As mentioned in recent Alerts, the Federal Reserve Board (Board) has issued proposed rules under the Truth in Savings Act (TISA) amending Regulation DD. Some of the rules address practices also addressed in proposals issued on the same day by the Board, the Office of Thrift Supervision (OTS) and the National Credit Union Administration on unfair or deceptive acts or practices that violate the Federal Trade Commission Act (FTCA) (collectively, the UDAP Proposals). See our May 2 and 13 Alerts for more on the UDAP Proposals.

    The Board generally proposes to amend Regulation DD and its staff commentary to provide additional disclosures about account terms and costs associated with overdrafts. The proposed amendments would (i) set forth content and timing requirements for overdraft service opt-out notices, (ii) expand requirements for disclosing overdraft fees on periodic statements to apply to all institutions and not solely to institutions that promote the payment of overdrafts and (iii) address balance disclosures provided in response to balance inquiries from consumers.

    Opt-Out Notices

    The UDAP Proposals would require institutions to provide consumers with a right to opt out of overdraft services before assessing a fee for the services. Under the Regulation DD proposal, if a depository institution provides an overdraft service opt out, the institution must provide written notice of opt-out rights (i) before assessing any overdraft fee and (ii) subsequently during or for each statement period in which a fee is imposed.

    The required content of the opt-out notice would include (i) fees assessed for the payment of overdrafts, (ii) conditions under which the fees are imposed, (iii) how consumers can avoid such fees by opting out and (iv) the availability of potentially less costly alternatives. The required format is illustrated by a proposed sample form, in which the opt-out content is segregated from other disclosures and intended to be noticeable by the consumer. The Board expects to conduct consumer testing of the proposed sample form.

    Periodic Statement Disclosures

    Regulation DD currently requires institutions that promote the payment of overdrafts to provide consumers information about the aggregate costs of the overdraft service for the statement period and the calendar year to date. The Board is proposing to expand this provision to require all institutions, regardless of whether they promote the payment of overdrafts, to disclose aggregate cost information. The proposed rule also would add format requirements to help make the aggregate fee disclosures more effective and noticeable to consumers. Any opt-out notice included on a periodic statement would be required to appear in close proximity to the fees.

    Balance Inquiries

    The Board also proposes to require that institutions disclose only the amount of funds available for a consumer’s immediate use or withdrawal, without incurring an overdraft, in response to the consumer’s request for balance information. This rule would apply to balance inquiries made through any automated system, including, but not limited to, an ATM, Internet web site (other than live chats with an account representative) and telephone response system. Institutions would be permitted to provide a second balance that includes any additional funds that an institution may advance to cover an overdraft if this fact also is prominently disclosed with that balance information.

    Comment Period and Rulemaking Process

    Comments on the proposal must be received within 60 days after the proposal is published in the Federal Register. The Board anticipates that any final actions taken under the FTCA and TISA will be issued simultaneously after the Board has reviewed comments received on the proposals.

    Please contact us with any questions or if you would like a copy of the proposed rules.

    • Judy Scheiderer and