On January 10, 2006, the Federal Reserve Board published a final rule that addressed how a payee can obtain a consumer’s authorization to collect fees electronically for items returned due to insufficient or uncollected funds in the consumer’s account. Authorization is obtained when notice is provided to the consumer stating that the fee will be collected by means of an electronic fund transfer, along with a disclosure of the specific amount of the fee and the consumer goes forward with the underlying transaction. The FRB then published an interim final rule in August 2006 to clarify certain provisions in the January 2006 final rule. The FRB is adopting final revisions to Regulation E and its official staff commentary largely as published in the August 2006 interim rule. These final revisions will, among other things:

    • Explain that the requirement to obtain the consumer’s authorization applies to the person seeking to electronically collect the returned item fee (e.g., merchant, other payee or payee’s service provider) and not the consumer’s account-holding institution;
    • Provide that the consumer authorization requirement applies to any fees collected electronically when an EFT or check has been returned unpaid (not just when the EFT or check has been returned for insufficient or uncollected funds);
    • Clarify that if the amount of the fee may vary based on the transaction amount or on other factors, an explanation of how the fee is calculated may be provided;
    • Provide that for point-of-sale transactions, the person collecting the fee must provide consumers with two separate notices, one that is posted in a prominent and conspicuous location, and a second that the consumer may retain. If the amount of the fee may be calculated at the time of the transaction, the person collecting the fee must state the specific fee amount on the notice given to the consumer. If a person is not able to provide a retainable notice at the time of the transaction, the person may send a notice to the consumer’s address as soon as reasonably practicable after the person has initiated an EFT to collect the fee; and
    • Provide model language that payees may use to disclose their intent to collect a fee for an EFT or check returned unpaid electronically and the amount of the fee.

    The effective date of the final rule is January 1, 2007; however, the final rule provides a one-year delayed compliance date, until January 1, 2008, for the requirement to disclose the amount of the returned item fee (or an explanation of how the fee is determined) on the copy of the notice (or substantially similar notice) provided to the consumer in connection with a POS transaction.

    Michael Tomkies and Charles Gall


    The Federal Reserve Board has proposed amending Regulation E and its official staff commentary to create an exception for certain small-dollar transactions from the requirement that terminal receipts be made available to consumers at the time of the transaction. Currently, when a debit card is used to pay for a purchase at a point-of-sale terminal, Regulation E requires that a receipt setting forth transaction information be made available to the consumer at that time. The receipt requirement applies whenever an electronic fund transfer is made at an electronic terminal, regardless of the amount of the transaction. Industry representatives have indicated, however, that the requirement (i) impedes consumers from using debit cards to make small-dollar purchases because of the cost of installing, servicing and maintaining printers at POS terminals and (ii) the requirement adds delays that would make it operationally unfeasible to allow consumers to use debit cards in connection with certain transactions (e.g., to pay for mass transit). Accordingly, the FRB is proposing to create an exemption from the terminal receipt requirement for EFTs of $15 or less. Comments to the proposed rule must be received on or before January 30, 2007.

    Michael Tomkies and Charles Gall