(1) and obtain the 
consumer's affirmative consent before the institution assesses any fee 
or charge on the consumer's account for paying an ATM or one-time debit 
card transaction pursuant to the institution's overdraft service.
    Consumer group commenters objected to the proposed rule permitting 
the opt-in notice for existing account holders following the first 
assessment of an overdraft fee on or after the effective date, because 
it would effectively allow institutions to collect one overdraft fee 
notwithstanding the consumer's preference. The final rule addresses 
this concern by providing a specific date after which overdraft fees 
may no longer be charged.
    As revised, the final rule will result in consistent treatment of 
all existing account holders. Otherwise, some consumers might not 
receive an opt-in notice until a later date, and thus might not be 
provided an opportunity to make a choice regarding the institution's 
overdraft service, until some period of time after other consumers 
receive the notice. Including a specific date after which fees may no 
longer be charged provides a bright-line rule that is beneficial to 
consumers and facilitates ease of compliance by institutions, rather 
than requiring institutions to track when notices have been mailed or

[[Page 59047]]

delivered, and consents received, on a staggered basis.
    The Board believes that establishing an August 15, 2010 date after 
which existing account holders may no longer be charged overdraft fees 
without consent is appropriate, as it provides those consumers adequate 
time to research available options, and, for example, apply for an 
overdraft line of credit or establish a savings account to which their 
checking account could be linked. Of course, if an existing account 
holder contacts his or her financial institution in response to the 
opt-in notice before August 15, 2010 to express a desire not to opt in, 
the Board expects that the institution would honor the consumer's 
choice at that time.
    Industry commenters suggested that the proposed timing provisions 
be revised to permit financial institutions to obtain opt-ins prior to 
the effective date, and apart from (rather than on or with) the 
periodic statement. Comment 17(c)-1 explains that financial 
institutions may provide the notice and obtain the consumer's 
affirmative consent prior to the mandatory compliance date, provided 
that the financial institution complies with all of the requirements of 
this section, including the prohibitions on conditioning the opt-in and 
on varying account terms. However, notice for existing accounts is not 
required where, prior to the effective date, an institution had offered 
customers an opt-in, and a customer had not affirmatively consented to 
the service.
    For either new or existing account holders, the final rules do not 
permit institutions to retroactively apply affirmative consents to 
overdrafts that are paid before the consent is provided. For example, 
if a consumer overdraws his or her account, the rule does not permit an 
institution to obtain the consumer's affirmative consent one week later 
and apply that consent to the prior overdraft. To clarify the 
application of the timing rules, new comment 17(c)-2 states that fees 
or charges for ATM and one-time debit card overdrafts may be assessed 
only for overdrafts paid by the institution on or after the date the 
financial institution receives the consumer's affirmative consent to 
the institution's overdraft service.
D. Content and Format--Sec.  205.17(d)
    Proposed Sec.  205.17(d) set forth content requirements for the 
notice that must be provided to the consumer before the consumer may 
affirmatively consent to the institution's overdraft service. In 
addition, proposed Sec.  205.17(d) would require that the opt-in notice 
be in a form substantially similar to Model Form A-9 in Appendix A. The 
Board requested comment regarding whether the rule should permit or 
require any other information to be included in the opt-in notice.
    Consumer advocates generally supported the proposed content and 
model opt-in form, but suggested the Board revise the form to include 
additional cost information. Industry commenters provided a variety of 
suggestions that, in their view, would clarify or improve the model 
disclosure. In particular, commenters suggested that the form be 
revised to be shorter and clearer. In other cases, however, commenters 
suggested various additions to the model form to provide more 
information regarding an institution's overdraft policies and 
practices, such as language regarding the exceptions permitting fees to 
be charged in some circumstances without a consumer's opt-in.
    The Board is adopting Sec.  205.17(d), but with modified content 
and format requirements based on the comments received, consumer 
testing, and the Board's further consideration. Under the final rule, 
the opt-in notice required by Sec.  205.17(b)(1)(i) may not contain any 
information that is not specified or otherwise permitted by Sec.  
205.17(d) and must be in a form substantially similar to Model Form A-
9.\39\ The final rule also substantially revises Model Form A-9. 
Overall, the final model form was edited to make it shorter and clearer 
to consumers, including by emphasizing certain information critical to 
understanding the overdraft service.
---------------------------------------------------------------------------

    \39\ Institutions may provide other information about their 
overdraft services and other overdraft protection plans in a 
separate document.
---------------------------------------------------------------------------

    Proposed Sec.  205.17(d)(1) stated that the institution must 
provide a general description of the financial institution's overdraft 
services and the types of EFTs for which an overdraft fee may be 
imposed, including ATM withdrawals and one-time debit card 
transactions. Consumer testing participants generally were not aware 
that financial institutions provide overdraft services, and many did 
not understand that overdraft services could be provided automatically 
with an account. Others confused overdraft services with other 
overdraft alternatives provided by their institution, such as a link to 
a savings account or an overdraft line of credit. The Board tested a 
number of ways to address this misconception in the model form, and 
found that consumers best understood the concept of overdraft services 
as distinct from other forms of overdraft coverage when it was framed 
as an institution's ``standard overdraft practices.'' Testing also 
indicated that placing the discussion of applicable alternatives in the 
introductory paragraph helped improve participants' comprehension.
    Proposed comment 17(d)-2 permitted a financial institution to 
include language describing other types of transactions not subject to 
the opt-in right, or subject to a separate opt-out right. In the final 
rule, the Board is revising Sec.  205.17(d)(1) to require a brief 
description of the institution's overdraft service and the types of 
transactions for which a fee or charge for paying an overdraft may be 
imposed. The language in proposed comment 17(d)-2 has been revised and 
adopted in comment 17(d)-1 as an illustration of the application of 
Sec.  205.17(d)(1).
    Because the final rule prohibits conditioning pursuant to Sec.  
205.17(b)(2), the Board believes that consumers should be informed that 
different transaction types will be treated differently so they can 
make an informed choice about whether or not to opt into an 
institution's overdraft service for ATM and one-time debit card 
transactions. Consumer testing showed consumers need to understand how 
checks and other transactions will be treated to make such a choice.
    Proposed comment 17(d)-2 also permitted an institution to indicate 
that it pays overdrafts at its discretion, and to briefly describe the 
benefits of the institution's payment of overdrafts on ATM or one-time 
debit card transactions. Some commenters suggested that the Board 
provide model language to describe the consequences of declining to opt 
in. Similarly, some commenters expressed concern that the form as 
proposed implied that by consenting to the institution's overdraft 
service, the consumer's overdrafts would be covered in all cases. Upon 
further consideration, the Board believes that these elements of an 
institution's policy are already encompassed by the requirement in 
Sec.  205.17(d)(1) to disclose a general description of the 
institution's overdraft services. Thus, as described above, final 
comment 17(d)-1 illustrates the application of Sec.  205.17(d)(1). 
Additional optional language that may be included in the model form has 
been adopted in new Sec.  205.17(d)(6).
    Industry commenters also contended that the form should contain 
language stating that overdrafts may be paid regardless of the 
consumer's opt-in decision, due to technical requirements and under the 
exceptions proposed under Sec.  205.17(b)(5). Commenters provided 
various suggestions for how to

[[Page 59048]]

convey information about the exceptions to consumers. Because the final 
rule does not adopt the proposed exceptions, adding this language is 
not necessary.
    Proposed Sec.  205.17(d)(2) stated that the initial notice must 
include information about the dollar amount of any fees or charges 
assessed on the consumer's account for paying an ATM withdrawal or a 
one-time debit card transaction pursuant to the institution's overdraft 
service. Some institutions may vary the fee amount that may be imposed 
based upon the number of times the consumer has overdrawn his or her 
account, the amount of the overdraft, or other factors. Under these 
circumstances, the proposed rule would have required the institution to 
disclose the maximum fee that may be imposed or a range of fees. The 
Board is adopting Sec.  205.17(d)(2) generally as proposed, but is 
removing the reference to the range of fees. Institutions that waive 
the first fee could include a range from $0 to their maximum fee, which 
could lead consumers to believe that they may overdraw their account 
free of charge more than once. To address tiered overdraft fees, 
comment 17(d)-2, as adopted, provides that the institution may indicate 
that the consumer may be assessed a fee ``up to'' the maximum fee. In 
addition, to ensure that consumers understand the full array of fees 
that may be charged, the comment explains that the financial 
institution must also disclose all applicable overdraft fees, including 
but not limited to per item or per transaction fees, daily fees, 
sustained overdraft, and negative balance fees. Comment 17(d)-2.ii 
provides an example illustrating a sustained overdraft fee. The comment 
is intended to illustrate that all types of fees for paying an 
overdraft must be disclosed, regardless of how the fee is labeled by 
the institution.
    Some consumer group commenters recommended that the fees section be 
moved up on the notice. However, participants in consumer testing 
generally identified the dollar amount of fees, even when located near 
the bottom of the notice. To ensure that consumers view the fees 
attributable to use of the overdraft service, regardless of the 
placement of that section in the notice, final Model Form A-9 displays 
the dollar amount of the fees in bold font.
    Proposed Sec.  205.17(d)(3) stated that institutions must disclose 
any daily limits on the amount of overdraft fees or charges that may be 
assessed. If the institution does not limit the amount of fees that can 
be imposed, it would have to disclose this fact. The Board adopts the 
rule, as modified, to require disclosure of any daily limits on the 
number of overdraft fees or charges (or, that there are no limits). 
Because some overdraft charges may be assessed as a percentage, the 
total dollar limit may be difficult to calculate with any certainty. 
The Board believes the same purpose is achieved by specifying the 
number limits.
    Some consumer group commenters suggested requiring the disclosure 
of minimum overdraft amounts that could trigger fees to alert consumers 
that they will be charged overdraft fees even on small dollar 
transactions. However, consumer testing demonstrated that consumers 
understood this concept without a specific statement to this effect. 
Therefore, this additional language is not required or included in 
Model Form A-9.
    Section 205.17(d)(4), which is adopted generally as proposed, 
requires institutions to inform consumers of the right to affirmatively 
consent to the institution's payment of overdrafts for ATM and one-time 
debit card transactions, including the method(s) that the consumer may 
use to consent to the service.
    Proposed Sec.  205.17(d)(5) provided that institutions must state 
whether they offer any alternatives for the payment of overdrafts. 
Specifically, if an institution offered an overdraft line of credit or 
a service that transfers funds from another account of the consumer 
held at the institution to cover the overdraft (including an account 
held jointly with another consumer), the institution would have to 
state that fact, and how to obtain more information. Under the 
proposal, institutions were permitted, but not required, to list any 
additional alternatives they may offer to overdraft services. This 
provision incorporated a recommendation from the February 2005 Joint 
Guidance that institutions should inform consumers generally of other 
overdraft services and credit products, if any, that are available when 
describing their overdraft service.\40\ The Board adopts Sec.  
205.17(d)(5) substantially as proposed.
---------------------------------------------------------------------------

    \40\ See 70 FR at 9131.
---------------------------------------------------------------------------

    Participants in consumer testing generally understood that they 
would have to qualify for an overdraft line of credit, without a 
reference in the notice to any qualification requirements as urged by 
some industry commenters. In addition, participants generally 
understood that they could contact the bank through the methods listed 
at the bottom of the model form without any reference to how to obtain 
more information beyond a statement at the top of the form that the 
consumer should ask about the alternatives. Thus, in an effort to 
eliminate unnecessary language in the model form, final Sec.  
205.17(d)(5) and Model Form A-9 delete the proposed language in the 
notice requiring the bank to specify how consumers can obtain more 
information about any alternatives to overdraft services.
    Some consumer group commenters argued that the Board should revise 
Model Form A-9 to state that these alternatives ``are less costly'' 
than an overdraft service. Depending on the financial institution's 
current and future practices, the amount of time a consumer is 
overdrawn, and other factors, however, it may not be accurate to say 
that these alternatives are less expensive than overdraft coverage in 
all cases. Thus, the final model form includes a statement that 
overdraft alternatives ``may be less expensive'' than an institution's 
standard overdraft practices.
    Consumer group commenters also suggested amending the model form to 
include additional information about the costs of alternatives to the 
overdraft service, including a chart containing costs and sample 
effective APRs associated with charges, based on the average amount 
overdrawn and different payoff times. Including such a chart in the 
opt-in form would make the form lengthy, could confuse consumers, and 
could undermine the purpose of the form, which is to provide consumers 
with a choice about opting into the institution's overdraft service in 
a clear and readily understandable way. While some participants in 
consumer testing stated that having more information in the form about 
the alternatives would be helpful, others stated they would prefer to 
call for more information. The Board also believes that requiring 
disclosure of costs expressed in dollars is a more effective means of 
alerting consumers to the costs of the overdraft service. Consumer 
testing in the credit card context demonstrated that costs expressed in 
dollars were better understood and more meaningful than costs expressed 
as an effective APR.
    New Sec.  205.17(d)(6) provides that a financial institution may 
include language in the notice describing other types of transactions 
that are not subject to the opt-in right, or are subject to a separate 
opt-in or opt-out right. For example, the institution may indicate that 
the consumer has the right to opt out of payment of overdrafts for 
check transactions, ACH transactions, or automatic bill payments, and 
if so, may disclose the returned item fee and that additional merchant 
fees may apply. The notice may provide a means for the

[[Page 59049]]

consumer to exercise this choice. An institution may also disclose the 
consumer's right to revoke consent. The rule also clarifies that for 
existing accounts, the institution may revise the statement describing 
the institution's overdraft service with respect to ATM and one-time 
debit card transactions to state that ``After August 15, 2010, we will 
not authorize and pay overdrafts for the following types of 
transactions unless you ask us to (see below).'' However, the rule 
states that the additional content may not be more prominent than any 
required language under Sec.  205.17(d)(1). Consumer testing indicated 
that emphasizing certain language as shown in Model Form A-9 
substantially enhanced consumer understanding, and the Board is 
concerned that any additional information provided not diminish that 
understanding.
E. Additional Provisions Addressing Consumer Opt-In Right--Sec.  
205.17(e)-(g)
    Joint accounts. Proposed Sec.  205.17(e) provided that a financial 
institution must treat affirmative consent provided by any joint 
consumer of an account as affirmative consent for the account from all 
of the joint consumers. Commenters generally supported the proposal. 
The Board is adopting Sec.  205.17(e) substantially as proposed, with 
an additional clarification that the financial institution must also 
treat a revocation of affirmative consent by any of the joint consumers 
as revocation of consent for that account.
    The final rule is adopted in recognition that it may not be 
operationally feasible for an institution to determine which account 
holder is responsible for a particular transaction and then make an 
authorization decision based on whether the consumer has affirmatively 
consented to the institution's overdraft service. Thus, for practical 
reasons, if one joint consumer opts in to the institution's overdraft 
service, the institution must treat the consent as applying to all 
overdrafts involving an ATM or debit card transaction for that account. 
Likewise, the Board believes the same principles should apply to 
revocation of the consent and revises Sec.  205.17(e) accordingly.
    Continuing right to opt-in or to revoke the opt-in. Proposed Sec.  
205.17(f) provided that a consumer may affirmatively consent to a 
financial institution's overdraft service at any time in the manner 
described in the opt-in notice. This provision would allow consumers to 
decide later in the account relationship that they wish to have 
overdrafts paid for ATM withdrawals and one-time debit card 
transactions.
    Section 205.17(f) is adopted generally as proposed, but with 
certain additions to address the consumer's right to revoke his or her 
consent. Just as a consumer must be provided a reasonable opportunity 
to opt in, the consumer should be provided the same reasonable 
opportunity to revoke the opt-in. Thus, the final rule requires 
financial institutions to permit the consumer to revoke his or her 
consent at any time in the manner made available to consumers for 
providing consent. The final rule also states that the financial 
institution must implement the consumer's revocation of consent as soon 
as reasonably practicable after receiving the request.
    The Board is not prescribing a specific period of time within which 
the creditor must honor the consumer's revocation request because the 
appropriate time period may depend on a number of variables, including 
the method used by the consumer to communicate the revocation request 
(for example, in writing or orally) and the channel by which the 
request is received (for example, if a consumer sends a written request 
to an address specifically designated to receive consumer opt-in and 
revocation requests).
    The final rule also adds a new comment 17(f)-1 to clarify that 
revocation does not require the financial institution to waive or 
reverse any overdraft fees assessed on the consumer's account prior to 
the institution's implementation of the consumer's revocation request.
    Duration and revocation of opt-in. Proposed Sec.  205.17(h) 
provided that a consumer's affirmative consent to the institution's 
overdraft service is generally effective until revoked by the consumer. 
The rule also provided that an institution may also terminate the 
consumer's access to the overdraft service for any reason, for example, 
if the institution determines that there is excessive usage of the 
service by the consumer. Final Sec.  205.17(g), renumbered from the 
proposal, is adopted as proposed.
    Real-time opt-in. Although not addressed in the Board's proposal, 
some industry commenters urged the Board to allow institutions to offer 
the consumer the ability to opt into the institution's overdraft 
service on a transaction-by-transaction basis, if a transaction-level 
opt-in becomes technologically feasible (a ``real-time'' opt-in). 
Consumer group commenters urged the Board to require institutions to 
provide real-time disclosure and opt-in for ATM and debit card 
transactions.
    Real-time opt-ins offer potential benefits and drawbacks to 
consumers. A real-time opt-in may provide relief to consumers who may 
need access to funds in an emergency when they have no alternative 
forms of payments available and where technology makes a real-time opt-
in feasible. However, consumers who make decisions in real-time may not 
be provided all essential information necessary to make informed 
decisions about whether to incur a fee by proceeding with a transaction 
that overdraws their accounts.
    The Board does not believe that it is technologically feasible to 
provide real-time opt-ins at many locations at this time, particularly 
at non-proprietary ATMs and merchant POS terminals. Thus, the Board is 
not addressing real-time notices in the final rule. The Board will 
continue to monitor developments in real-time notice capability and 
assess whether such notice would enhance consumer protection.

Section 205.19 Debit Holds

Debit Holds
    The Board proposed to prohibit institutions from assessing an 
overdraft fee where the overdraft would not have occurred but for a 
debit hold placed on funds in an amount that exceeds the actual 
transaction amount and where the merchant could determine the actual 
transaction amount within a short period of time after authorization of 
the transaction (for example, fuel purchases at a gas station). The 
prohibition would not have applied if the institution adopted 
procedures designed to release the hold within a reasonable period of 
time.
    Consumer group commenters supported the Board's proposal to address 
debit holds, although some consumer group commenters objected to the 
proposed safe harbor as inappropriately permitting overdraft fees to be 
charged. Industry commenters raised a number of concerns about the 
operational feasibility of implementing the revised proposal. In 
addition, industry commenters stated that the revised rule would be 
unworkable unless the Board addressed how merchants and payment 
processors submit and process payments. While these commenters 
supported a safe harbor, they argued that the proposed safe harbor was 
too vague and that smaller institutions, which are more likely to 
batch-process transactions outside the safe harbor window, would be 
disproportionately impacted.
    The Board is persuaded that addressing overdrafts caused by debit 
holds raises significant operational

[[Page 59050]]

issues and that a solution may require the participation of various 
parties, including merchants, payment processors, and card networks, as 
well as financial institutions. The final rule does not include the 
provision on debit holds. The Board will continue to monitor 
developments with respect to debit holds and assess whether to take 
further action.
Other Consumer Protections for Overdraft Services
    Some consumer advocates raised additional concerns related to 
overdrafts not addressed in the Board's proposal. The Board recognizes 
that additional consumer protections may be appropriate with respect to 
overdraft services, for example, rules to address transaction posting 
order. Therefore, the Board is continuing to assess whether additional 
regulatory action relating to overdraft services is needed.

Effective Date

    The Board solicited comment on an appropriate implementation period 
for the proposed rule. Consumer group commenters, members of Congress, 
an association of state banking regulators urged the Board to adopt an 
implementation period ranging from 60 days to 12 months, in light of 
the harms posed to consumers by overdraft fees. Industry commenters, 
citing required technology upgrades and personnel training, as well as 
the burdens of implementing other recent and ongoing regulatory 
requirements, urged the Board to provide an implementation period of 12 
to 24 months.
    The final rule sets an effective date of January 19, 2010, with a 
mandatory compliance date of July 1, 2010. As noted above, for accounts 
opened prior to July 1, 2010, the financial institution may not assess 
any fees or charges on a consumer's account on or after August 15, 2010 
for paying an ATM or one-time debit card transaction pursuant to the 
overdraft service, unless the institution has complied with Sec.  
205.17(b)(1) and obtains the consumer's affirmative consent. For 
accounts opened on or after July 1, 2010, the financial institution 
must comply with Sec.  205.17(b)(1) and obtain the consumer's 
affirmative consent before the institution assesses any fee or charge 
on the consumer's account for paying an ATM or one-time debit card 
transaction pursuant to the institution's overdraft service. The Board 
believes that this time frame best balances the significant consumer 
protection interests addressed by this rule against industry's need to 
make systems changes to comply with the final rule. Smaller 
institutions in particular need time to come into compliance because 
they have fewer resources to devote to the substantial systems changes 
required by the final rule. Without sufficient time to implement the 
substantive requirements of the final rule, institutions may cease 
offering overdraft services for all transaction types, including the 
check transactions that consumers have indicated they would prefer to 
be paid.

VII. Final Regulatory Flexibility Analysis

    In accordance with Section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 601 et seq.) (RFA), the Board is publishing a final 
regulatory flexibility analysis for the final amendments to Regulation 
E. The RFA requires an agency either to provide a final regulatory 
flexibility analysis with a final rule or certify that the final rule 
will not have a significant economic impact on a substantial number of 
small entities. An entity is considered ``small'' if it has $175 
million or less in assets for banks and other depository 
institutions.\41\
---------------------------------------------------------------------------

    \41\ U.S. Small Business Association, Table of Small Business 
Size Standards Matched to North American Industry Classification 
System Codes, available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.
---------------------------------------------------------------------------

    The Board stated in the January 2009 proposal its belief that the 
proposal was likely to have a significant economic impact on a 
substantial number of small entities. Based on comments received, the 
Board's own analysis, and for the reasons stated below, the Board 
believes that the final rule will have a significant economic impact on 
a substantial number of small entities.
    1. Statement of the need for, and objectives of, the proposed rule. 
The Board is adopting revisions to Regulation E to prohibit financial 
institutions that hold a consumer's account from assessing a fee or 
charge for paying ATM and one-time debit card transactions pursuant to 
the institution's overdraft service, unless the consumer affirmatively 
consents to the service for such transactions. The reasoning for the 
rule is set forth in the SUPPLEMENTARY INFORMATION above.
    The EFTA was enacted to provide a basic framework establishing the 
rights, liabilities, and responsibilities of participants in electronic 
fund transfer systems. The primary objective of the EFTA is the 
provision of individual consumer rights. 15 U.S.C. 1693. The EFTA 
authorizes the Board to prescribe regulations to carry out the purpose 
and provisions of the statute. 15 U.S.C. 1693b(a). The Act expressly 
states that the Board's regulations may contain ``such classifications, 
differentiations, or other provisions, * * * as, in the judgment of the 
Board, are necessary or proper to effectuate the purposes of [the Act], 
to prevent circumvention or evasion [of the Act], or to facilitate 
compliance [with the Act].'' 15 U.S.C. 1693b(c).
    The Board believes that the revisions to Regulation E discussed 
above are within Congress's broad grant of authority to the Board to 
adopt provisions that carry out the purposes of the statute. These 
revisions facilitate a consumer's ability to avoid overdrawing his or 
her account in connection with an electronic fund transfer requested by 
the consumer.
    2. Summary of issues raised by comments in response to the initial 
regulatory flexibility analysis. The Board reviewed comments submitted 
by various entities in order to ascertain the economic impact of the 
proposals on small entities. Many industry commenters expressed general 
concern about the compliance burden of the proposed amendments on 
institutions offering overdraft services, including small entities. 
They expressed concern that the proposals, if adopted, would be costly 
to implement, would not provide institutions sufficient flexibility, 
and could result in higher prices for consumers. Many of the issues 
raised by commenters do not apply uniquely to small entities and are 
addressed in Part VI. Section-by-Section Analysis regarding specific 
provisions. One commenter representing community banks stated that the 
rule could be sufficiently burdensome on small institutions that they 
may cease to offer overdraft services entirely, which could impact 
their competitiveness with respect to larger institutions that may be 
able to implement the rule more quickly.
    3. Description of small entities affected by the final rule. As of 
June 30, 2009, there were 11,598 depository institutions with assets of 
$175 million or less. The final rule would affect those institutions 
that permit overdrafts at an ATM or via a one-time debit card 
transaction. According to the FDIC Study, approximately 30% of 
institutions surveyed with assets of $250 million or less operate 
automated overdraft programs. Using this figure as a proxy for small 
institutions, approximately 3,479 small entities would be affected by 
the final rule.
    Under the final rule, account-holding institutions are required to 
obtain the consumer's affirmative consent to the institution's 
overdraft service before assessing overdraft fees for ATM and one-time 
debit card transactions. According to the FDIC Study, 75.1

[[Page 59051]]

percent of banks with an automated overdraft program currently provide 
some form of an opt-out right to consumers, and 11.1 percent provide an 
opt-in right.\42\ Nonetheless, even institutions that already have an 
opt-out or an opt-in process in place will have to reprogram their 
systems to provide the notices required by the final rule.
---------------------------------------------------------------------------

    \42\ See FDIC Study at 27.
---------------------------------------------------------------------------

    4. Reporting, recordkeeping and compliance requirements. The 
compliance requirements of this final rule are described above in Part 
VI. Section-by-Section Analysis. The precise effect of the revisions to 
Regulation E on small entities is unknown. The final rule prohibits 
institutions from conditioning the consumer's affirmative consent to 
the payment of checks, ACH and other transactions on the consumer also 
opting into the payment of ATM and one-time debit card transactions. 
Thus, institutions will also have to reprogram their systems to 
differentiate between overdrafts for different transaction types. As 
some industry commenters noted, many systems are not currently set up 
to pay overdrafts for certain transaction types (e.g., checks, ACH and 
recurring debit card transactions), but not others (e.g., ATM and one-
time debit card transactions).
    The Board is aware that some small institutions do not pay 
overdrafts at ATMs or for one-time debit card transactions.\43\ Some 
institutions are already providing customers a method to opt into their 
overdraft service. These institutions will need to conform their opt-in 
procedures to the final rule. Also, those institutions that currently 
provide a form of opt-out or opt-in notice will need to review and 
revise this disclosure to conform to the final rule's requirements. The 
Board sought to reduce the burden on small entities, where possible, by 
adopting a model form that can be used to ease compliance with the 
final rule.
---------------------------------------------------------------------------

    \43\ Id. at 10 (reporting that 81 percent of institutions 
surveyed that operate automated programs provide overdraft services 
for ATM and POS/debit card transactions).
---------------------------------------------------------------------------

    5. Steps taken to minimize the economic impact on small entities. 
As previously noted, the final rule implements the Board's mandate to 
prescribe regulations that carry out the purposes of the EFTA. The 
Board seeks in this final rule to balance the benefits to consumers of 
an opt-in approach against the additional burdens on account-holding 
institutions subject to Regulation E. To that end, and as discussed 
above in Part VI. Section-by-Section Analysis, consumer testing was 
conducted in order to assess the effectiveness of the proposed 
revisions to Regulation E. In this manner, the Board has sought to 
avoid imposing additional regulatory requirements unless these proposed 
revisions would be beneficial to consumer understanding of overdraft 
services. The factual, policy, and legal reasons for selecting the 
alternatives adopted and why each one of the other significant 
alternatives was not accepted, are described above in Part VI. Section-
by-Section Analysis.
    The Board has sought to reduce the burden on small entities, where 
possible, by adopting a model form that can be used to ease compliance 
with the final rule, which has been revised and simplified from the 
proposed model form. The Board has also sought to reduce the burden on 
small entities, where possible, by providing a safe harbor to 
institutions permitting them to rely upon a merchant, other 
institution, or other third party's coding of a transaction as a one-
time debit card transaction or a recurring debit card transaction, to 
the extent that the institution complies with the rule by maintaining 
reasonable procedures to identify transactions as either one-time or 
recurring debit card transactions. The Board believes that these 
modifications from the proposal minimize the significant economic 
impact on small entities while still meeting the stated objectives of 
Regulation E.
    6. Other federal rules. The Board has not identified any federal 
rules that duplicate, overlap, or conflict with the revisions to 
Regulation E.

VIII. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final 
rule under the authority delegated to the Board by the Office of 
Management and Budget (OMB). The collection of information that is 
subject to the PRA by this final rule is found in 12 CFR part 205. 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 7100-0200.
    This information collection is required to provide benefits for 
consumers and is mandatory (15 U.S.C. 1693 et seq.). Since the Board 
does not collect any information, no issue of confidentiality arises. 
The respondents/recordkeepers are for-profit financial institutions, 
including small businesses. Institutions are required to retain records 
for 24 months, but this regulation does not specify types of records 
that must be retained.
    The EFTA and Regulation E are designed to ensure adequate 
disclosure of basic terms, costs, and rights relating to electronic 
fund transfer (EFT) services debiting or crediting a consumer's 
account. The disclosures required by the EFTA and Regulation E are 
triggered by certain specified events. The disclosures inform consumers 
about the terms of the electronic fund transfer service, activity on 
the account, potential liability for unauthorized transfers, and the 
process for resolving errors. To ease institutions' burden and cost of 
complying with the disclosure requirements of Regulation E 
(particularly for small entities), the Board publishes model forms and 
disclosure clauses.
    Regulation E applies to all financial institutions, not just state 
member banks. In addition, certain provisions in Regulation E apply to 
entities that are not financial institutions, including those that act 
as service providers or ATM operators, as well as merchants and other 
payees that engage in electronic check conversion transactions, the 
electronic collection of returned item fees, or preauthorized 
transfers. The Federal Reserve accounts for the paperwork burden 
associated with Regulation E only for the financial institutions it 
supervises\44\ and that meet the criteria set forth in the regulation. 
Other federal agencies account for the paperwork burden imposed on the 
entities for which they have regulatory enforcement authority.
---------------------------------------------------------------------------

    \44\ 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 Edge and agreement corporations, 
organizations operating under section 25 or 25(a) of the Federal 
Reserve Act.
---------------------------------------------------------------------------

    As mentioned in the SUPPLEMENTARY INFORMATION above, the final rule 
(Sec.  205.17) would prohibit account-holding financial institutions 
from assessing a fee or charge for paying ATM and one-time debit card 
transactions pursuant to the institution's overdraft service, unless 
the consumer is given the right to affirmatively consent, or opt in to 
the service, and the consumer opts in.
    The Federal Reserve estimates that, to comply with the opt-in 
notice requirement, 1,205 respondents regulated by the Federal Reserve 
would take, on average, 16 hours (two business days) to revise and 
update initial disclosures (Sec.  205.7(b)) for new customers. The 
Federal Reserve

[[Page 59052]]

estimates that 1,205 respondents regulated by the Federal Reserve would 
take, on average, 16 hours (two business days) to prepare and send new 
opt-in notices to existing customers.
    The Federal Reserve estimates the total annual one-time burden for 
respondents to be 38,560 hours and believes that, on a continuing 
basis, there would be no additional increase in burden as the 
disclosure would be sufficiently accounted for once incorporated into 
the current initial account disclosure (Sec.  205.7(b)). This would 
increase the total annual burden to 98,462 hours for Federal Reserve-
regulated financial institutions that are required to comply with 
Regulation E. To ease the burden of compliance a model form that 
institutions may use is available in Appendix A (See Model Form A-9).
    The Federal Reserve estimates that on average 5,136,693 consumers 
would spend as much as 5 minutes reviewing and responding to an opt-in 
notice. This would increase the total annual burden for this 
information collection by 428,058 hours.
    Overall, the estimated annual burden for Regulation E would 
increase by 466,618 hours, from 59,902 hours to 526,520 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 Federal Reserve's burden estimation 
methodology. Using the Federal Reserve's method, the total estimated 
annual burden for all financial institutions subject to Regulation E, 
including Federal Reserve-supervised institutions, would be 
approximately 853,059 hours.\45\ 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 17,200), potentially are affected by this collection 
of information, and thus are respondents for purposes of the PRA. The 
final rule will impose a one-time increase in the estimated annual 
burden for such institutions by 550,400 hours to 1,403,459 hours.
---------------------------------------------------------------------------

    \45\ This estimate does not include consumer burden.
---------------------------------------------------------------------------

    The Federal Reserve has a continuing interest in the public's 
opinions of our collections of information. At any time, comments 
regarding the burden estimate, or any other aspect of this collection 
of information, including suggestions for reducing the burden, may be 
sent to: Secretary, Board of Governors of the Federal Reserve System, 
20th and C Streets, NW., Washington, DC 20551; and to the Office of 
Management and Budget, Paperwork Reduction Project (7100-0200), 
Washington, DC 20503.

List of Subjects in 12 CFR Part 205

    Consumer protection, Electronic fund transfers, Federal Reserve 
System, Reporting and recordkeeping requirements.

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

PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)

0
The authority citation for part 205 continues to read as follows:


    Authority:  15 U.S.C. 1693b.


0
2. Section 205.12 is amended by revising paragraph (a) to read as 
follows:


Sec.  205.12  Relation to other laws.

    (a) Relation to Truth in Lending. (1) The Electronic Fund Transfer 
Act and this part govern--
    (i) The addition to an accepted credit card as defined in 
Regulation Z (12 CFR 226.12, comment 12-2), of the capability to 
initiate electronic fund transfers;
    (ii) The issuance of an access device that permits credit 
extensions (under a preexisting agreement between a consumer and a 
financial institution) only when the consumer's account is overdrawn or 
to maintain a specified minimum balance in the consumer's account, or 
under an overdraft service, as defined in Sec.  205.17(a);
    (iii) The addition of an overdraft service, as defined in Sec.  
205.17(a), to an accepted access device; and
    (iv) A consumer's liability for an unauthorized electronic fund 
transfer and the investigation of errors involving an extension of 
credit that occurs under an agreement between the consumer and a 
financial institution to extend credit when the consumer's account is 
overdrawn or to maintain a specified minimum balance in the consumer's 
account, or under an overdraft service, as defined in Sec.  205.17(a).
    (2) The Truth in Lending Act and Regulation Z (12 CFR part 226), 
which prohibit the unsolicited issuance of credit cards, govern--
    (i) The addition of a credit feature to an accepted access device; 
and
    (ii) Except as provided in paragraph (a)(1)(ii) of this section, 
the issuance of a credit card that is also an access device.
* * * * *

0
3. Section 205.17 is added to read as follows:


Sec.  205.17  Requirements for overdraft services.

    (a) Definition. For purposes of this section, the term ``overdraft 
service'' means a service under which a financial institution assesses 
a fee or charge on a consumer's account held by the institution for 
paying a transaction (including a check or other item) when the 
consumer has insufficient or unavailable funds in the account. The term 
``overdraft service'' does not include any payment of overdrafts 
pursuant to--
    (1) A line of credit subject to the Federal Reserve Board's 
Regulation Z (12 CFR part 226), including transfers from a credit card 
account, home equity line of credit, or overdraft line of credit;
    (2) A service that transfers funds from another account held 
individually or jointly by a consumer, such as a savings account; or
    (3) A line of credit or other transaction exempt from the Federal 
Reserve Board's Regulation Z (12 CFR part 226) pursuant to 12 CFR 
226.3(d).
    (b) Opt-in requirement. (1) General. Except as provided under 
paragraphs (b)(4) and (c) of this section, a financial institution 
holding a consumer's account shall not assess a fee or charge on a 
consumer's account for paying an ATM or one-time debit card transaction 
pursuant to the institution's overdraft service, unless the 
institution:
    (i) Provides the consumer with a notice in writing, or if the 
consumer agrees, electronically, segregated from all other information, 
describing the institution's overdraft service;
    (ii) Provides a reasonable opportunity for the consumer to 
affirmatively consent, or opt in, to the service for ATM and one-time 
debit card transactions;
    (iii) Obtains the consumer's affirmative consent, or opt-in, to the 
institution's payment of ATM or one-time debit card transactions; and
    (iv) Provides the consumer with confirmation of the consumer's 
consent in writing, or if the consumer agrees, electronically, which 
includes a statement informing the consumer of the right to revoke such 
consent.
    (2) Conditioning payment of other overdrafts on consumer's 
affirmative consent. A financial institution shall not:
    (i) Condition the payment of any overdrafts for checks, ACH 
transactions, and other types of transactions on the

[[Page 59053]]

consumer affirmatively consenting to the institution's payment of ATM 
and one-time debit card transactions pursuant to the institution's 
overdraft service; or
    (ii) Decline to pay checks, ACH transactions, and other types of 
transactions that overdraw the consumer's account because the consumer 
has not affirmatively consented to the institution's overdraft service 
for ATM and one-time debit card transactions.
    (3) Same account terms, conditions, and features. A financial 
institution shall provide to consumers who do not affirmatively consent 
to the institution's overdraft service for ATM and one-time debit card 
transactions the same account terms, conditions, and features that it 
provides to consumers who affirmatively consent, except for the 
overdraft service for ATM and one-time debit card transactions.
    (4) Exception to the notice and opt-in requirements. The 
requirements of Sec.  205.17(b)(1) do not apply to an institution that 
has a policy and practice of declining to authorize and pay any ATM or 
one-time debit card transactions when the institution has a reasonable 
belief at the time of the authorization request that the consumer does 
not have sufficient funds available to cover the transaction. Financial 
institutions may apply this exception on an account-by-account basis.
    (c) Timing. (1) Existing account holders. For accounts opened prior 
to July 1, 2010, the financial institution must not assess any fees or 
charges on a consumer's account on or after August 15, 2010 for paying 
an ATM or one-time debit card transaction pursuant to the overdraft 
service, unless the institution has complied with Sec.  205.17(b)(1) 
and obtained the consumer's affirmative consent.
    (2) New account holders. For accounts opened on or after July 1, 
2010, the financial institution must comply with Sec.  205.17(b)(1) and 
obtain the consumer's affirmative consent before the institution 
assesses any fee or charge on the consumer's account for paying an ATM 
or one-time debit card transaction pursuant to the institution's 
overdraft service.
    (d) Content and format. The notice required by paragraph (b)(1)(i) 
of this section shall be substantially similar to Model Form A-9 set 
forth in Appendix A of this part, include all applicable items in this 
paragraph, and may not contain any information not specified in or 
otherwise permitted by this paragraph.
    (1) Overdraft service. A brief description of the financial 
institution's overdraft service and the types of transactions for which 
a fee or charge for paying an overdraft may be imposed, including ATM 
and one-time debit card transactions.
    (2) Fees imposed. The dollar amount of any fees or charges assessed 
by the financial institution for paying an ATM or one-time debit card 
transaction pursuant to the institution's overdraft service, including 
any daily or other overdraft fees. If the amount of the fee is 
determined on the basis of the number of times the consumer has 
overdrawn the account, the amount of the overdraft, or other factors, 
the institution must disclose the maximum fee that may be imposed.
    (3) Limits on fees charged. The maximum number of overdraft fees or 
charges that may be assessed per day, or, if applicable, that there is 
no limit.
    (4) Disclosure of opt-in right. An explanation of the consumer's 
right to affirmatively consent to the financial institution's payment 
of overdrafts for ATM and one-time debit card transactions pursuant to 
the institution's overdraft service, including the methods by which the 
consumer may consent to the service; and
    (5) Alternative plans for covering overdrafts. If the institution 
offers a line of credit subject to the Board's Regulation Z (12 CFR 
part 226) or a service that transfers funds from another account of the 
consumer held at the institution to cover overdrafts, the institution 
must state that fact. An institution may, but is not required to, list 
additional alternatives for the payment of overdrafts.
    (6) Permitted modifications and additional content. If applicable, 
the institution may modify the content required by Sec.  205.17(d) to 
indicate that the consumer has the right to opt into, or opt out of, 
the payment of overdrafts under the institution's overdraft service for 
other types of transactions, such as checks, ACH transactions, or 
automatic bill payments; to provide a means for the consumer to 
exercise this choice; and to disclose the associated returned item fee 
and that additional merchant fees may apply. The institution may also 
disclose the consumer's right to revoke consent. For notices provided 
to consumers who have opened accounts prior to July 1, 2010, the 
financial institution may describe the institution's overdraft service 
with respect to ATM and one-time debit card transactions with a 
statement such as ``After August 15, 2010, we will not authorize and 
pay overdrafts for the following types of transactions unless you ask 
us to (see below).''
    (e) Joint relationships. If two or more consumers jointly hold an 
account, the financial institution shall treat the affirmative consent 
of any of the joint consumers as affirmative consent for that account. 
Similarly, the financial institution shall treat a revocation of 
affirmative consent by any of the joint consumers as revocation of 
consent for that account.
    (f) Continuing right to opt in or to revoke the opt-in. A consumer 
may affirmatively consent to the financial institution's overdraft 
service at any time in the manner described in the notice required by 
paragraph (b)(1)(i) of this section. A consumer may also revoke consent 
at any time in the manner made available to the consumer for providing 
consent. A financial institution must implement a consumer's revocation 
of consent as soon as reasonably practicable.
    (g) Duration and revocation of opt-in. A consumer's affirmative 
consent to the institution's overdraft service is effective until 
revoked by the consumer, or unless the financial institution terminates 
the service.

0
5. In Appendix A to Part 205, an entry for A-9 is added to the Table of 
Contents, and Appendix A-9 Model Consent Form for Overdraft Services 
(Sec.  205.17) is added to read as follows:

Appendix A to Part 205--Model Disclosure Clauses and Forms

Table of Contents

* * * * *

A-9 Model Consent Form for Overdraft Services (Sec.  205.17)

* * * * *
BILLING CODE 6210-01-P

[[Page 59054]]

[GRAPHIC] [TIFF OMITTED] TR17NO09.010

BILLING CODE 6210-01-C

[[Page 59055]]


0
6. In Supplement I to part 205,
0
a. Under Section 205.12 Relation to Other Laws, under 12(a) Relation to 
truth in lending, paragraph 2. is revised, and paragraph 3. is added.
0
b. Section 205.17--Requirements for Overdraft Services is added.

Supplement I to Part 205--Official Staff Interpretations

* * * * *

Section 205.12--Relation to Other Laws

12(a) Relation to Truth in Lending

* * * * *
    2. Issuance rules. For access devices that also constitute 
credit cards, the issuance rules of Regulation E apply if the only 
credit feature is a preexisting credit line attached to the asset 
account to cover overdrafts (or to maintain a specified minimum 
balance) or an overdraft service, as defined in Sec.  205.17(a). 
Regulation Z (12 CFR part 226) rules apply if there is another type 
of credit feature; for example, one permitting direct extensions of 
credit that do not involve the asset account.
    3. Overdraft service. The addition of an overdraft service, as 
that term is defined in Sec.  205.17(a), to an accepted access 
device does not constitute the addition of a credit feature subject 
to Regulation Z. Instead, the provisions of Regulation E apply, 
including the liability limitations (Sec.  205.6) and the 
requirement to obtain consumer consent to the service before any 
fees or charges for paying an overdraft may be assessed on the 
account (Sec.  205.17).
* * * * *

Section 205.17--Requirements for Overdraft Services

17(a) Definition

    1. Exempt securities- and commodities-related lines of credit. 
Section 205.17(a)(3) does not apply to transactions in a securities 
or commodities account pursuant to which credit is extended by a 
broker-dealer registered with the Securities and Exchange Commission 
or the Commodity Futures Trading Commission.

17(b) Opt-In Requirement

    1. Scope.
    i. Account-holding institutions. Section 205.17(b) applies to 
ATM and one-time debit card transactions made with a debit card 
issued by or on behalf of the account-holding institution. Section 
205.17(b) does not apply to ATM and one-time debit card transactions 
made with a debit card issued by or through a third party unless the 
debit card is issued on behalf of the account-holding institution.
    ii. Coding of transactions. A financial institution complies 
with the rule if it adapts its systems to identify debit card 
transactions as either one-time or recurring. If it does so, the 
financial institution may rely on the transaction's coding by 
merchants, other institutions, and other third parties as a one-time 
or a preauthorized or recurring debit card transaction.
    iii. One-time debit card transactions. The opt-in applies to any 
one-time debit card transaction, whether the card is used, for 
example, at a point-of-sale, in an on-line transaction, or in a 
telephone transaction.
    2. No affirmative consent. A financial institution may pay 
overdrafts for ATM and one-time debit card transactions even if a 
consumer has not affirmatively consented or opted in to the 
institution's overdraft service. If the institution pays such an 
overdraft without the consumer's affirmative consent, however, it 
may not impose a fee or charge for doing so. These provisions do not 
limit the institution's ability to debit the consumer's account for 
the amount overdrawn if the institution is permitted to do so under 
applicable law.
    3. Overdraft transactions not required to be authorized or paid. 
Section 205.17 does not require a financial institution to authorize 
or pay an overdraft on an ATM or one-time debit card transaction 
even if the consumer has affirmatively consented to an institution's 
overdraft service for such transactions.
    4. Reasonable opportunity to provide affirmative consent. A 
financial institution provides a consumer with a reasonable 
opportunity to provide affirmative consent when, among other things, 
it provides reasonable methods by which the consumer may 
affirmatively consent. A financial institution provides such 
reasonable methods, if--
    i. By mail. The institution provides a form for the consumer to 
fill out and mail to affirmatively consent to the service.
    ii. By telephone. The institution provides a readily-available 
telephone line that consumers may call to provide affirmative 
consent.
    iii. By electronic means. The institution provides an electronic 
means for the consumer to affirmatively consent. For example, the 
institution could provide a form that can be accessed and processed 
at its Web site, where the consumer may click on a check box to 
provide consent and confirm that choice by clicking on a button that 
affirms the consumer's consent.
    iv. In person. The institution provides a form for the consumer 
to complete and present at a branch or office to affirmatively 
consent to the service.
    5. Implementing opt-in at account-opening. A financial 
institution may provide notice regarding the institution's overdraft 
service prior to or at account-opening. A financial institution may 
require a consumer, as a necessary step to opening an account, to 
choose whether or not to opt into the payment of ATM or one-time 
debit card transactions pursuant to the institution's overdraft 
service. For example, the institution could require the consumer, at 
account opening, to sign a signature line or check a box on a form 
(consistent with comment 17(b)-6) indicating whether or not the 
consumer affirmatively consents at account opening. If the consumer 
does not check any box or provide a signature, the institution must 
assume that the consumer does not opt in. Or, the institution could 
require the consumer to choose between an account that does not 
permit the payment of ATM or one-time debit card transactions 
pursuant to the institution's overdraft service and an account that 
permits the payment of such overdrafts, provided that the accounts 
comply with Sec.  205.17(b)(2) and Sec.  205.17(b)(3).
    6. Affirmative consent required. A consumer's affirmative 
consent, or opt-in, to a financial institution's overdraft service 
must be obtained separately from other consents or acknowledgements 
obtained by the institution, including a consent to receive 
disclosures electronically. An institution may obtain a consumer's 
affirmative consent by providing a blank signature line or check box 
that the consumer could sign or select to affirmatively consent, 
provided that the signature line or check box is used solely for 
purposes of evidencing the consumer's choice whether or not to opt 
into the overdraft service and not for other purposes. An 
institution does not obtain a consumer's affirmative consent by 
including preprinted language about the overdraft service in an 
account disclosure provided with a signature card or contract that 
the consumer must sign to open the account and that acknowledges the 
consumer's acceptance of the account terms. Nor does an institution 
obtain a consumer's affirmative consent by providing a signature 
card that contains a pre-selected check box indicating that the 
consumer is requesting the service.
    7. Written confirmation. A financial institution may comply with 
the requirement in Sec.  205.17(b)(1)(iv) by providing to the 
consumer a copy of the consumer's completed opt-in form or by 
sending a letter or notice to the consumer acknowledging that the 
consumer has elected to opt into the institution's service. The 
written confirmation notice must include a statement informing the 
consumer of his or her right to revoke the opt-in at any time. To 
the extent the institution complies with the written confirmation 
requirement by providing a copy of the completed opt-in form, the 
institution may include the statement about revocation on the 
initial opt-in notice.

Paragraph 17(b)(2)--Conditioning Payment of Other Overdrafts on 
Consumer's Affirmative Consent

    1. Application of the same criteria. The prohibitions on 
conditioning in Sec.  205.17(b)(2) generally require an institution 
to apply the same criteria for deciding when to pay overdrafts for 
checks, ACH transactions, and other types of transactions, whether 
or not the consumer has affirmatively consented to the institution's 
overdraft service with respect to ATM and one-time debit card 
overdrafts. For example, if an institution's internal criteria would 
lead the institution to pay a check overdraft if the consumer had 
affirmatively consented to the institution's overdraft service for 
ATM and one-time debit card transactions, it must also apply the 
same criteria in a consistent manner in determining whether to pay 
the check overdraft if the consumer has not opted in.
    2. No requirement to pay overdrafts on checks, ACH transactions, 
or other types of transactions. The prohibition on conditioning in 
Sec.  205.17(b)(2) does not require an institution to pay overdrafts 
on checks, ACH transactions, or other types of transactions in all 
circumstances. Rather, the rule simply prohibits institutions from 
considering the consumer's decision not to

[[Page 59056]]

opt in when deciding whether to pay overdrafts for checks, ACH 
transactions, or other types of transactions.

Paragraph 17(b)(3)--Same Account Terms, Conditions, and Features

    1. Variations in terms, conditions, or features. A financial 
institution may not vary the terms, conditions, or features of an 
account provided to a consumer who does not affirmatively consent to 
the payment of ATM or one-time debit card transactions pursuant to 
the institution's overdraft service. This includes, but is not 
limited to:
    i. Interest rates paid and fees assessed;
    ii. The type of ATM or debit card provided to the consumer. For 
instance, an institution may not provide consumers who do not opt in 
a PIN-only card while providing a debit card with both PIN and 
signature-debit functionality to consumers who opt in;
    iii. Minimum balance requirements; or
    iv. Account features such as on-line bill payment services.
    2. Limited-feature bank accounts. Section 205.17(b)(3) does not 
prohibit institutions from offering deposit account products with 
limited features, provided that a consumer is not required to open 
such an account because the consumer did not opt in (see comment 
17(b)(3)-2). For example, Sec.  205.17(b)(3) does not prohibit an 
institution from offering a checking account designed to comply with 
state basic banking laws, or designed for consumers who are not 
eligible for a checking account because of their credit or checking 
account history, which may include features limiting the payment of 
overdrafts. However, a consumer who applies, and is otherwise 
eligible, for a full-service or other particular deposit account 
product may not be provided instead with the account with more 
limited features because the consumer has declined to opt in.

Paragraph 17(b)(4)--Exception to the Notice and Opt-In Requirement

    1. Account-by-account exception. If a financial institution has 
a policy and practice of declining to authorize and pay any ATM or 
one-time debit card transactions with respect to one type of deposit 
account offered by the institution, when the institution has a 
reasonable belief at the time of the authorization request that the 
consumer does not have sufficient funds available to cover the 
transaction, that account is not subject to Sec.  205.17(b)(1), even 
if other accounts that the institution offers are subject to the 
rule. For example, if the institution offers three types of checking 
accounts, and the institution has such a policy and practice with 
respect to only one of the three types of accounts, that one type of 
account is not subject to the notice requirement. However, the other 
two types of accounts offered by the institution remain subject to 
the notice requirement.

17(c) Timing

    1. Early compliance. A financial institution may provide the 
notice required by Sec.  205(b)(1)(i) and obtain the consumer's 
affirmative consent to the financial institution's overdraft service 
for ATM and one-time debit card transactions prior to July 1, 2010, 
provided that the financial institution complies with all of the 
requirements of this section.
    2. Permitted fees or charges. Fees or charges for ATM and one-
time debit card overdrafts may be assessed only for overdrafts paid 
by the institution on or after the date the financial institution 
receives the consumer's affirmative consent to the institution's 
overdraft service.

17(d) Content and Format

    1. Overdraft service. The description of the institution's 
overdraft service should indicate that the consumer has the right to 
affirmatively consent, or opt into payment of overdrafts for ATM and 
one-time debit card transactions. The description should also 
disclose the institution's policies regarding the payment of 
overdrafts for other transactions, including checks, ACH 
transactions, and automatic bill payments, provided that this 
content is not more prominent than the description of the consumer's 
right to opt into payment of overdrafts for ATM and one-time debit 
card transactions. As applicable, the institution also should 
indicate that it pays overdrafts at its discretion, and should 
briefly explain that if the institution does not authorize and pay 
an overdraft, it may decline the transaction.
    2. Maximum fee. If the amount of a fee may vary from transaction 
to transaction, the financial institution may indicate that the 
consumer may be assessed a fee ``up to'' the maximum fee. The 
financial institution must disclose all applicable overdraft fees, 
including but not limited to:
    i. Per item or per transaction fees;
    ii. Daily overdraft fees;
    iii. Sustained overdraft fees, where fees are assessed when the 
consumer has not repaid the amount of the overdraft after some 
period of time (for example, if an account remains overdrawn for 
five or more business days); or
    iv. Negative balance fees.

17(f) Continuing Right To Opt-In or To Revoke the Opt-In

    1. Fees or charges for overdrafts incurred prior to revocation. 
Section 205.17(f)(1) provides that a consumer may revoke his or her 
prior consent at any time. If a consumer does so, this provision 
does not require the financial institution to waive or reverse any 
overdraft fees assessed on the consumer's account prior to the 
institution's implementation of the consumer's revocation request.

17(g) Duration of Opt-In.

    1. Termination of overdraft service. A financial institution 
may, for example, terminate the overdraft service when the consumer 
makes excessive use of the service.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, November 10, 2009.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E9-27474 Filed 11-16-09; 8:45 am]
BILLING CODE 6210-01-P