Truth in Savings, 29582-29596 [05-10348]

Download as PDF 29582 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations Paperwork Reduction Act This rule contains no new information collection or recordkeeping requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). List of Subjects in 9 CFR Part 77 Animal diseases, Bison, Cattle, Reporting and recordkeeping requirements, Transportation, Tuberculosis. I Accordingly, we are amending 9 CFR part 77 as follows: PART 77—TUBERCULOSIS 1. The authority citation for part 77 continues to read as follows: I Authority: 7 U.S.C. 8301–8317; 7 CFR 2.22, 2.80, and 371.4. § 77.12 [Amended] 2. In § 77.12, paragraph (d) is amended by removing the words ‘‘6 months’’ and adding the words ‘‘60 days’’ in their place. I § 77.14 [Amended] 3. In § 77.14, paragraph (d) is amended by removing the words ‘‘within 6 months’’ and adding the words ‘‘within 60 days’’ in their place. I Done in Washington, DC, this 18th day of May 2005. Elizabeth E. Gaston, Acting Administrator, Animal and Plant Health Inspection Service. [FR Doc. 05–10308 Filed 5–23–05; 8:45 am] BILLING CODE 3410–34–P FEDERAL RESERVE SYSTEM 12 CFR Part 230 [Regulation DD; Docket No. R–1197] Truth in Savings Board of Governors of the Federal Reserve System. ACTION: Final rule. AGENCY: SUMMARY: The Board is amending Regulation DD, which implements the Truth in Savings Act, and the staff commentary to the regulation, to address concerns about the uniformity and adequacy of information provided to consumers when they overdraw their deposit accounts. The amendments, in part, address certain types of services— sometimes referred to as ‘‘bouncedcheck protection’’ or—courtesy overdraft protection’’—which are offered by many depository institutions to pay consumers’ checks, and which allow other overdrafts when there are VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 insufficient funds in the account. These services are typically automated services provided to transaction account consumers as an alternative to a traditional overdraft line of credit. Among other things, the final rule creates a new section to the regulation that requires institutions that promote the payment of overdrafts in an advertisement to disclose on periodic statements, total fees imposed for paying overdrafts and total fees imposed for returning items unpaid on periodic statements, both for the statement period and the calendar year to date, and to include certain other disclosures in advertisements of overdraft services. DATES: The rule is effective July 1, 2006. FOR FURTHER INFORMATION CONTACT: Elizabeth A. Eurgubian, Attorney, or Ky Tran-Trong or Krista P. DeLargy, Senior Attorneys, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, at (202) 452–3667 or 452–2412; for users of Telecommunications Device for the Deaf (‘‘TDD’’) only, contact (202) 263–4869. SUPPLEMENTARY INFORMATION: I. The Truth in Savings Act The Truth in Savings Act (TISA), 12 U.S.C. 4301 et seq., is implemented by the Board’s Regulation DD (12 CFR part 230). The purpose of the act and regulation is to assist consumers in comparing deposit accounts offered by depository institutions, principally through the disclosure of fees, the annual percentage yield (APY), the interest rate, and other account terms. An official staff commentary interprets the requirements of Regulation DD (12 CFR part 230 (Supp. I)). Credit unions are governed by a substantially similar regulation issued by the National Credit Union Administration. Under TISA and Regulation DD, disclosures must be given upon a consumer’s request and before an account is opened. Institutions are not required to provide periodic statements, but if they do, the act requires that fees, yields, and other information be provided on the statements. Notice must be given to accountholders before an adverse change in account terms occurs and prior to the renewal of certificates of deposit (time accounts). TISA and Regulation DD contain rules for advertising deposit accounts. Under TISA, there is a prohibition against advertisements, announcements, or solicitations that are inaccurate or misleading, or that misrepresent the deposit contract. Institutions also are prohibited from describing an account as free (or using words of similar meaning) if a regular service or PO 00000 Frm 00010 Fmt 4700 Sfmt 4700 transaction fee is imposed, if a minimum balance must be maintained, or if a fee is imposed when a customer exceeds a specified number of transactions. In addition, the act and regulation impose substantive restrictions on institutions’ practices regarding the payment of interest on accounts and the calculation of account balances. II. Concerns About Overdraft Services Historically, depository institutions have used their discretion on an ad hoc basis to pay overdrafts for consumers on transaction accounts, usually imposing a fee. Over the years, some institutions automated the process for considering whether to honor overdrafts to reduce the costs of reviewing individual items, but generally institutions did not inform customers of their internal policies for determining whether an item would be paid or returned. More recently, thirdparty vendors have developed and sold overdraft programs to institutions, particularly to smaller institutions. These programs generally build upon or add to the institution’s existing internal reporting systems to enable the institution to automate its payment of overdrafts.1 What generally distinguishes the vendor programs from institutions’ in-house automated processes is the addition of marketing plans that appear designed to promote the generation of fee income by disclosing to account-holders the dollar amount that the consumer typically will be allowed to overdraw their accounts. Some institutions also encourage consumers to use the service to meet short-term borrowing needs. Paying consumers’ occasional or inadvertent overdrafts is a longestablished customer service provided by depository institutions. The Board recognized this longstanding practice when it initially adopted Regulation Z in 1969, to implement the Truth in Lending Act (TILA); the regulation provided that these transactions are generally exempt from coverage under Regulation Z where there is no written agreement between the consumer and institution to pay an overdraft and impose a fee. See § 226.4(c)(3). The exemption from Regulation Z was designed to facilitate depository institutions’ ability to accommodate consumers on an ad-hoc basis. 1 The Board’s proposal referred to ‘‘bouncedcheck protection’’ services. These services also are sometimes referred to as ‘‘courtesy overdraft protection.’’ Because some institutions’’ overdraft services apply to non-check transactions, for clarity the services are referred to generically as ‘‘overdraft services.’’ E:\FR\FM\24MYR1.SGM 24MYR1 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations Although overdraft services vary among institutions, many institutions provide the coverage automatically for consumers who meet the institution’s criteria (e.g., the account has been open for a certain number of days, and the consumer makes deposits regularly). Consumers are not required to apply for the coverage and the institution performs no credit underwriting. Many institutions clearly inform consumers that payment of an overdraft is discretionary on the part of the institution; deposit account agreements typically disclaim any legal obligation to pay any overdraft. Some institutions extend the overdraft service to noncheck transactions, for example, withdrawal requests made at automated teller machines (‘‘ATMs’’), purchases made using a debit card, pre-authorized automatic debits from a consumer’s account, telephone-initiated funds transfers, or on-line banking transactions. A flat fee is charged each time the service is triggered and an overdraft item is paid; often the fee for paying an overdraft is the same amount that the institution would charge when a check drawn on insufficient funds is returned unpaid. In some cases, a daily fee may be imposed for each day the account remains overdrawn. In November 2002, the Board solicited comment and information from the public about institutions’ current overdraft services, to assist the Board in determining the need for guidance to depository institutions under Regulation Z (Truth in Lending) and other laws. 67 FR 72618 (December 6, 2002). In response to the Board’s request for comment, consumer advocates, state agency representatives, and others stated that certain overdraft services should be subject to the TILA and Regulation Z. They noted that in addition to warning consumers about the high cost of the services, TILA disclosures would apprise consumers about the true nature of these services as a credit transaction. Industry commenters opposed coverage under Regulation Z, stating that institutions currently provide adequate disclosures pursuant to TISA and Regulation DD, and that coverage under Regulation Z would be burdensome. The Board’s study of overdraft services identified a number of other concerns about some programs. One major concern relates to the adequacy of information provided to consumers whose accounts are eligible for the service. For example, some institutions do not clearly inform consumers that ATM withdrawals, debit card transactions, or other electronic transfers may routinely be authorized VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 under these overdraft services and that fees will be imposed in such cases. Other concerns center on institutions’ marketing practices. Although the service may be designed to protect consumers against occasional inadvertent overdrafts, some institutions’ promotional materials make the service appear to be a line of credit, apparently to promote a consumer’s repeated use of the service. Many institutions inform consumers of the availability of the overdraft service, and also of the maximum aggregate dollar amount of overdrafts the institution will pay. Some marketing plans encourage consumers to use the service to meet short-term credit needs, and not just as protection against inadvertent overdrafts. Some institutions have encouraged consumers specifically to use an overdraft as an advance on their next paycheck. Notwithstanding the marketing promises, however, qualifying language disclaims any legal obligation by the institution to pay any overdraft. In some cases, deposit accounts that are promoted as being ‘‘free’’ also promote overdraft services that involve substantial fees. III. Concerns About Uniform Disclosure of Overdraft Fees The Board also has concerns about the uniformity and adequacy of cost disclosures provided to consumers regarding overdraft and returned-item fees under Regulation DD. Many institutions already provide timely information to consumers about particular overdrafts and the fees imposed by sending a notice at the time an overdraft occurs. Institutions’ practices and disclosures are not uniform, however, and some consumers may not receive adequate information on a timely basis. Fees for paying overdrafts and for returning items unpaid are typically flat fees unrelated to the amount of the item. These amounts may be significant when there are multiple overdrafts even though the items may represent relatively small dollar amounts. Even when consumers are aware that an account is or may become overdrawn, they do not necessarily know the number of overdraft items that will result or the total fees that will be imposed, both of which are determined by the order in which items drawn on the account are presented and the institution’s policies concerning the order in which items are paid. Consumers may not be aware of the total fees imposed until the next periodic statement, and when the periodic statement is provided, it may PO 00000 Frm 00011 Fmt 4700 Sfmt 4700 29583 intersperse fees for overdrafts and fees for returned items among other transactions rather than provide a total. As a result, the overall cost associated with overdrawing the account may not be clearly presented to consumers. IV. The Board’s Proposed Revisions to Regulation DD In May 2004, the Board proposed revisions to Regulation DD and the staff commentary to address concerns about the uniformity and adequacy of institutions’ disclosure of overdraft fees generally, and to address concerns about advertised overdraft services in particular. 69 FR 31760 (June 7, 2004). Specifically, the Board proposed to revise Regulation DD to expand the prohibition against misleading advertisements to cover communications with current consumers about existing accounts; the staff commentary provided examples of advertisements that would ordinarily be misleading. The proposed revisions also required additional fee and other disclosures about overdraft services, including disclosures on periodic statements of the total dollar amounts for all overdraft fees and for all returned-item fees, for the statement period and for the calendar year to date; however, the Board solicited comment on whether the periodic statement requirement to disclose calendar yearto-date totals should be limited to institutions that market overdraft services. Further, the Board proposed to require institutions that market automated overdraft services that are not covered by TILA to include certain disclosures about the service in their advertisements, including the fee for the payment of each overdraft item and the circumstances under which the institution would not pay an overdraft. Overview of Public Comments Approximately 300 comments were received; the majority of comments were received from depository institutions or their trade associations. About 100 of these comment letters were received from consumer advocates and individual consumers, including about 60 nearly identical form letters sent by consumers through the same Internet site. Almost all the comments from consumers and consumer advocates oppose the proposed amendments to Regulation DD, and instead urge the Board to cover certain overdraft services under Regulation Z. Few of these comment letters contained substantive suggestions on the proposed revisions to Regulation DD. One Member of Congress submitted a letter also E:\FR\FM\24MYR1.SGM 24MYR1 29584 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations requesting the Board to cover certain overdraft services under Regulation Z. Industry commenters were uniform in agreeing that overdraft protection is a deposit service that should be covered under Regulation DD rather than Regulation Z. Industry representatives that commented generally oppose covering overdraft services under Regulation Z. Industry representatives stated that disclosing an annual percentage rate (APR) for overdraft services would impose substantial compliance burdens without leaving consumers better-informed about the cost of credit or better able to compare the costs of different credit products. Although generally agreeing that coverage of overdraft services was more appropriate under Regulation DD, virtually all industry commenters have concerns about specific aspects of the proposal. The most frequent objection to the proposal concerns the requirements for disclosing aggregate totals for overdraft fees and returned item fees on periodic statements. In particular, most industry commenters cite the costs of implementing the new disclosures and assert that consumers are already provided sufficient information about these fees. Industry commenters also asked for clarification about the types of overdraft services that would be covered under the rule, focusing on the Board’s use of the term ‘‘automated overdraft service’’ to describe the overdraft service that would be subject to the additional advertising disclosures. Finally, many industry commenters oppose the requirement to disclose in advertisements the circumstances under which an overdraft would not be paid, because it could suggest an agreement to pay overdrafts in other circumstances contrary to the ‘‘discretionary’’ nature of the product. Additional comments are discussed in the section-by-section analysis. V. The Final Rule Pursuant to the Board’s authority under Section 269(a) of TISA (12 U.S.C. 4308(a)), the Board is adopting final revisions to Regulation DD and the staff commentary generally as proposed. Some clarifications and modifications to the proposal have been made to respond to commenters’ concerns; in particular, the requirement to disclose aggregate overdraft and returned item fees on periodic statements has been limited to institutions that promote the payment of overdrafts in an advertisement. The final rule consolidates the guidance for institutions that promote the payment of overdrafts in a new § 205.11 of the regulation to facilitate compliance. To give institutions sufficient time to VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 implement the necessary system changes to comply with the regulation, compliance with the final rule will not become mandatory until July 1, 2006. Summary of Revisions to the Regulation The following is a summary of the final revisions to the regulation and the staff commentary. These revisions are discussed in detail below in the sectionby-section analysis. Disclosures Concerning Overdraft Fees Periodic Statements ∑ Institutions that promote the payment of overdrafts in an advertisement must separately disclose on their periodic statements, the total amount of fees or charges imposed on the deposit account for paying overdrafts and the total amount of fees charged for returning items unpaid. These disclosures must be provided for the statement period and for the calendar year to date for any account to which the advertisement applies. The final rule is narrower than the proposal, which would have applied to all institutions, regardless of whether they market the payment of overdrafts. Thus, institutions that do not promote the payment of overdrafts would not be required to provide the new periodic statement disclosures under the final rule. ∑ To facilitate compliance, the staff commentary provides specific examples of when an institution is promoting the payment of overdrafts in an advertisement. For example, stating the overdraft limit for an account on a periodic statement or stating an account balance that includes available overdraft funds on an ATM receipt would be considered an advertisement triggering the required disclosures. ∑ An institution that does not otherwise promote the payment of overdrafts would not trigger the requirement to provide aggregate fee disclosures on periodic statements solely by: (1) Communicating information about the payment of overdrafts in response to a consumer-initiated inquiry about overdrafts or deposit accounts generally. Providing information about the payment of overdrafts in response to a balance inquiry made through an automated system, such as a telephone response machine, an ATM, or an institution’s Internet site, is not a response to a consumer-initiated inquiry for purposes of this provision, and would trigger the periodic statement disclosure requirements; (2) Providing educational materials that do not specifically describe the institution’s overdraft service; PO 00000 Frm 00012 Fmt 4700 Sfmt 4700 (3) Promoting in an advertisement a traditional line of credit that is subject to the Board’s Regulation Z (Truth in Lending); (4) Engaging in an in-person discussion with a consumer; (5) Making a disclosure required by Federal or other applicable law; (6) Including information on a periodic statement or providing a notice informing a consumer about a specific overdrawn item or the amount the account is overdrawn; (7) Including in a deposit account agreement a discussion of the institution’s right to pay overdrafts; or (8) Notifying a consumer that completing a requested transaction, such as an ATM withdrawal, may trigger an overdraft fee, or providing a general notice that items overdrawing an account may trigger an overdraft fee. Account-Opening Disclosures ∑ Institutions must specify in TISA’s account-opening disclosures the categories of transactions for which an overdraft fee may be imposed. An exhaustive list of transactions is not required; it is sufficient to state that the fee is imposed for overdrafts created by checks, in-person withdrawals, ATM withdrawals, or by other electronic means, as applicable. This requirement applies to all institutions, including institutions that do not promote the payment of overdrafts in an advertisement. Advertising Rules ∑ To avoid confusion with traditional lines of credit, institutions that promote the payment of overdrafts are required to include certain disclosures in their advertisements about the service: the applicable fees or charges, the categories of transactions covered, the time period consumers have to repay or cover any overdraft, and the circumstances under which the institution would not pay an overdraft. Stating the available overdraft limit or the amount of funds available on a periodic statement would be considered an advertisement triggering the required disclosures. Æ The final rule provides safe harbors from the advertising requirements similar to those described above for the periodic statement disclosure requirements. Thus, for example, the advertising disclosure requirements would not apply to institutions when they provide educational materials, respond to a consumer-initiated inquiry about overdrafts or deposit accounts, or notify a consumer about a specific overdraft in their account. Æ Advertising disclosures are not required on ATM receipts, due to space E:\FR\FM\24MYR1.SGM 24MYR1 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations limitations. Similarly, advertising disclosures are not required for advertisements using broadcast media, billboards, or telephone response systems. This parallels an exemption in Regulation DD which applies to other types of advertising disclosures. Limited advertising disclosures are required on ATM screens, telephone response machines and indoor signs. Prohibiting Misleading Advertisements ∑ TISA’s prohibition against advertisements, announcements, or solicitations that are misleading or that misrepresent the deposit contract is extended to communications with consumers about the terms of their existing accounts. Examples of Misleading Advertisements ∑ The staff commentary is revised to provide five examples of advertisements that would ordinarily be deemed misleading: (1) Representing an overdraft service as a ‘‘line of credit;’’ (2) Representing that the institution will honor all checks or transactions, when the institution retains discretion at any time not to honor any transaction; (3) Representing that consumers with an overdrawn account are allowed to maintain a negative balance when the terms of the account’s overdraft service require consumers to promptly return the deposit account to a positive balance; (4) Describing an overdraft service solely as protection against bounced checks, when the institution also permits overdrafts for a fee in connection with ATM withdrawals and other electronic fund transfers that permit consumers to overdraw their account; and (5) Describing an account as ‘‘free’’ or ‘‘no cost’’ in an advertisement that also promotes a service for which there is a fee (including an overdraft service), unless the advertisement clearly and conspicuously indicates there is a cost associated with the service. Possible Coverage Under the Truth in Lending Act The amendments to Regulation DD recognize that an overdraft service is provided as a feature and term of a deposit account, and that the fees associated with the service are assessed against the deposit account. As noted above, consumer advocates and some others who commented on the proposed revisions to Regulation DD believe that certain overdraft services should be covered by Regulation Z. These commenters state that overdraft services compete with traditional credit VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 products—open-end lines of credit, credit cards, and short-term closed-end loans—all of which are covered under TILA and Regulation Z and provide consumers with the cost of credit expressed as a dollar finance charge and an APR. They believe that TILA disclosures would enhance consumers’ understanding of the cost of overdraft services and their ability to compare costs of competing financial services. At its October 2004 meeting, the Board’s Consumer Advisory Council also discussed this issue, including ways to distinguish between an institution’s infrequent, ad hoc accommodation of a customer, and an overdraft service that operates more like a line of credit. Some Council members believed that overdraft services that are the functional equivalent of a traditional overdraft line of credit should be subject to Regulation Z, but that institutions’ historical practice of paying occasional overdrafts on an ad hoc basis should not be covered by Regulation Z. The Board’s adoption of final rules under Regulation DD does not preclude a future determination that TILA disclosures would also benefit consumers. The Board expressly stated in its proposal that further consideration of the need for coverage under Regulation Z may be appropriate in the future. VI. Section-by-Section Analysis Section 230.2 Definitions 2(b) Advertisement TISA prohibits institutions from making any advertisement, announcement, or solicitation relating to a deposit account that is inaccurate or misleading or that misrepresents its deposit contract. 12 U.S.C. 4302(e). Regulation DD currently defines ‘‘advertisement’’ to include ‘‘a commercial message appearing in any medium, that promotes directly or indirectly the availability of, or a deposit in, an account.’’ See § 230.2(b). Under the existing staff commentary, institutions’ communications with consumers about existing accounts are not considered ‘‘advertisements’’ under Regulation DD. See comment 2(b)-2.iii. The Board proposed to revise the definition of ‘‘advertisement’’ to include an institution’s communications with existing customers for purposes of TISA’s prohibition against advertisements that are misleading or inaccurate or that misrepresent the deposit contract. The Board also proposed to expand the definition to cover communications with existing customers that promote the institutions’ overdraft services, which would trigger PO 00000 Frm 00013 Fmt 4700 Sfmt 4700 29585 additional disclosures about the costs and terms of the service. The final rule adopts the revised definition of ‘‘advertisement’’ as proposed under § 230.2(b)(1). Section 230.2(b)(2) of the final rule provides that for purposes of the prohibition on misleading advertisements in § 230.8(a) and the new disclosure requirements in § 230.11, the definition of ‘‘advertisement’’ includes the terms of, or a deposit in, a new or existing account. The staff commentary has been modified to address commenters’ concerns about the need to clarify the scope of the revised definition. Most commenters who addressed this aspect of the proposal did not oppose applying the prohibition on misleading or inaccurate advertisements to communications about existing accounts. Many commenters believe, however, that modifications are necessary to clarify the scope of the proposed definition. In particular, several commenters expressed concern that, without clarification, the definition would be interpreted to apply to routine communications, such as notices commonly sent to inform accountholders that their account has become overdrawn. Other commenters asked the Board to provide additional guidance on types of communications that would constitute promoting an overdraft service and thus satisfy the definition of ‘‘advertisement.’’ Comment 2(b)–2 currently provides examples of messages that are not considered advertisements. The Board proposed to re–designate comment 2(b)– 2 as comment 2(b)–3. The re-designation is not necessary in the final rule. In response to commenters’ concerns, comment 2(b)–2 has been revised to provide additional examples of messages that are not advertisements. Paragraph 2(b)–2.iii is revised for conformity with the final rule. Paragraph 2(b)–2.iv. clarifies that an institution is not promoting a deposit or service solely by providing information about a particular transaction in an account, such as in a notice or a periodic statement advising a consumer about a specific overdrawn item. Paragraph 2(b)–2.v. provides that an institution is not promoting a deposit or service solely by providing legally required disclosures. Similar guidance had been included in proposed comment 2(b)–2. The guidance in the final rule has been revised by deleting the specific reference to disclosures provided at account-opening, on periodic statements, and on electronic terminal receipts, to address commenters’ concerns that other required disclosures should also be E:\FR\FM\24MYR1.SGM 24MYR1 29586 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations excluded from the definition of ‘‘advertisement.’’ If an institution combines promotional material with the required disclosures, however, this additional information would be considered an advertisement. An institution that includes promotional materials about its overdraft service with required disclosures generally would be required to provide the new disclosures in § 230.11 (discussed below). Paragraph 2(b)–2.vi. clarifies that an account agreement is not an advertisement. The revised definition of advertisement does not affect rules for triggering additional disclosures when an advertisement states an APY or bonus. The previous definition of ‘‘advertisement’’ continues to apply for this purpose and has been redesignated as § 230.2(b)(1). Modifications have been made only for stylistic consistency; no substantive change is intended. Section 230.4 Account Disclosures 4(b) Content of Account Disclosures 4(b)(4) Fees Under TISA and Regulation DD, before an account is opened, institutions must provide a schedule describing all fees that may be charged in connection with the account. The schedule must also disclose the amount of the fee and the conditions under which the fee will be imposed. 12 U.S.C. 4303; § 230.4(b)(4). When terms required to be disclosed in the schedule change and adversely affect accountholders, notice of the change must be provided 30 days in advance. 12 U.S.C. 4305; § 230.5(a). Currently, the guidance for describing fees is quite general, and provides that ‘‘naming and describing the fee will typically satisfy these requirements.’’ See comment 4(b)(4)–3. The Board proposed comment 4(b)(4)–5 to require institutions to state in their accountopening disclosures the types of transactions for which an overdraft fee may be imposed. As proposed, describing the fee solely as a ‘‘fee for overdrafts’’ or fee for ‘‘overdraft items’’ would not provide sufficient notice to consumers as to whether the fee applies to overdrafts by check only, or whether it also applies to overdrafts by other means, such as by ATM withdrawal or other electronic transactions. The revisions are being adopted substantially as proposed, with some modifications to address commenters’ concerns, and would apply to all institutions, regardless of whether they promote the payment of overdrafts. A few commenters that support the proposed comment affirm that they already provide such disclosures. Most VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 commenters do not oppose the proposed change, but encourage the Board to clarify that an exhaustive list of transactions for which an overdraft fee may be imposed, is not required. These commenters express concern that requiring disclosure of an exhaustive list of transactions could necessitate a change-in-terms notice as new technologies are implemented. For example, several commenters believe that an institution solely disclosing that overdraft fees may be imposed for transfers initiated using the Internet might have to provide a change-in-terms notice if telephone transfers are subsequently allowed. These commenters assert that an illustrative list of transactions would sufficiently notify the consumer that overdraft fees will apply in multiple circumstances, while allowing institutions to avoid the need to provide a change-in-terms notice if, subsequently, overdrafts are permitted through another channel. A few commenters asked the Board to provide model language to ease compliance. To address commenters’ concerns, comment 4(b)(4)–5 has been revised to clarify that an exhaustive list of transactions is not required. As revised, the comment provides that institutions may specify categories of transactions for which an overdraft fee may be imposed. The final comment also includes model language. Institutions may satisfy the requirements by stating that the fee applies to overdrafts ‘‘created by check, in-person withdrawal, ATM withdrawal, or other electronic means,’’ as applicable. The model language is sufficiently broad to cover most situations in which overdrafts can occur, but institutions are free to add additional categories. For example, an institution using the model language would not be required to change its disclosures when implementing a system for making electronic transfers by telephone. But if an institution only discloses that overdraft fees are imposed in connection with the payment of checks, new disclosures would be required if the institution subsequently imposes the fees for overdrafts created by ATM withdrawals or other electronic means. Institutions are not required to provide new account-opening disclosures or change-in-terms notices to consumers who previously received overdraft fee disclosures under existing guidance currently in the staff commentary. However, to the extent that an institution’s prior disclosures suggested the overdraft service only covers checks, institutions should consider informing their customers that PO 00000 Frm 00014 Fmt 4700 Sfmt 4700 the service is broader and applies to overdrafts by in-person withdrawals, ATM withdrawals, and by other electronic means, as applicable. Section 230.6 Disclosures Periodic Statement 6(a) General Rule 6(a)(3) Fees Imposed The Board proposed to revise Regulation DD, by adding § 230.6(a)(3)(ii), to require all institutions to disclose separately, the total dollar amount of overdraft fees and the total dollar amount of returned-item fees, for the statement period and the calendar year to date. As further discussed below, this provision has been moved to new § 230.11(a), and the requirements are limited to institutions that promote the payment of overdrafts in an advertisement. Proposed comment 6(a)(3)–2 has been adopted, with some modifications, to clarify that fees for paying overdrafts and fees for returning items unpaid may not be grouped together as fees for insufficient funds. Section 230.8 Advertising As discussed above, the Board is revising Regulation DD to apply the prohibition in § 230.8(a) on misleading advertisements to communications with consumers about the terms of their existing accounts. The Board also proposed to revise the staff commentary to provide examples of advertisements that would ordinarily be misleading. In addition, to reduce consumer confusion about how overdraft services differ from a traditional line of credit, the proposed rule required institutions that promote automated overdraft services to include certain disclosures in their advertisements about the service. In the final rule, the prohibition on guidance regarding misleading and inaccurate advertisements in § 230.8(a) is being revised. The proposed examples in the commentary of advertisements that would ordinarily be misleading are being adopted largely as proposed under § 230.8(a), with some modifications for clarity. The additional disclosure requirements for advertisements that promote the payment of overdrafts in proposed § 230.8(f) are contained in new § 230.11(b), discussed below. 8(a) Misleading or Inaccurate Advertisements In the final rule, § 230.8(a) has been reorganized, as proposed. To provide guidance on the types of advertisements that may violate the rule, the Board proposed to add comment 8(a)–10. The proposed comment provided five examples of advertisements that would E:\FR\FM\24MYR1.SGM 24MYR1 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations ordinarily be misleading, inaccurate, or misrepresent the deposit contract. The examples of misleading advertisements in proposed comment 8(a)–10 are adopted as proposed, with some revisions for clarity. The first example is an advertisement that represents an overdraft service as a ‘‘line of credit’’ unless the service is subject to the Board’s Regulation Z. The second example is an advertisement that misleads consumers by representing that the institution will honor all checks or authorize all transactions that overdraw an account, with or without a specified dollar limit, when the institution retains discretion at any time not to honor checks or authorize transactions. A third example states that an advertisement could mislead consumers by representing that consumers with overdrawn accounts are allowed to maintain a negative balance when the terms of the account’s overdraft service require consumers to promptly return the deposit account to a positive balance. The fourth example provides that promotional materials describing a service solely as protection against bounced checks could mislead consumers if the service also applies to ATM withdrawals, and other debit card transactions, and electronic fund transfers. The fifth example of misleading advertisements relates to the advertisement of free accounts. Under Regulation DD, an institution may not describe an account as ‘‘free’’ (or use a similar term) if any maintenance or activity fee may be imposed on the account. As the Board noted in the proposal, fees for overdraft services are not considered maintenance or activity fees, because the fees do not relate to the use of the consumer’s own funds in the account. Thus, institutions may impose overdraft fees in connection with ‘‘free’’ accounts. The example addresses concerns about institutions that advertise overdraft services (or other services) as a feature of their free checking accounts in a manner that could mislead consumers to believe that the service is without cost. Accordingly, an advertisement would be deemed misleading if the account is described as ‘‘free’’ and the advertisement also promotes account-related services for which there is a fee, unless the advertisement clearly and conspicuously indicates there is a cost associated with the advertised service. Most commenters agree that the misleading advertising practices identified by the Board should be prohibited, and support the proposed examples. One consumer group, VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 however, believes that the proposed examples are not sufficient because they do not prohibit institutions from encouraging consumers to use the service for intentional overdrafts. The final rule does not contain such an example. Although advertisements that encourage intentional overdrafts may under some circumstances mislead consumers about the terms of the service, such a determination must be made on a case-by-case basis. A few industry commenters objected to the scope of the fifth example which pertains to advertisements that promote ‘‘free’’ accounts as well as services for which a fee is charged. These commenters believe the example should be limited to advertisements promoting overdraft services in connection with free accounts. Although comment 8(a)– 10.v. addresses concerns that consumers may be misled into thinking that overdraft protection is without cost when the service is advertised as a feature of free checking accounts, the same possibility of misleading consumers exists when other accountrelated services are advertised in connection with free accounts. Thus, the scope of the final comment is not limited to the promotion of overdraft services. TISA’s limitation on advertising an account as free is currently implemented in § 230.8(a). This provision has been redesignated as § 230.8(a)(2), without any substantive change. 8(f) Additional Disclosures in Connection With Overdraft Services Proposed § 230.8(f) would have required advertisements promoting an automated overdraft service to include certain fee and other information about the service. This requirement is in § 230.11(b) in the final rule. Section 230.8(f) of the final rule contains a cross-reference to the new advertising disclosures in § 230.11(b). Section 230.11 Additional Disclosure Requirements for Institutions Advertising the Payment of Overdrafts New § 230.11 consolidates the disclosure requirements previously set forth in §§ 230.6(a)(3) and 230.8(f) of the proposed rule. Section 230.11(a) contains the disclosure requirements for periodic statements. The final rule is narrower than the proposal and only applies to institutions that promote the payment of overdrafts in advertisements. Section 230.11(a) requires these institutions to separately disclose the total fees for paying overdrafts and the total fees for returning items unpaid on periodic PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 29587 statements. The disclosures must be made for the statement period and for the calendar year to date for each account to which the advertisement applies. Section 230.11(b) requires institutions that promote the payment of overdrafts in advertisements to provide certain additional disclosures about the nature of the overdraft service. The Board believes that consolidating these rules in a new section will help facilitate compliance with the regulation for institutions that choose to promote the payment of overdrafts. 11(a) Periodic Statement Disclosures of Fees for Overdrafts and for Returned Items Unpaid To assist consumers in better understanding the costs associated with overdrawing their accounts, the Board proposed to revise the requirements for providing cost disclosures on periodic statements. Although periodic statements are not required by TISA, an institution that provides such statements must disclose any fees or charges imposed on the account during the statement period. Under Regulation DD, fees must be itemized on a periodic statement by type, for example, by separately listing the monthly service charge, ATM fees, and returned check fees. When multiple fees of the same type are charged in a single period, comment 6(a)(3)–2 in the current staff commentary states that institutions have the option of showing each fee as a separate charge or, alternatively, aggregating all fees of the same type and disclosing a single dollar amount for that category. The Board proposed to add § 230.6(a)(3)(ii) to require all institutions to disclose separately the total dollar amount of overdraft fees and the total dollar amount of returned-item fees on an aggregate basis for the statement period and for the calendar year to date. As discussed above, under § 230.11(a)(1) of the final rule, only institutions that promote the payment of overdrafts in an advertisement are required to provide the aggregate fee disclosures on periodic statements. Institutions must provide the disclosures for all accounts to which the institution’s advertisement applies. Section 230.11(a)(2) describes certain communications that institutions may make concerning the payment of overdrafts that would not trigger the new periodic statement disclosures. Sections 230.11(a)(3) through (5) provide guidance on how an institution can comply with the rule after it commences advertising the payment of overdrafts, and after an institution acquires accounts through a merger or acquisition. Additional comments have E:\FR\FM\24MYR1.SGM 24MYR1 29588 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations been added for clarity in response to concerns raised by commenters. Consumer representatives that commented believe that consumers need better information about the cost of using certain overdraft services, but they assert that disclosing aggregate fees for the statement cycle and year to date would be insufficient to provide consumers with the information necessary to compare the cost of overdraft services with the costs of alternative forms of short-term credit such as payday loans, tax refund anticipation loans, and traditional overdraft lines of credit. They recommend that instead of adopting the proposed revisions to Regulation DD, the Board should cover certain overdraft services under Regulation Z so that periodic statements would provide consumers with an APR. Where the institution has not agreed in writing to pay overdrafts, a charge assessed against a deposit account for paying an overdraft has not been considered a finance charge and disclosures under Regulation Z are not required. This exception was established in Regulation Z from its inception in 1969. As noted above, the Board’s adoption of final rules under Regulation DD does not preclude a future determination that TILA disclosures would also benefit consumers. Industry commenters generally oppose the proposed requirement to disclose aggregate totals for overdraft fees and returned-item fees because they believe it would be costly and would provide little benefit to consumers. Several commenters disagree with the view that consumers do not receive sufficient information about the costs associated with overdrawing their account, observing that consumers receive a schedule of fees at accountopening, notice of fees imposed upon each overdraft, and an itemization of fees on periodic statements. Many of these commenters also assert that the itemization of fees on periodic statements provides a sufficient basis for consumers to determine an aggregate total for fees imposed during the statement cycle and calendar year to date. Most industry commenters stated that the typical industry practice of providing a notice after each overdraft is a more effective and timely means of alerting consumers about the cost of overdrafts. Some financial institutions oppose additional disclosures about overdraft fees on periodic statements because, in their view, it would detract from information on the periodic statement about other types of fees, such as ATM withdrawal fees. A few industry VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 commenters question how an institution can provide year-to-date totals that would be reset to zero each January when a statement period is not tied to a calendar month. Most industry commenters express concern about the cost of implementing changes to the way fees are disclosed on periodic statements, which would involve changes to data collection and reporting systems, as well as training and compliance management costs. They note that most institutions’ systems do not currently aggregate fee data across different statement cycles, which would be necessary to disclose year-to-date totals. Some commenters also note that systems changes would be needed for some institutions to distinguish between fees imposed for paying overdrafts and fees for handling items that are returned unpaid. Six financial institutions provided cost estimates. At the low end, one institution that stated it uses a thirdparty vendor for data processing estimated the cost at $20,000, while two other institutions that outsource data processing estimated the cost to be about $300,000. Two institutions (including one with $1.5 billion in assets) provided cost estimates between $50,000 and $125,000. Bank of America, noting that it operates the largest banking network in the United States, estimated that expenses for the initial systems modifications for paper statements would exceed $1 million. The Board specifically asked for comment on whether the requirement to disclose cumulative year-to-date fee totals on periodic statements should be limited to institutions that market overdraft services. Industry commenters were divided. Several banks that do not promote overdraft services supported limiting the rule; these were generally larger institutions that stated the proposed revisions should focus on institutions whose marketing practices have raised the most concerns. These commenters urged the Board to exempt institutions that do not market overdraft services from being required to disclose aggregate fees for the statement period and year to date. But more industry commenters stated that the rule, if adopted, should apply to all institutions and not just institutions that market overdraft services. Some of these commenters believe a rule based on ‘‘marketing’’ would be too vague; others assert that if the cost disclosure is useful, it would be just as beneficial to consumers regardless of whether the service is marketed. One commenter also noted that institutions’ contracts with third-party vendors may limit the cost of system changes from being PO 00000 Frm 00016 Fmt 4700 Sfmt 4700 imposed directly on individual depository institutions if the changes must be made by all institutions. TISA was enacted, in part, for the purpose of requiring clear and uniform disclosures regarding deposit account terms and the fees assessable against these accounts. Such disclosures allow consumers to make informed judgments about the use of their accounts, including the consideration of other available options. In proposing that institutions disclose the aggregate amount of fees imposed for overdrafts and returned items, the Board sought to ensure that consumers are more clearly presented with the overall cost of overdrawing their accounts, particularly in light of the fact that institutions’ payment of overdrafts has become more routine due to the use of automated systems, and that many institutions encourage consumers to use their overdraft service. Currently, institutions may itemize each fee on the periodic statement, including overdraft and returned-item fees; the itemized charges may be interspersed among other transactions in the account. A periodic statement that itemizes each transaction and fee during the statement cycle, without isolating the total cost of overdrawing the account, does not present a clear picture of the total cost associated with overdrawing the account. Fees for paying overdrafts and for returned items are typically flat fees unrelated to the amount of the transaction. These amounts may be significant when there are multiple overdrafts, although the items may represent relatively small dollar amounts. Even when consumers are aware that their account is or may become overdrawn, they do not necessarily know the number of overdraft items that will be paid or returned, or the total fees that will be imposed, both of which are determined by the order in which items are presented and the institution’s policies regarding the order in which items are paid. Thus, consumers may not be aware of the total amount of fees being imposed and the amount by which the account is overdrawn until the next periodic statement is received. The Board believes disclosure of the aggregate costs may better enable consumers to consider their approach to account management and determine whether the account’s terms and features are suited to their needs or whether other types of accounts or services would be more appropriate. The Board is also mindful, however, of the compliance costs associated with the proposed rule. Limiting the rule to E:\FR\FM\24MYR1.SGM 24MYR1 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations institutions that advertise the payment of overdrafts avoids imposing compliance burdens on institutions that pay overdrafts infrequently, such as institutions that only pay overdrafts on an ad hoc basis. Requiring institutions to provide aggregate fee disclosures if they promote the payment of overdrafts would provide better cost information for consumers who are encouraged to overdraw their accounts and who are most likely to benefit from the aggregate fee disclosures. There may be consumers who use overdraft services frequently even though their institution does not market the service; however, a rule based on individual consumer behavior is more difficult to administer. Accordingly, under § 230.11(a)(1), the requirement for disclosing aggregate fees for paying overdrafts and for returning items unpaid is limited to institutions that promote the payment of overdrafts in an advertisement. The total dollar amount for paying overdrafts includes all fees or charges imposed by an institution for paying overdrafts or other items when there are insufficient funds and the account becomes overdrawn. The final rule also clarifies that the required disclosures must be provided for the statement period and for the calendar year to date, for any account to which the advertisement applies. Institutions that do not promote the payment of overdrafts and have merely automated their traditional practice of paying overdrafts on an ad hoc basis are not covered by § 230.11(a)(1). These institutions may continue to itemize fees on periodic statements but whether they itemize fees or group them together by type, institutions must distinguish between fees for paying overdrafts and fees for returning unpaid items. Institutions that do not promote the payment of overdrafts may also group like fees together and provide a total for the statement period on a voluntary basis, consistent with the current rules. The definition of ‘‘advertisement’’ is broad and includes ‘‘a commercial message appearing in any medium, that promotes directly or indirectly the availability’’ the terms of a deposit account. Thus, the rules for overdraft services would cover any type of promotion, regardless of the advertisement’s content, format or the marketing channel used. For example, messages posted on a depository institution’s Internet site would be covered, as would promotional e-mail messages and messages printed on an institution’s periodic statement. Oral messages communicated in a telephone solicitation would also be covered. See comment 11(a)(1)–1(i). VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 To ease compliance, the final rule specifies certain types of communications and practices that would not trigger the requirement for disclosing aggregate fees on periodic statements. See § 205.11(a)(2). The safe harbors seek to provide additional certainty to institutions in determining whether compliance with the rule is required in particular circumstances. For example, the safe harbors clarify that an institution is not promoting the payment of overdrafts when providing information about the status of the account or a particular transaction, such as when notifying a consumer that the account has become overdrawn or when including the amount the account is overdrawn on a periodic statement. Similarly, an institution is not deemed to be promoting the payment of overdrafts when it provides notice to a consumer, such as at an ATM, that completing a requested transaction may trigger a fee for overdrawing the account, or when it provides a general notice that items overdrawing an account may trigger a fee. An institution also is not promoting overdraft services by providing legally required disclosures, by discussing in a deposit account agreement the institution’s right to pay overdrafts, or by providing educational materials that do not specifically describe the institution’s overdraft service (such as the brochure on ‘‘bounce protection’’ published by the Federal financial regulatory agencies). The rules for overdraft services also would not apply to advertisements for overdraft lines of credit covered by TILA and Regulation Z. The safe harbors also provide relief in circumstances where institutions would have practical difficulties in complying with the rule. In particular, there are safe harbors for consumer-initiated and face-or-face discussions to relieve institutions of the burden of monitoring individual conversations and responses; this also enables institutions to respond to consumers’ direct questions about their accounts without concern that the discussion might trigger additional disclosure requirements. The final rule clarifies that institutions are within the safe harbor when responding (whether by telephone, electronically, or otherwise) to consumer-initiated inquiries about deposit accounts and overdrafts. The revised final rule also explains the limits of this safe harbor; the safe harbor for consumer-initiated inquiries does not apply to institutions’ automated systems that are programmed to provide information about the institution’s overdraft service, such as an ATM machine, a telephone response PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 29589 machine, or the institution’s Internet site. In these cases, the consumer initiates the contact, but the institution has control over the pre-programmed message that provides information about available overdraft limits, and thus, the same compliance issues as individual inquiries are not presented. Section 230.11(a)(3) addresses the timing of the aggregate fee disclosures after an institution begins promoting the payment of overdrafts. An institution must make the disclosures under § 230.11(a)(1) for accounts to which the advertisement applies, starting with the first statement period that begins after the institution advertises the payment of overdrafts. For example, if a consumer’s statement period typically closes on the 15th of each month, an institution that promotes the payment of overdrafts with respect to the consumer’s account on July 1, 2006 must provide the aggregate fee disclosures on subsequent periodic statements for that consumer beginning with the statement reflecting the period from July 16, 2006, through August 15, 2006. In calculating and disclosing total fees for the year-to-date, institutions have the option of including fees imposed since the beginning of the calendar year, or starting with the first full statement period that begins after the institution advertises the payment of overdrafts with respect to the consumer’s account. Comment 11(a)(3)–1 explains that only institutions that continue to advertise the payment of overdrafts on or after the mandatory compliance date of July 1, 2006 will be required to provide aggregate fee periodic statement disclosures for their consumers. Under § 230.11(a)(4) of the final rule, an institution is no longer required to provide the disclosures under § 230.11(a)(1) two years after the institution last promotes its overdraft service with respect to that account, when the likely effect of the advertisement on consumers’ use is presumably dissipated. Where an institution acquires deposit accounts, for example, by merging with or acquiring another institution, under § 230.11(a)(5) the acquiring institution must thereafter provide the aggregate fee disclosures required by § 230.11(a)(1) only if the acquiring institution promotes the payment of overdrafts with respect to the acquired accounts. If disclosures are required for the acquired accounts, the acquiring institution may, but is not required, to include fees imposed prior to the acquisition in the aggregate totals. Comment 11(a)(5)–1 explains that if the acquiring institution does not advertise the payment of overdrafts, or its advertisements do not E:\FR\FM\24MYR1.SGM 24MYR1 29590 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations apply to the acquired accounts, the institution need not provide the aggregate fee disclosures for the acquired accounts even if the depository institution that previously held the accounts advertised the payment of overdrafts for those accounts. In response to commenters’ requests for clarification, additional guidance has been added to the staff commentary. Comment 11(a)(1)–1 provides examples of circumstances in which an institution would trigger the periodic statement requirements. For example, an institution promotes the payment of overdrafts by stating an overdraft limit or includes the amount of funds available for overdrafts on a periodic statement. See comment 11(a)–1(ii). Similarly, an institution promotes the payment of overdrafts if it states an overdraft limit or includes the dollar amount of the overdraft limit in an account balance disclosed on an ATM receipt or by a telephone response system. See comment 11(a)–1(iii). Comment 11(a)(1)–3 provides that an institution does not promote the payment of overdrafts, however, if it promotes a service providing for the transfer of funds from another deposit account of the consumer to avoid creating an overdraft. Comment 11(a)(1)–2 explains that the aggregate fee disclosures must be provided on periodic statement for all accounts to which an advertisement promoting the payment of overdrafts applies. Accordingly, if an institution specifies the types of accounts for which the overdraft service applies, the institution is not required to provide the disclosures for other types of accounts offered by the institution. An institution is required to provide the new aggregate fee disclosures for all of its accounts, however, if the institution generally promotes the payment of overdrafts without specifying the accounts to which the advertisement applies. Comment 11(a)(1)–4 clarifies that the total dollar amount disclosed for fees charged to the account for paying overdrafts includes per-item fees as well as interest charges, daily or other periodic fees, and fees charged for maintaining an account in overdraft status. It also includes fees charged when there are insufficient funds because previously deposited funds are subject to a hold or are uncollected. The disclosure would not include, however, fees for transferring funds from another account to avoid an overdraft, or fees charged in connection with a line of credit where the institution agrees in writing to pay items that overdraw the account and the service is subject to the Board’s Regulation Z. VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 Comment 11(a)(1)–5 clarifies that in disclosing fees for returning items unpaid, an institution should not include fees imposed when the account holder deposits items that are returned. In some cases, an institution may provide a statement for the current period reflecting that fees imposed during a previous period were waived and credited to the account. In response to commenters’ request for clarification, comment 11(a)(1)–6 provides that such adjustments should not affect the total disclosed for fees imposed during the current statement period. The comment also notes, however, that institutions may, but are not required to, reflect the adjustment in the fee total for the calendar year to date. In response to commenters’ suggestions, comment 11(a)(1)–7 provides guidance on how depository institutions may disclose the year-todate fee totals when the institution’s statement cycle does not coincide with the calendar month. In such cases, the institution may disclose a year-to-date total by aggregating fees for 12 monthly cycles, starting with the cycle that begins during January. Alternatively, the institution may provide a year-to-date total based on the calendar year. Comment 11(a)(1)–8 provides that institutions that promote the payment of overdrafts may continue to itemize overdraft and returned item fees on periodic statements as an additional voluntary disclosure in addition to the disclosures required by § 230.11(a)(1). 11(b) Advertising Disclosures for Overdraft Services TISA and Regulation DD require additional information to be provided if an advertisement for a deposit account refers to a specific rate of interest, yield, or rate of earnings. 12 U.S.C. 4302; § 230.8(c). Advertisements for bonuses on deposit accounts also trigger additional information. § 230.8(d). TISA authorizes the Board to exempt ‘‘broadcast and electronic media and outdoor advertising from stating some additional information, if the Board finds the disclosures to be unnecessarily burdensome.’’ 12 U.S.C. 4302(b). These limited disclosure rules are implemented in § 230.8(e)(1). The exemptions for broadcast and electronic media do not extend to advertisements posted on the Internet or sent by e-mail. A principal concern about institutions’ promotion of the payment of overdrafts is that consumers may be led to believe that the service represents a traditional line of credit. Some advertisements of overdraft services focus on the dollar amount of the overdraft limit, which may mislead PO 00000 Frm 00018 Fmt 4700 Sfmt 4700 some consumers to believe that a line of credit for that amount will be provided. Other advertisements create the impression that the payment of overdrafts can be relied upon to obtain short-term extensions of credit from time to time (up to a given amount) at minimal cost. These promotions may mislead or confuse consumers regarding the nature, costs, terms, and limitations of the service. This problem may be magnified somewhat because marketed overdraft services are relatively new. Additional disclosures in advertising could reduce the potential that some consumers would be misled, and enable consumers to compare the terms offered by different financial institutions. Accordingly, the Board proposed to add § 230.8(f) to require that the following disclosures be included in advertisements for ‘‘automated’’ overdraft services not subject to Regulation Z: (1) The fee for overdrawing an account; (2) the types of transactions covered; (3) the amount of time consumers have to repay or cover any overdraft; and (4) the circumstances under which the institution would not pay an overdraft. The proposed disclosures would have been required for print media and marketing on Internet sites; but because of the practical limitations of time or space, there was an exemption for advertisements using broadcast media, outdoor billboards, and telephone response machines, which would mirror the exemptions in Regulation DD for other types of advertising disclosures. The Board also proposed to add comments 8(f)–1 through 8(f)–3, to provide guidance in applying the new disclosure requirements. The final rule adopts these provisions largely as proposed in § 230.11(b) and the accompanying commentary. Several industry commenters asked the Board to clarify which ‘‘automated’’ overdraft services would be subject to the advertising disclosures, noting that all institutions automate their processing of overdrafts to some extent. These commenters generally urge the Board to draw a clear line to aid in compliance. The final rule omits the reference to ‘‘automated’’ overdraft services to eliminate unnecessary confusion. The rule was intended to apply to all overdraft services that are advertised by depository institutions. Institutions that have a policy of paying overdrafts only on an ad hoc basis generally do not advertise the service and are expected to be unaffected by the new advertising disclosure requirements. Most commenters did not disagree with the idea that some additional E:\FR\FM\24MYR1.SGM 24MYR1 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations information about marketed overdraft services might be helpful to consumers. But several industry commenters have concerns about the scope of the proposed disclosures, or have questions about how the disclosures would be implemented. A few industry commenters express the view that additional disclosures in advertisements would be burdensome and would, therefore, discourage banks from advertising overdraft services; others suggest that the additional disclosures would provide too much information and could confuse consumers. One trade association stated that disclosing specific costs and terms in advertisements might have the unintended effect of encouraging additional use of the service. On balance, the Board continues to believe that additional disclosures about the terms of overdraft services would benefit consumers, particularly since institutions often add the overdraft feature without consumers’ specific request. The final rule thus adopts the new advertising disclosure requirements under § 230.11(b)(1) and the staff commentary largely as proposed, with some modifications and clarifications. Consistent with the rule for periodic statement disclosures, § 230.11(b)(2)(i) through (xi) specifies circumstances where an institution would not be required to provide the additional advertising disclosures in § 230.11(b)(1). For example, an institution need not provide the disclosures if the advertisement is for a service where the payment of overdrafts is agreed upon in writing and subject to Regulation Z. See § 230.11(b)(2)(i). The advertising disclosures also are not applicable when an institution informs consumers about a specific overdrawn item, when it provides disclosures required by law, or when an institution provides educational materials that do not specifically describe the institution’s overdraft service. See § 230.11(b)(2)(vii), (viii), (xi). The advertising disclosures also do not apply to in-person discussions with a consumer, or when institutions are responding to consumerinitiated inquiries about deposit accounts or overdrafts. See § 230.11(b)(2)(ii), (vi). The final rule also recognizes that in some circumstances, there may be practical limitations on the ability to provide meaningful advertising disclosures. No disclosures would be required for broadcast or outdoor media, consistent with the current advertising rules in Regulation DD, or on ATM receipts, due to space limitations. See §§ 230.11(b)(2)(iii)–(v). The safe harbor for advertisements using broadcast or VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 electronic media applies to radio and television, but does not extend to advertisements posted on an Internet site, ATM screens, or on telephone response machines, or advertisements sent by e-mail. See comment 11(b)–3. Nevertheless, the advertising disclosures required for ATM screens and telephone response machines are limited to information about fees and the time period for repaying overdrafts. See § 230.11(b)(3). An institution that advertises the payment of overdrafts on an indoor lobby sign is only required to state that fees may apply and that consumers should contact an employee for information about applicable fees and terms. (An ATM screen would not be considered an indoor sign for purposes of this exemption.) See § 230.11(b)(4). An indoor sign may also direct consumers to additional sources of information, such as the institution’s Internet site. While institutions advertising the payment of overdrafts using broadcast or outdoor media, ATMs, telephone response machines or lobby signs may qualify for complete or partial exemptions from the advertising disclosures in § 230.11(b)(1), they would nevertheless continue to be required to provide aggregate fee disclosures on periodic statements under § 230.11(a)(1) for the statement period and the calendar year to date. The staff commentary contains additional guidance to clarify the obligations of institutions that promote the payment of overdrafts in advertisements. Comment 11(b)–2 clarifies that disclosures are not required if the advertised service provides for the transfer of funds from another consumer account to avoid creating an overdraft. Comment 11(b)–4 describes the types of fees that must be disclosed in an advertisement. Comment 11(b)–5 provides guidance on disclosing the types of transactions covered by an advertised overdraft service. This guidance was previously in proposed comment 8(f)–1. The guidance is consistent with the disclosures required at account opening. See comment 4(b)(4)–5. Institutions are not required to provide an exhaustive list of transactions. Disclosing that a fee may be imposed for covering overdrafts ‘‘created by check, in-person withdrawal, ATM withdrawal, or other electronic means,’’ as applicable, would satisfy the rule. Comment 11(b)–6 provides guidance on disclosing the time period for repayment, which is intended to warn consumers that, unlike a line of credit, they are expected to cover the overdraft in a relatively short period. Some PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 29591 industry commenters noted that an institution’s deposit agreement may require immediate repayment even though, in practice, the institution allows consumers to cover the overdraft with their next regular deposit. Other industry commenters assert the disclosure might encourage consumers to defer repayment of the overdraft. In response to the comments, comment 11(b)–6 clarifies that if a depository institution reserves the right to require a consumer to pay an overdraft immediately or on demand instead of affording consumers a specific time period to bring their account to a positive balance, it may disclose that fact to satisfy the rule. Comment 11(b)–7 provides guidance on how institutions may describe the circumstances under which an institution will not pay an overdraft. This guidance previously was in proposed comment 8(f)–2. Some industry commenters stated that such a disclosure could imply an agreement or promise to pay overdrafts in all other circumstances, which would be contrary to the ‘‘discretionary’’ nature of the overdraft service. Many commenters suggested a more generic disclosure noting that payment of any overdraft is discretionary. The final commentary provision has been revised to address the commenters’ concerns and provides model language. An institution must describe the circumstances under which it will not pay an overdraft, but it is sufficient to state, as applicable: ‘‘Whether your overdrafts will be paid is discretionary and we reserve the right not to pay. For example, we typically do not pay overdrafts if your account is not in good standing, or you are not making regular deposits, or you have too many overdrafts.’’ Comment 11(b)–8 clarifies the relationship between the general guidance in comment 8(a)–10.v. (the rules for advertisements that promote free accounts as well as an accountrelated service for which a fee is charged) and the requirements of § 230.11(b)(1) when the account-related service being advertised is an overdraft service. This guidance previously was in proposed comment 8(f)–3. When the advertised service is an overdraft service, institutions must disclose the fee or fees for the payment of each overdraft, not merely that a cost is associated with the overdraft service, as well as other required information. VII. Regulatory Flexibility Analysis The Board has prepared a final regulatory flexibility analysis as required by the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). E:\FR\FM\24MYR1.SGM 24MYR1 29592 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations 1. Statement of the need for and objectives of the proposal. TISA was enacted, in part, for the purpose of requiring clear and uniform disclosures regarding deposit account terms and fees assessable against these accounts. Such disclosures allow consumers to make meaningful comparisons between different accounts and also allow consumers to make informed judgments about the use of their accounts. 12 U.S.C. 4301. TISA requires the Board to prescribe regulations to carry out the purpose and provisions of the statute. 12 U.S.C. 4308(a)(1). The Board is adopting revisions to Regulation DD to address the uniformity and adequacy of institutions’ disclosure of fees associated with overdraft services generally, and to address concerns about advertised overdraft services in particular. As stated more fully above, the existing regulation is amended to require depository institutions offering certain overdraft services to provide more complete information regarding those services. The Board believes that the revisions to Regulation DD discussed above are within the Congress’ broad grant of authority to the Board to adopt provisions that carry out the purposes of the statute. 2. Summary of issues raised by comments in response to the initial regulatory flexibility analysis. One commenter questioned the statement in the proposal that no Federal rules duplicate, overlap, or conflict with the proposed revisions to Regulation DD because there are other laws that depository institutions must consider when administering an overdraft protection program. Although other laws and regulations may apply to depository institutions’ payment of overdrafts, the final revisions to Regulation DD do not duplicate or conflict with the requirements imposed by these other laws. The Board has also considered the interagency guidance on overdraft protection programs issued in February 2005, and has determined that issuance of the final revisions to Regulation DD is consistent with the interagency guidance. 3. Description of small entities affected by the proposal. Approximately 14,242 depository institutions in the United States that must comply with the Truth in Savings Act have assets of $150 million or less and thus are considered small entities for purposes of the Regulatory Flexibility Act, based on 2004 call report data. Approximately 5,765 are institutions that must comply with the Board’s Regulation DD; approximately 8,477 are credit unions that must comply with National Credit Union Administration’s Truth in VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 Savings regulations, which must be substantially similar to the Board’s Regulation DD. The Board believes that almost all small depository institutions that offer accounts where overdraft or returneditem fees are imposed currently send periodic statements on those accounts, although the number of small depository institutions that promote their overdraft services is unknown. For those institutions that promote the payment of overdrafts in an advertisement, periodic statement disclosures will need to be revised to display aggregate overdraft and aggregate returned-item fees for the statement period and year to date. All small depository institutions will have to review, and perhaps revise accountopening disclosures and marketing materials. 4. Recordkeeping, reporting, and compliance requirements. The revisions to Regulation DD require all financial institutions to provide more complete information to consumers regarding overdraft services. Account-opening disclosures and marketing materials would describe more completely how fees may be triggered. As discussed in more detail above, institutions that promote their overdraft service in an advertisement must separately disclose on periodic statements the total dollar amount of fees and charges imposed on the account for paying overdrafts and the total dollar amount for returning items unpaid. These disclosures must be provided for the statement period and for the calendar year to date for each account to which the advertisement applies. Certain advertising practices are prohibited, and additional disclosures on advertisements of overdraft services are required. 5. Steps taken to minimize the economic impact on small entities. The Board solicited comment on how the burden of disclosures on institutions could be minimized. In response to comments received, the final rule limits the requirement to disclose aggregate totals for overdraft and returned-item fees for the statement period and the calendar year to date to institutions that promote the payment of overdrafts in an advertisement, and thereby encourage the routine use of the service. The final rule also specifies certain practices that would not trigger the new overdraft disclosures. The safe harbors provide additional certainty to institutions in determining whether compliance with the rule is required in particular circumstances. Consistent with the rule requiring periodic statement disclosures, the final rule also provides safe harbors to specify circumstances PO 00000 Frm 00020 Fmt 4700 Sfmt 4700 when an institution would not be required to provide additional advertising disclosures. Under the final rule, institutions are permitted to provide an illustrative list of categories by which overdrafts may be created, to generally eliminate the need to provide a change-in-terms notice each time a new channel for creating overdrafts is added. The final rule also provides additional guidance regarding the types of fees that should be included in the total dollar amount of fees and charges imposed on the account for paying overdrafts and in the total dollar amount for returning items unpaid. VIII. Paperwork Reduction Act In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the rule under the authority delegated to the Board by the Office of Management and Budget. The Federal Reserve may not conduct or sponsor, and an organization is not required to respond to, this information collection unless it displays a currently valid OMB control number. The OMB control number is 7100–0271. The collection of information that is revised by this rulemaking is found in 12 CFR part 230 and in Appendix B. This collection is mandatory (15 U.S.C. 4301 et seq.) to evidence compliance with the requirements of Regulation DD and the Truth in Savings Act (TISA). Institutions are required to retain records for twenty-four months. The respondents/recordkeepers are for-profit depository institutions, including small businesses. This regulation applies to all types of depository institutions, not just Federal Reserve-regulated institutions. Under Paperwork Reduction Act regulations, however, the Federal Reserve accounts for the burden of the paperwork associated with the regulation only for Federal Reserveregulated institutions. Other agencies account for the paperwork burden on their depository institutions under this regulation. The revisions provide that depository institutions offering certain overdraft payment services would be required to provide more complete information regarding those services. Accountopening disclosures and other marketing materials describe more completely how fees may be triggered. Institutions that promote the payment of overdrafts must separately disclose on periodic statements the total dollar amount of fees and charges imposed on the account for paying overdrafts and the total dollar amount of fees charged to the account for returning items E:\FR\FM\24MYR1.SGM 24MYR1 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations unpaid. These disclosures must be provided for the statement period and for the calendar year to date for each account to which an advertisement applies. Certain advertising practices are prohibited, and additional disclosures in advertisements for the payment of overdrafts are required. Although the final rule adds these requirements, it is expected that these revisions would not significantly increase the ongoing paperwork burden of depository institutions. However, respondents would face a one-time burden to reprogram and update their systems to include these new notice requirements. The Federal Reserve estimates that it will take the respondents, on average, 8 hours (one business day) to make these system changes; therefore, the Federal Reserve estimates that the total annual burden for revising the periodic disclosure and the account-opening disclosure to be 10,072 hours. Respondents would also face a one-time burden to revise and update their advertising materials. The estimated time to update these materials is approximately 40 hours (one business week); therefore, the Federal Reserve estimates that the total annual burden for this requirement to be 50,360 hours. With respect to Federal Reserveregulated institutions, it is estimated that there are 1,259 respondent/ recordkeepers. The current annual burden is estimated to be 187,365 hours. The proposed annual burden is estimated to be 247,979, an increase of 60,432 hours. All depository institutions, of which there are approximately 18,554, potentially are affected by this collection of information, and thus are respondents for purposes of the PRA. The above estimates represent an average across all respondents and reflect variations between institutions based on their size, complexity, and practices. The other federal 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 estimates. The total estimated annual burden for all financial institutions, including Federal Reserve regulated institutions, subject to Regulation DD would be approximately 3,755,261 hours, using the same burden methodology as above. Because the records are maintained at depository institutions and the notices are not provided to the Federal Reserve, no issue of confidentiality arises under the Freedom of Information Act. The Federal Reserve has a continuing interest in the public’s opinions of our VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 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: the Office of Management and Budget, Paperwork Reduction Project (7100–0271), Washington, DC 20503, with copies of such comments sent to Michelle Long, Federal Reserve Board Clearance Officer, Division of Research and Statistics, Mail Stop 41, Board of Governors of the Federal Reserve System, Washington, DC 20551. List of Subjects in 12 CFR Part 230 Advertising, Banks, Banking, Consumer protection, Reporting and recordkeeping requirements, Truth in savings. For the reasons set forth in the preamble, the Board amends Regulation DD, 12 CFR part 230, as set forth below: I PART 230—TRUTH IN SAVINGS (REGULATION DD) 1. The authority citation for part 230 continues to read as follows: I Authority: 12 U.S.C. 4301 et seq. 2. Section 230.2 is amended by revising paragraph (b) to read as follows: I § 230.2 Definitions. * * * * * (b) Advertisement means a commercial message, appearing in any medium, that promotes directly or indirectly: (1) The availability or terms of, or a deposit in, a new account; and (2) For purposes of § 230.8(a) and § 230.11 of this part, the terms of, or a deposit in, a new or existing account. * * * * * I 3. Section 230.6 is amended by republishing paragraph (a) and revising paragraph (a)(3) to read as follows: § 230.6 Periodic statement disclosures. (a) General rule. If a depository institution mails or delivers a periodic statement, the statement shall include the following disclosures: * * * * * (3) Fees imposed. Fees required to be disclosed under § 230.4(b)(4) of this part that were debited to the account during the statement period. The fees shall be itemized by type and dollar amounts. Except as provided in § 230.11(a)(1) of this part, when fees of the same type are imposed more than once in a statement period, a depository institution may itemize each fee separately or group the PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 29593 fees together and disclose a total dollar amount for all fees of that type. * * * * * I 4. Section 230.8 is amended by revising paragraph (a), and adding a new paragraph (f) to read as follows: § 230.8 Advertising. (a) Misleading or inaccurate advertisements. An advertisement shall not: (1) Be misleading or inaccurate or misrepresent a depository institution’s deposit contract; or (2) Refer to or describe an account as ‘‘free’’ or ‘‘no cost’’ (or contain a similar term) if any maintenance or activity fee may be imposed on the account. The word ‘‘profit’’ shall not be used in referring to interest paid on an account. * * * * * (f) Additional disclosures in connection with the payment of overdrafts. Institutions that promote the payment of overdrafts in an advertisement shall include in the advertisement the disclosures required by § 230.11(b) of this part. I 5. Section 230.11 is added to read as follows: § 230.11 Additional disclosure requirements for institutions advertising the payment of overdrafts. (a) Periodic statement disclosures. (1) Disclosure of Total Fees. (i) Except as provided in paragraph (a)(2) of this section, if a depository institution promotes the payment of overdrafts in an advertisement, the institution must separately disclose on each periodic statement: (A) The total dollar amount for all fees or charges imposed on the account for paying checks or other items when there are insufficient funds and the account becomes overdrawn; and (B) The total dollar amount for all fees imposed on the account for returning items unpaid. (ii) The disclosures required by this paragraph must be provided for the statement period and for the calendar year to date, for any account to which the advertisement applies. (2) Communications not triggering disclosure of total fees. The following communications by a depository institution do not trigger the disclosures required by paragraph (a)(1) of this section: (i) Promoting in an advertisement a service for paying overdrafts where the institution’s payment of overdrafts will be agreed upon in writing and subject to the Board’s Regulation Z (12 CFR part 226); (ii) Communicating (whether by telephone, electronically, or otherwise) E:\FR\FM\24MYR1.SGM 24MYR1 29594 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations about the payment of overdrafts in response to a consumer-initiated inquiry about deposit accounts or overdrafts. Providing information about the payment of overdrafts in response to a balance inquiry made through an automated system, such as a telephone response machine, an automated teller machine (ATM), or an institution’s Internet site, is not a response to a consumer-initiated inquiry for purposes of this paragraph; (iii) Engaging in an in-person discussion with a consumer; (iv) Making disclosures that are required by Federal or other applicable law; (v) Providing a notice or including information on a periodic statement informing a consumer about a specific overdrawn item or the amount the account is overdrawn; (vi) Including in a deposit account agreement a discussion of the institution’s right to pay overdrafts; (vii) Providing a notice to a consumer, such as at an ATM, that completing a requested transaction may trigger a fee for overdrawing an account, or providing a general notice that items overdrawing an account may trigger a fee; or (viii) Providing informational or educational materials concerning the payment of overdrafts if the materials do not specifically describe the institution’s overdraft service. (3) Time period covered by disclosures. An institution must make the disclosures required by paragraph (a)(1) of this section for the first statement period that begins after an institution advertises the payment of overdrafts. An institution may disclose total fees imposed for the calendar year by aggregating fees imposed since the beginning of the calendar year, or since the beginning of the first statement period that year for which such disclosures are required. (4) Termination of promotions. Paragraph (a)(1) of this section shall cease to apply with respect to a deposit account two years after the date of an institution’s last advertisement promoting the payment of overdrafts applicable to that account. (5) Acquired accounts. An institution that acquires an account must thereafter provide the disclosures required by paragraph (a)(1) of this section for the first statement period that begins after the institution promotes the payment of overdrafts in an advertisement that applies to the acquired account. If disclosures under paragraph (a)(1) of this section are required for the acquired account, the institution may, but is not VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 required to, include fees imposed prior to acquisition of the account. (b) Advertising disclosures for overdraft services. (1) Disclosures. Except as provided in paragraphs (b)(2),(b)(3), and (b)(4) of this section, any advertisement promoting the payment of overdrafts shall disclose in a clear and conspicuous manner: (i) The fee or fees for the payment of each overdraft; (ii) The categories of transactions for which a fee for paying an overdraft may be imposed; (iii) The time period by which the consumer must repay or cover any overdraft; and (iv) The circumstances under which the institution will not pay an overdraft. (2) Communications about the payment of overdrafts not subject to additional advertising disclosures. Paragraph (b)(1) of this section does not apply to: (i) An advertisement promoting a service where the institution’s payment of overdrafts will be agreed upon in writing and subject to the Board’s Regulation Z (12 CFR part 226); (ii) A communication by an institution about the payment of overdrafts in response to a consumerinitiated inquiry about deposit accounts or overdrafts. Providing information about the payment of overdrafts in response to a balance inquiry made through an automated system, such as a telephone response machine, ATM, or an institution’s Internet site, is not a response to a consumer-initiated inquiry for purposes of this paragraph; (iii) An advertisement made through broadcast or electronic media, such as television or radio; (iv) An advertisement made on outdoor media, such as billboards; (v) An ATM receipt; (vi) An in-person discussion with a consumer; (vii) Disclosures required by federal or other applicable law; (viii) Information included on a periodic statement or a notice informing a consumer about a specific overdrawn item or the amount the account is overdrawn; (ix) A term in a deposit account agreement discussing the institution’s right to pay overdrafts; (x) A notice provided to a consumer, such as at an ATM, that completing a requested transaction may trigger a fee for overdrawing an account, or a general notice that items overdrawing an account may trigger a fee; or (xi) Informational or educational materials concerning the payment of overdrafts if the materials do not specifically describe the institution’s overdraft service. PO 00000 Frm 00022 Fmt 4700 Sfmt 4700 (3) Exception for ATM screens and telephone response machines. The disclosures described in paragraphs (b)(1)(ii) and (b)(1)(iv) of this section are not required in connection with any advertisement made on an ATM screen or using a telephone response machine. (4) Exception for indoor signs. Paragraph (b)(1) of this section does not apply to advertisements for the payment of overdrafts on indoor signs as described by § 230.8(e)(2) of this part, provided that the sign contains a clear and conspicuous statement that fees may apply and that consumers should contact an employee for further information about applicable fees and terms. For purposes of this paragraph (b)(4), an indoor sign does not include an ATM screen. * * * * * I 6. In Supplement I to part 230: I a. Under § 230.2 Definitions, under (b) Advertisement, the introductory sentence to paragraph 2. is republished, paragraph 2.iii. is revised, and new paragraphs 2.iv. through 2.vi. are added. I b. Under § 230.4 Account disclosures, under (b)(4) Fees, a new paragraph 5. is added. I c. Under § 230.6 Periodic statement disclosures, under (a)(3) Fees imposed, paragraph 2. is revised. I d. Under § 230.8 Advertising, under (a) Misleading or inaccurate advertisements, a new paragraph 10. is added. I e. A new § 230.11 Additional disclosure requirements for institutions advertising the payment of overdrafts, is added to the end of Supplement I. Supplement I To Part 230—Official Staff Interpretations * * * Section 230.2 * * * * * Definitions * * (b) Advertisement * * * * * 2. Other messages. Examples of messages that are not advertisements are— * * * * * iii. For purposes of § 230.8(b) of this part through § 230.8(e) of this part, information given to consumers about existing accounts, such as current rates recorded on a voiceresponse machine or notices for automatically renewable time account sent before renewal iv. Information about a particular transaction in an existing account v. Disclosures required by federal or other applicable law vi. A deposit account agreement * * * Section 230.4 * * * * * Account Disclosures * * (b) Content of account disclosures * E:\FR\FM\24MYR1.SGM * * 24MYR1 * * Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations (b)(4) Fees * * * * * 5. Fees for overdrawing an account. Under § 230.4(b)(4) of this part, institutions must disclose the conditions under which a fee may be imposed. In satisfying this requirement institutions must specify the categories of transactions for which an overdraft fee may be imposed. An exhaustive list of transactions is not required. It is sufficient for an institution to state that the fee applies to overdrafts ‘‘created by check, in-person withdrawal, ATM withdrawal, or other electronic means,’’ as applicable. Disclosing a fee ‘‘for overdraft items’’ would not be sufficient. * * * * * * Section 230.6 Periodic statement disclosures (a) General rule * * * * * (a)(3) Fees imposed * * * * * 2. Itemizing fees by type. In itemizing fees imposed more than once in the period, institutions may group fees if they are the same type. (See § 230.11(a)(1) of this part regarding certain fees that are required to be grouped when an institution promotes the payment of overdrafts.) When fees of the same type are grouped together, the description must make clear that the dollar figure represents more than a single fee, for example, ‘‘total fees for checks written this period.’’ Examples of fees that may not be grouped together are— i. Monthly maintenance and excess-activity fees ii. ‘‘transfer’’ fees, if different dollar amounts are imposed’’ such as $.50 for deposits and $1.00 for withdrawals iii. fees for electronic fund transfers and fees for other services, such as balanceinquiry or maintenance fees iv. fees for paying overdrafts and fees for returning checks or other items unpaid * * * * * Section 230.8 Advertising (a) Misleading or inaccurate advertisements * * * * * 10. Examples. Examples of advertisements that would ordinarily be misleading, inaccurate, or misrepresent the deposit contract are: i. Representing an overdraft service as a ‘‘line of credit,’’ unless the service is subject to the Board’s Regulation Z, 12 CFR part 226. ii. Representing that the institution will honor all checks or authorize payment of all transactions that overdraw an account, with or without a specified dollar limit, when the institution retains discretion at any time not to honor checks or authorize transactions. iii. Representing that consumers with an overdrawn account are allowed to maintain a negative balance when the terms of the account’s overdraft service require consumers promptly to return the deposit account to a positive balance. iv. Describing an institution’s overdraft service solely as protection against bounced checks when the institution also permits VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 overdrafts for a fee for overdrawing their accounts by other means, such as ATM withdrawals, debit card transactions, or other electronic fund transfers. v. Advertising an account-related service for which the institution charges a fee in an advertisement that also uses the word ‘‘free’’ or ‘‘no cost’’ (or a similar term) to describe the account, unless the advertisement clearly and conspicuously indicates that there is a cost associated with the service. If the fee is a maintenance or activity fee under § 230.8(a)(2) of this part, however, an advertisement may not describe the account as ‘‘free’’ or ‘‘no cost’’ (or contain a similar term) even if the fee is disclosed in the advertisement. * * * * Section 230.11 Additional disclosure requirements for institutions advertising the payment of overdrafts (a) Periodic statement disclosures. (a)(1) Disclosure of total fees. 1. Examples of institutions advertising the payment of overdrafts. An institution would trigger the periodic statement disclosures if it: i. Promotes the institution’s policy or practice of paying some overdrafts (unless the service would be subject to the Board’s Regulation Z (12 CFR part 226)), in advertisements using broadcast media, brochures, telephone solicitations or electronic mail, or on Internet sites, ATM screens or receipts, billboards, or indoor signs. (But see § 230.11(a)(2) of this part regarding communications about the payment of overdrafts that would not trigger periodic statement disclosures); ii. Includes a message on a periodic statement informing the consumer of an overdraft limit or the amount of funds available for overdrafts. For example, an institution that includes a message on a periodic statement informing the consumer of a $500 overdraft limit or that the consumer has $300 remaining on the overdraft limit, is promoting an overdraft service; iii. Discloses an overdraft limit or includes the dollar amount of an overdraft limit in a balance disclosed by any means, including on an ATM receipt or on an automated system, such as a telephone response machine, ATM screen, or the institution’s Internet site. 2. Applicability of periodic statement disclosures. The periodic statement disclosures apply to all accounts for which the institution has advertised the payment of overdrafts. For example, if an advertisement promoting the payment of overdrafts specifies the types of accounts to which the advertisement applies, the institution would not be required to provide the periodic statement disclosures for other types of accounts offered by the institution for which the advertisement does not apply. If an advertisement does not specify the types of accounts to which it applies, the advertisement would be considered to apply to all of an institution’s deposit accounts. 3. Transfer services. The overdraft services covered by § 230.11(a)(1) of this part do not include a service providing for the transfer of funds from another deposit account of the PO 00000 Frm 00023 Fmt 4700 Sfmt 4700 29595 consumer to permit the payment of items without creating an overdraft, even if a fee is charged for the transfer. 4. Fees for paying overdrafts. An institution that advertises the payment of overdrafts must disclose on periodic statements a total dollar amount for all fees charged to the account for paying overdrafts. The institution must disclose separate totals for the statement period and for the calendar year to date. The total dollar amount includes per-item fees as well as interest charges, daily or other periodic fees, or fees charged for maintaining an account in overdraft status, whether the overdraft is by check or by other means. It also includes fees charged when there are insufficient funds because previously deposited funds are subject to a hold or are uncollected. It does not include fees for transferring funds from another account to avoid an overdraft, or fees charged when the institution has previously agreed in writing to pay items that overdraw the account and the service is subject to the Board’s Regulation Z, 12 CFR part 226. 5. Fees for returning items unpaid. An institution that advertises the payment of overdrafts must disclose a total dollar amount for all fees charged to the account for dishonoring or returning checks or other items drawn on the account. The institution must disclose separate totals for the statement period and for the calendar year to date. Fees imposed when deposited items are returned are not included. 6. Waived fees. In some cases, an institution may provide a statement for the current period reflecting that fees imposed during a previous period were waived and credited to the account. Institutions may, but are not required to, reflect the adjustment in the total for the calendar year to date. Such adjustments should not affect the total disclosed for fees imposed during the current statement period. 7. Totals for the calendar year to date. Some institutions’ statement periods do not coincide with the calendar month. In such cases, the institution may disclose a calendar year-to-date total by aggregating fees for 12 monthly cycles, starting with the period that begins during January and finishing with the period that begins during December. For example, if statement periods begin on the 10th day of each month, the statement covering December 10, 2006 through January 9, 2007 may disclose the year-to-date total for fees imposed from January 10, 2006 through January 9, 2007. Alternatively, the institution could provide a statement for the cycle ending January 9, 2007 showing the year-todate total for fees imposed January 1, 2006 through December 31, 2006. 8. Itemization of fees. An institution may itemize each fee in addition to providing the disclosures required by § 230.11(a)(1) of this part. (a)(3) Time period covered by disclosures 1. Periodic statement disclosures. The disclosures under § 230.11(a)(1) of this part must be included on periodic statements provided by an institution reflecting the first statement period that begins after the institution advertises the payment of overdrafts. For example, if a consumer’s statement period typically closes on the 15th E:\FR\FM\24MYR1.SGM 24MYR1 29596 Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Rules and Regulations of each month, an institution that promotes the payment of overdrafts on July 1, 2006 must provide the disclosures required by § 230.11(a)(1) of this part on subsequent periodic statements for that consumer beginning with the statement reflecting the period from July 16, 2006 through August 15, 2006. Only depository institutions that promote the payment of overdrafts in an advertisement on or after July 1, 2006 must provide disclosures on periodic statements under § 230.11(a)(1) of this part. (a)(5) Acquired accounts 1. Examples. As provided in § 230.11(a)(5) of this part, an institution that acquires deposit accounts through merger or acquisition must provide the disclosures required by paragraph (a)(1) of this section for the first statement period that begins after the institution promotes the payment of overdrafts in an advertisement that applies to the acquired account. If the acquiring institution does not advertise the payment of overdrafts, or the advertisement does not apply to the acquired accounts, the institution need not provide the disclosures required by § 230.11(a)(1) of this part for the acquired accounts even if the depository institution that previously held the accounts advertised the payment of overdrafts with respect to those accounts. (b) Advertising Disclosures in Connection With Overdraft Services 1. Examples of institutions promoting the payment of overdrafts. A depository institution would be required to include the advertising disclosures in § 230.11(b)(1) of this part if the institution: i. Promotes the institution’s policy or practice of paying overdrafts (unless the service would be subject to the Board’s Regulation Z (12 CFR part 226)). This includes advertisements using print media such as newspapers or brochures, telephone solicitations, electronic mail, or messages posted on an Internet site. (But see § 230.11(b)(2) of this part for communications that are not subject to the additional advertising disclosures); ii. Includes a message on a periodic statement informing the consumer of an overdraft limit or the amount of funds available for overdrafts. For example, an institution that includes a message on a periodic statement informing the consumer of a $500 overdraft limit or that the consumer has $300 remaining on the overdraft limit, is promoting an overdraft service. iii. Discloses an overdraft limit or includes the dollar amount of an overdraft limit in a balance disclosed on an automated system, such as a telephone response machine, ATM screen or the institution’s Internet site. (See, however, § 230.11(b)(3) of this part.). 2. Transfer services. The overdraft services covered by § 230.11(b)(1) of this part do not include a service providing for the transfer of funds from another deposit account of the consumer to permit the payment of items without creating an overdraft, even if a fee is charged for the transfer. 3. Electronic media. The exception for advertisements made through broadcast or electronic media, such as television or radio, does not apply to advertisements posted on VerDate jul<14>2003 17:15 May 23, 2005 Jkt 205001 an institution’s Internet site, on an ATM screen, provided on telephone response machines, or sent by electronic mail. 4. Fees. The fees that must be disclosed under § 230.11(b)(1) of this part include peritem fees as well as interest charges, daily or other periodic fees, and fees charged for maintaining an account in overdraft status, whether the overdraft is by check or by other means. The fees also include fees charged when there are insufficient funds because previously deposited funds are subject to a hold or are uncollected. The fees do not include fees for transferring funds from another account to avoid an overdraft, or fees charged when the institution has previously agreed in writing to pay items that overdraw the account and the service is subject to the Board’s Regulation Z, 12 CFR part 226. 5. Categories of transactions. An exhaustive list of transactions is not required. Disclosing that a fee may be imposed for covering overdrafts ‘‘created by check, inperson withdrawal, ATM withdrawal, or other electronic means’ would satisfy the requirements of § 230.11(b)(1)(ii) of this part where the fee may be imposed in these circumstances. See comment 4(b)(4)–5 of this part. 6. Time period to repay. If a depository institution reserves the right to require a consumer to pay an overdraft immediately or on demand instead of affording consumers a specific time period to establish a positive balance in the account, an institution may comply with § 230.11(b)(1)(iii) of this part by disclosing this fact. 7. Circumstances for nonpayment. An institution must describe the circumstances under which it will not pay an overdraft. It is sufficient to state, as applicable: ‘‘Whether your overdrafts will be paid is discretionary and we reserve the right not to pay. For example, we typically do not pay overdrafts if your account is not in good standing, or you are not making regular deposits, or you have too many overdrafts.’’ 8. Advertising an account as ‘‘free.’’ If the advertised account-related service is an overdraft service subject to the requirements of § 230.11(b)(1) of this part, institutions must disclose the fee or fees for the payment of each overdraft, not merely that a cost is associated with the overdraft service, as well as other required information. Compliance with comment 8(a)–10.v. is not sufficient. By order of the Board of Governors of the Federal Reserve System, May 19, 2005. Jennifer J. Johnson, Secretary of the Board. [FR Doc. 05–10348 Filed 5–23–05; 8:45 am] BILLING CODE 6210–01–P PO 00000 Frm 00024 Fmt 4700 Sfmt 4700 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9205] RIN 1545–BE17 Credit for Increasing Research Activities Internal Revenue Service (IRS), Treasury. ACTION: Temporary regulations. AGENCY: SUMMARY: This document contains temporary regulations relating to the computation and allocation of the credit for increasing research activities for members of a controlled group of corporations or a group of trades or businesses under common control. These temporary regulations reflect changes made to section 41 by the Revenue Reconciliation Act of 1989 (1989 Act), which introduced the current computational regime for the credit, and the Small Business Job Protection Act of 1996, which introduced the alternative incremental research credit. The text of the temporary regulations also serves as the text of the proposed regulations set forth in the notice of proposed rulemaking on this subject in the Proposed Rules section in this issue of the Federal Register. DATES: Effective Date: These regulations are effective May 24, 2005. Applicability Dates: For dates of applicability see §§ 1.41–6T(j) and 1.41– 8T(b)(5). FOR FURTHER INFORMATION CONTACT: Nicole R. Cimino (202) 622–3120 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background On July 29, 2003, the Treasury Department and the IRS published in the Federal Register (68 FR 44499) proposed amendments to the regulations under section 41(f) (REG– 133791–02) (the 2003 proposed regulations) relating to the computation and allocation of the credit for increasing research activities (research credit) under section 41 for members of a controlled group of corporations or a group of trades or businesses under common control (controlled groups). The 2003 proposed regulations withdrew the proposed regulations published in the Federal Register on January 4, 2000 (65 FR 258) (REG– 105606–99) (the 2000 proposed regulations). In general, the 2000 proposed regulations required E:\FR\FM\24MYR1.SGM 24MYR1

Agencies

[Federal Register Volume 70, Number 99 (Tuesday, May 24, 2005)]
[Rules and Regulations]
[Pages 29582-29596]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-10348]


=======================================================================
-----------------------------------------------------------------------

FEDERAL RESERVE SYSTEM

12 CFR Part 230

[Regulation DD; Docket No. R-1197]


Truth in Savings

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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

SUMMARY: The Board is amending Regulation DD, which implements the 
Truth in Savings Act, and the staff commentary to the regulation, to 
address concerns about the uniformity and adequacy of information 
provided to consumers when they overdraw their deposit accounts. The 
amendments, in part, address certain types of services--sometimes 
referred to as ``bounced-check protection'' or--courtesy overdraft 
protection''--which are offered by many depository institutions to pay 
consumers' checks, and which allow other overdrafts when there are 
insufficient funds in the account. These services are typically 
automated services provided to transaction account consumers as an 
alternative to a traditional overdraft line of credit. Among other 
things, the final rule creates a new section to the regulation that 
requires institutions that promote the payment of overdrafts in an 
advertisement to disclose on periodic statements, total fees imposed 
for paying overdrafts and total fees imposed for returning items unpaid 
on periodic statements, both for the statement period and the calendar 
year to date, and to include certain other disclosures in 
advertisements of overdraft services.

DATES: The rule is effective July 1, 2006.

FOR FURTHER INFORMATION CONTACT: Elizabeth A. Eurgubian, Attorney, or 
Ky Tran-Trong or Krista P. DeLargy, Senior Attorneys, Division of 
Consumer and Community Affairs, Board of Governors of the Federal 
Reserve System, at (202) 452-3667 or 452-2412; for users of 
Telecommunications Device for the Deaf (``TDD'') only, contact (202) 
263-4869.

SUPPLEMENTARY INFORMATION:

I. The Truth in Savings Act

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

II. Concerns About Overdraft Services

    Historically, depository institutions have used their discretion on 
an ad hoc basis to pay overdrafts for consumers on transaction 
accounts, usually imposing a fee. Over the years, some institutions 
automated the process for considering whether to honor overdrafts to 
reduce the costs of reviewing individual items, but generally 
institutions did not inform customers of their internal policies for 
determining whether an item would be paid or returned. More recently, 
third-party vendors have developed and sold overdraft programs to 
institutions, particularly to smaller institutions. These programs 
generally build upon or add to the institution's existing internal 
reporting systems to enable the institution to automate its payment of 
overdrafts.\1\ What generally distinguishes the vendor programs from 
institutions' in-house automated processes is the addition of marketing 
plans that appear designed to promote the generation of fee income by 
disclosing to account-holders the dollar amount that the consumer 
typically will be allowed to overdraw their accounts. Some institutions 
also encourage consumers to use the service to meet short-term 
borrowing needs.
---------------------------------------------------------------------------

    \1\ The Board's proposal referred to ``bounced-check 
protection'' services. These services also are sometimes referred to 
as ``courtesy overdraft protection.'' Because some institutions'' 
overdraft services apply to non-check transactions, for clarity the 
services are referred to generically as ``overdraft services.''
---------------------------------------------------------------------------

    Paying consumers' occasional or inadvertent overdrafts is a long-
established customer service provided by depository institutions. The 
Board recognized this longstanding practice when it initially adopted 
Regulation Z in 1969, to implement the Truth in Lending Act (TILA); the 
regulation provided that these transactions are generally exempt from 
coverage under Regulation Z where there is no written agreement between 
the consumer and institution to pay an overdraft and impose a fee. See 
Sec.  226.4(c)(3). The exemption from Regulation Z was designed to 
facilitate depository institutions' ability to accommodate consumers on 
an ad-hoc basis.

[[Page 29583]]

    Although overdraft services vary among institutions, many 
institutions provide the coverage automatically for consumers who meet 
the institution's criteria (e.g., the account has been open for a 
certain number of days, and the consumer makes deposits regularly). 
Consumers are not required to apply for the coverage and the 
institution performs no credit underwriting. Many institutions clearly 
inform consumers that payment of an overdraft is discretionary on the 
part of the institution; deposit account agreements typically disclaim 
any legal obligation to pay any overdraft. Some institutions extend the 
overdraft service to non-check transactions, for example, withdrawal 
requests made at automated teller machines (``ATMs''), purchases made 
using a debit card, pre-authorized automatic debits from a consumer's 
account, telephone-initiated funds transfers, or on-line banking 
transactions. A flat fee is charged each time the service is triggered 
and an overdraft item is paid; often the fee for paying an overdraft is 
the same amount that the institution would charge when a check drawn on 
insufficient funds is returned unpaid. In some cases, a daily fee may 
be imposed for each day the account remains overdrawn.
    In November 2002, the Board solicited comment and information from 
the public about institutions' current overdraft services, to assist 
the Board in determining the need for guidance to depository 
institutions under Regulation Z (Truth in Lending) and other laws. 67 
FR 72618 (December 6, 2002). In response to the Board's request for 
comment, consumer advocates, state agency representatives, and others 
stated that certain overdraft services should be subject to the TILA 
and Regulation Z. They noted that in addition to warning consumers 
about the high cost of the services, TILA disclosures would apprise 
consumers about the true nature of these services as a credit 
transaction. Industry commenters opposed coverage under Regulation Z, 
stating that institutions currently provide adequate disclosures 
pursuant to TISA and Regulation DD, and that coverage under Regulation 
Z would be burdensome.
    The Board's study of overdraft services identified a number of 
other concerns about some programs. One major concern relates to the 
adequacy of information provided to consumers whose accounts are 
eligible for the service. For example, some institutions do not clearly 
inform consumers that ATM withdrawals, debit card transactions, or 
other electronic transfers may routinely be authorized under these 
overdraft services and that fees will be imposed in such cases.
    Other concerns center on institutions' marketing practices. 
Although the service may be designed to protect consumers against 
occasional inadvertent overdrafts, some institutions' promotional 
materials make the service appear to be a line of credit, apparently to 
promote a consumer's repeated use of the service. Many institutions 
inform consumers of the availability of the overdraft service, and also 
of the maximum aggregate dollar amount of overdrafts the institution 
will pay. Some marketing plans encourage consumers to use the service 
to meet short-term credit needs, and not just as protection against 
inadvertent overdrafts. Some institutions have encouraged consumers 
specifically to use an overdraft as an advance on their next paycheck. 
Notwithstanding the marketing promises, however, qualifying language 
disclaims any legal obligation by the institution to pay any overdraft. 
In some cases, deposit accounts that are promoted as being ``free'' 
also promote overdraft services that involve substantial fees.

III. Concerns About Uniform Disclosure of Overdraft Fees

    The Board also has concerns about the uniformity and adequacy of 
cost disclosures provided to consumers regarding overdraft and 
returned-item fees under Regulation DD. Many institutions already 
provide timely information to consumers about particular overdrafts and 
the fees imposed by sending a notice at the time an overdraft occurs. 
Institutions' practices and disclosures are not uniform, however, and 
some consumers may not receive adequate information on a timely basis.
    Fees for paying overdrafts and for returning items unpaid are 
typically flat fees unrelated to the amount of the item. These amounts 
may be significant when there are multiple overdrafts even though the 
items may represent relatively small dollar amounts. Even when 
consumers are aware that an account is or may become overdrawn, they do 
not necessarily know the number of overdraft items that will result or 
the total fees that will be imposed, both of which are determined by 
the order in which items drawn on the account are presented and the 
institution's policies concerning the order in which items are paid. 
Consumers may not be aware of the total fees imposed until the next 
periodic statement, and when the periodic statement is provided, it may 
intersperse fees for overdrafts and fees for returned items among other 
transactions rather than provide a total. As a result, the overall cost 
associated with overdrawing the account may not be clearly presented to 
consumers.

IV. The Board's Proposed Revisions to Regulation DD

    In May 2004, the Board proposed revisions to Regulation DD and the 
staff commentary to address concerns about the uniformity and adequacy 
of institutions' disclosure of overdraft fees generally, and to address 
concerns about advertised overdraft services in particular. 69 FR 31760 
(June 7, 2004). Specifically, the Board proposed to revise Regulation 
DD to expand the prohibition against misleading advertisements to cover 
communications with current consumers about existing accounts; the 
staff commentary provided examples of advertisements that would 
ordinarily be misleading. The proposed revisions also required 
additional fee and other disclosures about overdraft services, 
including disclosures on periodic statements of the total dollar 
amounts for all overdraft fees and for all returned-item fees, for the 
statement period and for the calendar year to date; however, the Board 
solicited comment on whether the periodic statement requirement to 
disclose calendar year-to-date totals should be limited to institutions 
that market overdraft services. Further, the Board proposed to require 
institutions that market automated overdraft services that are not 
covered by TILA to include certain disclosures about the service in 
their advertisements, including the fee for the payment of each 
overdraft item and the circumstances under which the institution would 
not pay an overdraft.

Overview of Public Comments

    Approximately 300 comments were received; the majority of comments 
were received from depository institutions or their trade associations. 
About 100 of these comment letters were received from consumer 
advocates and individual consumers, including about 60 nearly identical 
form letters sent by consumers through the same Internet site.
    Almost all the comments from consumers and consumer advocates 
oppose the proposed amendments to Regulation DD, and instead urge the 
Board to cover certain overdraft services under Regulation Z. Few of 
these comment letters contained substantive suggestions on the proposed 
revisions to Regulation DD. One Member of Congress submitted a letter 
also

[[Page 29584]]

requesting the Board to cover certain overdraft services under 
Regulation Z.
    Industry commenters were uniform in agreeing that overdraft 
protection is a deposit service that should be covered under Regulation 
DD rather than Regulation Z. Industry representatives that commented 
generally oppose covering overdraft services under Regulation Z. 
Industry representatives stated that disclosing an annual percentage 
rate (APR) for overdraft services would impose substantial compliance 
burdens without leaving consumers better-informed about the cost of 
credit or better able to compare the costs of different credit 
products.
    Although generally agreeing that coverage of overdraft services was 
more appropriate under Regulation DD, virtually all industry commenters 
have concerns about specific aspects of the proposal. The most frequent 
objection to the proposal concerns the requirements for disclosing 
aggregate totals for overdraft fees and returned item fees on periodic 
statements. In particular, most industry commenters cite the costs of 
implementing the new disclosures and assert that consumers are already 
provided sufficient information about these fees. Industry commenters 
also asked for clarification about the types of overdraft services that 
would be covered under the rule, focusing on the Board's use of the 
term ``automated overdraft service'' to describe the overdraft service 
that would be subject to the additional advertising disclosures. 
Finally, many industry commenters oppose the requirement to disclose in 
advertisements the circumstances under which an overdraft would not be 
paid, because it could suggest an agreement to pay overdrafts in other 
circumstances contrary to the ``discretionary'' nature of the product. 
Additional comments are discussed in the section-by-section analysis.

V. The Final Rule

    Pursuant to the Board's authority under Section 269(a) of TISA (12 
U.S.C. 4308(a)), the Board is adopting final revisions to Regulation DD 
and the staff commentary generally as proposed. Some clarifications and 
modifications to the proposal have been made to respond to commenters' 
concerns; in particular, the requirement to disclose aggregate 
overdraft and returned item fees on periodic statements has been 
limited to institutions that promote the payment of overdrafts in an 
advertisement. The final rule consolidates the guidance for 
institutions that promote the payment of overdrafts in a new Sec.  
205.11 of the regulation to facilitate compliance. To give institutions 
sufficient time to implement the necessary system changes to comply 
with the regulation, compliance with the final rule will not become 
mandatory until July 1, 2006.

Summary of Revisions to the Regulation

    The following is a summary of the final revisions to the regulation 
and the staff commentary. These revisions are discussed in detail below 
in the section-by-section analysis.

Disclosures Concerning Overdraft Fees

Periodic Statements
     Institutions that promote the payment of overdrafts in an 
advertisement must separately disclose on their periodic statements, 
the total amount of fees or charges imposed on the deposit account for 
paying overdrafts and the total amount of fees charged for returning 
items unpaid. These disclosures must be provided for the statement 
period and for the calendar year to date for any account to which the 
advertisement applies. The final rule is narrower than the proposal, 
which would have applied to all institutions, regardless of whether 
they market the payment of overdrafts. Thus, institutions that do not 
promote the payment of overdrafts would not be required to provide the 
new periodic statement disclosures under the final rule.
     To facilitate compliance, the staff commentary provides 
specific examples of when an institution is promoting the payment of 
overdrafts in an advertisement. For example, stating the overdraft 
limit for an account on a periodic statement or stating an account 
balance that includes available overdraft funds on an ATM receipt would 
be considered an advertisement triggering the required disclosures.
     An institution that does not otherwise promote the payment 
of overdrafts would not trigger the requirement to provide aggregate 
fee disclosures on periodic statements solely by:
    (1) Communicating information about the payment of overdrafts in 
response to a consumer-initiated inquiry about overdrafts or deposit 
accounts generally. Providing information about the payment of 
overdrafts in response to a balance inquiry made through an automated 
system, such as a telephone response machine, an ATM, or an 
institution's Internet site, is not a response to a consumer-initiated 
inquiry for purposes of this provision, and would trigger the periodic 
statement disclosure requirements;
    (2) Providing educational materials that do not specifically 
describe the institution's overdraft service;
    (3) Promoting in an advertisement a traditional line of credit that 
is subject to the Board's Regulation Z (Truth in Lending);
    (4) Engaging in an in-person discussion with a consumer;
    (5) Making a disclosure required by Federal or other applicable 
law;
    (6) Including information on a periodic statement or providing a 
notice informing a consumer about a specific overdrawn item or the 
amount the account is overdrawn;
    (7) Including in a deposit account agreement a discussion of the 
institution's right to pay overdrafts; or
    (8) Notifying a consumer that completing a requested transaction, 
such as an ATM withdrawal, may trigger an overdraft fee, or providing a 
general notice that items overdrawing an account may trigger an 
overdraft fee.
Account-Opening Disclosures
     Institutions must specify in TISA's account-opening 
disclosures the categories of transactions for which an overdraft fee 
may be imposed. An exhaustive list of transactions is not required; it 
is sufficient to state that the fee is imposed for overdrafts created 
by checks, in-person withdrawals, ATM withdrawals, or by other 
electronic means, as applicable. This requirement applies to all 
institutions, including institutions that do not promote the payment of 
overdrafts in an advertisement.
Advertising Rules
     To avoid confusion with traditional lines of credit, 
institutions that promote the payment of overdrafts are required to 
include certain disclosures in their advertisements about the service: 
the applicable fees or charges, the categories of transactions covered, 
the time period consumers have to repay or cover any overdraft, and the 
circumstances under which the institution would not pay an overdraft. 
Stating the available overdraft limit or the amount of funds available 
on a periodic statement would be considered an advertisement triggering 
the required disclosures.
    [cir] The final rule provides safe harbors from the advertising 
requirements similar to those described above for the periodic 
statement disclosure requirements. Thus, for example, the advertising 
disclosure requirements would not apply to institutions when they 
provide educational materials, respond to a consumer-initiated inquiry 
about overdrafts or deposit accounts, or notify a consumer about a 
specific overdraft in their account.
    [cir] Advertising disclosures are not required on ATM receipts, due 
to space

[[Page 29585]]

limitations. Similarly, advertising disclosures are not required for 
advertisements using broadcast media, billboards, or telephone response 
systems. This parallels an exemption in Regulation DD which applies to 
other types of advertising disclosures. Limited advertising disclosures 
are required on ATM screens, telephone response machines and indoor 
signs.
Prohibiting Misleading Advertisements
     TISA's prohibition against advertisements, announcements, 
or solicitations that are misleading or that misrepresent the deposit 
contract is extended to communications with consumers about the terms 
of their existing accounts.
Examples of Misleading Advertisements
     The staff commentary is revised to provide five examples 
of advertisements that would ordinarily be deemed misleading:
    (1) Representing an overdraft service as a ``line of credit;''
    (2) Representing that the institution will honor all checks or 
transactions, when the institution retains discretion at any time not 
to honor any transaction;
    (3) Representing that consumers with an overdrawn account are 
allowed to maintain a negative balance when the terms of the account's 
overdraft service require consumers to promptly return the deposit 
account to a positive balance;
    (4) Describing an overdraft service solely as protection against 
bounced checks, when the institution also permits overdrafts for a fee 
in connection with ATM withdrawals and other electronic fund transfers 
that permit consumers to overdraw their account; and
    (5) Describing an account as ``free'' or ``no cost'' in an 
advertisement that also promotes a service for which there is a fee 
(including an overdraft service), unless the advertisement clearly and 
conspicuously indicates there is a cost associated with the service.

Possible Coverage Under the Truth in Lending Act

    The amendments to Regulation DD recognize that an overdraft service 
is provided as a feature and term of a deposit account, and that the 
fees associated with the service are assessed against the deposit 
account. As noted above, consumer advocates and some others who 
commented on the proposed revisions to Regulation DD believe that 
certain overdraft services should be covered by Regulation Z. These 
commenters state that overdraft services compete with traditional 
credit products--open-end lines of credit, credit cards, and short-term 
closed-end loans--all of which are covered under TILA and Regulation Z 
and provide consumers with the cost of credit expressed as a dollar 
finance charge and an APR. They believe that TILA disclosures would 
enhance consumers' understanding of the cost of overdraft services and 
their ability to compare costs of competing financial services.
    At its October 2004 meeting, the Board's Consumer Advisory Council 
also discussed this issue, including ways to distinguish between an 
institution's infrequent, ad hoc accommodation of a customer, and an 
overdraft service that operates more like a line of credit. Some 
Council members believed that overdraft services that are the 
functional equivalent of a traditional overdraft line of credit should 
be subject to Regulation Z, but that institutions' historical practice 
of paying occasional overdrafts on an ad hoc basis should not be 
covered by Regulation Z.
    The Board's adoption of final rules under Regulation DD does not 
preclude a future determination that TILA disclosures would also 
benefit consumers. The Board expressly stated in its proposal that 
further consideration of the need for coverage under Regulation Z may 
be appropriate in the future.

VI. Section-by-Section Analysis

Section 230.2 Definitions

2(b) Advertisement
    TISA prohibits institutions from making any advertisement, 
announcement, or solicitation relating to a deposit account that is 
inaccurate or misleading or that misrepresents its deposit contract. 12 
U.S.C. 4302(e). Regulation DD currently defines ``advertisement'' to 
include ``a commercial message appearing in any medium, that promotes 
directly or indirectly the availability of, or a deposit in, an 
account.'' See Sec.  230.2(b). Under the existing staff commentary, 
institutions' communications with consumers about existing accounts are 
not considered ``advertisements'' under Regulation DD. See comment 
2(b)-2.iii.
    The Board proposed to revise the definition of ``advertisement'' to 
include an institution's communications with existing customers for 
purposes of TISA's prohibition against advertisements that are 
misleading or inaccurate or that misrepresent the deposit contract. The 
Board also proposed to expand the definition to cover communications 
with existing customers that promote the institutions' overdraft 
services, which would trigger additional disclosures about the costs 
and terms of the service.
    The final rule adopts the revised definition of ``advertisement'' 
as proposed under Sec.  230.2(b)(1). Section 230.2(b)(2) of the final 
rule provides that for purposes of the prohibition on misleading 
advertisements in Sec.  230.8(a) and the new disclosure requirements in 
Sec.  230.11, the definition of ``advertisement'' includes the terms 
of, or a deposit in, a new or existing account. The staff commentary 
has been modified to address commenters' concerns about the need to 
clarify the scope of the revised definition.
    Most commenters who addressed this aspect of the proposal did not 
oppose applying the prohibition on misleading or inaccurate 
advertisements to communications about existing accounts. Many 
commenters believe, however, that modifications are necessary to 
clarify the scope of the proposed definition. In particular, several 
commenters expressed concern that, without clarification, the 
definition would be interpreted to apply to routine communications, 
such as notices commonly sent to inform accountholders that their 
account has become overdrawn. Other commenters asked the Board to 
provide additional guidance on types of communications that would 
constitute promoting an overdraft service and thus satisfy the 
definition of ``advertisement.''
    Comment 2(b)-2 currently provides examples of messages that are not 
considered advertisements. The Board proposed to re-designate comment 
2(b)-2 as comment 2(b)-3. The re-designation is not necessary in the 
final rule. In response to commenters' concerns, comment 2(b)-2 has 
been revised to provide additional examples of messages that are not 
advertisements. Paragraph 2(b)-2.iii is revised for conformity with the 
final rule. Paragraph 2(b)-2.iv. clarifies that an institution is not 
promoting a deposit or service solely by providing information about a 
particular transaction in an account, such as in a notice or a periodic 
statement advising a consumer about a specific overdrawn item.
    Paragraph 2(b)-2.v. provides that an institution is not promoting a 
deposit or service solely by providing legally required disclosures. 
Similar guidance had been included in proposed comment 2(b)-2. The 
guidance in the final rule has been revised by deleting the specific 
reference to disclosures provided at account-opening, on periodic 
statements, and on electronic terminal receipts, to address commenters' 
concerns that other required disclosures should also be

[[Page 29586]]

excluded from the definition of ``advertisement.'' If an institution 
combines promotional material with the required disclosures, however, 
this additional information would be considered an advertisement. An 
institution that includes promotional materials about its overdraft 
service with required disclosures generally would be required to 
provide the new disclosures in Sec.  230.11 (discussed below). 
Paragraph 2(b)-2.vi. clarifies that an account agreement is not an 
advertisement.
    The revised definition of advertisement does not affect rules for 
triggering additional disclosures when an advertisement states an APY 
or bonus. The previous definition of ``advertisement'' continues to 
apply for this purpose and has been redesignated as Sec.  230.2(b)(1). 
Modifications have been made only for stylistic consistency; no 
substantive change is intended.

Section 230.4 Account Disclosures

4(b) Content of Account Disclosures
4(b)(4) Fees
    Under TISA and Regulation DD, before an account is opened, 
institutions must provide a schedule describing all fees that may be 
charged in connection with the account. The schedule must also disclose 
the amount of the fee and the conditions under which the fee will be 
imposed. 12 U.S.C. 4303; Sec.  230.4(b)(4). When terms required to be 
disclosed in the schedule change and adversely affect accountholders, 
notice of the change must be provided 30 days in advance. 12 U.S.C. 
4305; Sec.  230.5(a).
    Currently, the guidance for describing fees is quite general, and 
provides that ``naming and describing the fee will typically satisfy 
these requirements.'' See comment 4(b)(4)-3. The Board proposed comment 
4(b)(4)-5 to require institutions to state in their account-opening 
disclosures the types of transactions for which an overdraft fee may be 
imposed. As proposed, describing the fee solely as a ``fee for 
overdrafts'' or fee for ``overdraft items'' would not provide 
sufficient notice to consumers as to whether the fee applies to 
overdrafts by check only, or whether it also applies to overdrafts by 
other means, such as by ATM withdrawal or other electronic 
transactions. The revisions are being adopted substantially as 
proposed, with some modifications to address commenters' concerns, and 
would apply to all institutions, regardless of whether they promote the 
payment of overdrafts.
    A few commenters that support the proposed comment affirm that they 
already provide such disclosures. Most commenters do not oppose the 
proposed change, but encourage the Board to clarify that an exhaustive 
list of transactions for which an overdraft fee may be imposed, is not 
required. These commenters express concern that requiring disclosure of 
an exhaustive list of transactions could necessitate a change-in-terms 
notice as new technologies are implemented. For example, several 
commenters believe that an institution solely disclosing that overdraft 
fees may be imposed for transfers initiated using the Internet might 
have to provide a change-in-terms notice if telephone transfers are 
subsequently allowed. These commenters assert that an illustrative list 
of transactions would sufficiently notify the consumer that overdraft 
fees will apply in multiple circumstances, while allowing institutions 
to avoid the need to provide a change-in-terms notice if, subsequently, 
overdrafts are permitted through another channel. A few commenters 
asked the Board to provide model language to ease compliance.
    To address commenters' concerns, comment 4(b)(4)-5 has been revised 
to clarify that an exhaustive list of transactions is not required. As 
revised, the comment provides that institutions may specify categories 
of transactions for which an overdraft fee may be imposed. The final 
comment also includes model language. Institutions may satisfy the 
requirements by stating that the fee applies to overdrafts ``created by 
check, in-person withdrawal, ATM withdrawal, or other electronic 
means,'' as applicable. The model language is sufficiently broad to 
cover most situations in which overdrafts can occur, but institutions 
are free to add additional categories. For example, an institution 
using the model language would not be required to change its 
disclosures when implementing a system for making electronic transfers 
by telephone. But if an institution only discloses that overdraft fees 
are imposed in connection with the payment of checks, new disclosures 
would be required if the institution subsequently imposes the fees for 
overdrafts created by ATM withdrawals or other electronic means.
    Institutions are not required to provide new account-opening 
disclosures or change-in-terms notices to consumers who previously 
received overdraft fee disclosures under existing guidance currently in 
the staff commentary. However, to the extent that an institution's 
prior disclosures suggested the overdraft service only covers checks, 
institutions should consider informing their customers that the service 
is broader and applies to overdrafts by in-person withdrawals, ATM 
withdrawals, and by other electronic means, as applicable.

Section 230.6 Periodic Statement Disclosures

6(a) General Rule
6(a)(3) Fees Imposed
    The Board proposed to revise Regulation DD, by adding Sec.  
230.6(a)(3)(ii), to require all institutions to disclose separately, 
the total dollar amount of overdraft fees and the total dollar amount 
of returned-item fees, for the statement period and the calendar year 
to date. As further discussed below, this provision has been moved to 
new Sec.  230.11(a), and the requirements are limited to institutions 
that promote the payment of overdrafts in an advertisement. Proposed 
comment 6(a)(3)-2 has been adopted, with some modifications, to clarify 
that fees for paying overdrafts and fees for returning items unpaid may 
not be grouped together as fees for insufficient funds.

Section 230.8 Advertising

    As discussed above, the Board is revising Regulation DD to apply 
the prohibition in Sec.  230.8(a) on misleading advertisements to 
communications with consumers about the terms of their existing 
accounts. The Board also proposed to revise the staff commentary to 
provide examples of advertisements that would ordinarily be misleading. 
In addition, to reduce consumer confusion about how overdraft services 
differ from a traditional line of credit, the proposed rule required 
institutions that promote automated overdraft services to include 
certain disclosures in their advertisements about the service. In the 
final rule, the prohibition on guidance regarding misleading and 
inaccurate advertisements in Sec.  230.8(a) is being revised. The 
proposed examples in the commentary of advertisements that would 
ordinarily be misleading are being adopted largely as proposed under 
Sec.  230.8(a), with some modifications for clarity. The additional 
disclosure requirements for advertisements that promote the payment of 
overdrafts in proposed Sec.  230.8(f) are contained in new Sec.  
230.11(b), discussed below.
8(a) Misleading or Inaccurate Advertisements
    In the final rule, Sec.  230.8(a) has been reorganized, as 
proposed. To provide guidance on the types of advertisements that may 
violate the rule, the Board proposed to add comment 8(a)-10. The 
proposed comment provided five examples of advertisements that would

[[Page 29587]]

ordinarily be misleading, inaccurate, or misrepresent the deposit 
contract. The examples of misleading advertisements in proposed comment 
8(a)-10 are adopted as proposed, with some revisions for clarity.
    The first example is an advertisement that represents an overdraft 
service as a ``line of credit'' unless the service is subject to the 
Board's Regulation Z. The second example is an advertisement that 
misleads consumers by representing that the institution will honor all 
checks or authorize all transactions that overdraw an account, with or 
without a specified dollar limit, when the institution retains 
discretion at any time not to honor checks or authorize transactions.
    A third example states that an advertisement could mislead 
consumers by representing that consumers with overdrawn accounts are 
allowed to maintain a negative balance when the terms of the account's 
overdraft service require consumers to promptly return the deposit 
account to a positive balance. The fourth example provides that 
promotional materials describing a service solely as protection against 
bounced checks could mislead consumers if the service also applies to 
ATM withdrawals, and other debit card transactions, and electronic fund 
transfers.
    The fifth example of misleading advertisements relates to the 
advertisement of free accounts. Under Regulation DD, an institution may 
not describe an account as ``free'' (or use a similar term) if any 
maintenance or activity fee may be imposed on the account. As the Board 
noted in the proposal, fees for overdraft services are not considered 
maintenance or activity fees, because the fees do not relate to the use 
of the consumer's own funds in the account. Thus, institutions may 
impose overdraft fees in connection with ``free'' accounts. The example 
addresses concerns about institutions that advertise overdraft services 
(or other services) as a feature of their free checking accounts in a 
manner that could mislead consumers to believe that the service is 
without cost. Accordingly, an advertisement would be deemed misleading 
if the account is described as ``free'' and the advertisement also 
promotes account-related services for which there is a fee, unless the 
advertisement clearly and conspicuously indicates there is a cost 
associated with the advertised service.
    Most commenters agree that the misleading advertising practices 
identified by the Board should be prohibited, and support the proposed 
examples. One consumer group, however, believes that the proposed 
examples are not sufficient because they do not prohibit institutions 
from encouraging consumers to use the service for intentional 
overdrafts. The final rule does not contain such an example. Although 
advertisements that encourage intentional overdrafts may under some 
circumstances mislead consumers about the terms of the service, such a 
determination must be made on a case-by-case basis.
    A few industry commenters objected to the scope of the fifth 
example which pertains to advertisements that promote ``free'' accounts 
as well as services for which a fee is charged. These commenters 
believe the example should be limited to advertisements promoting 
overdraft services in connection with free accounts. Although comment 
8(a)-10.v. addresses concerns that consumers may be misled into 
thinking that overdraft protection is without cost when the service is 
advertised as a feature of free checking accounts, the same possibility 
of misleading consumers exists when other account-related services are 
advertised in connection with free accounts. Thus, the scope of the 
final comment is not limited to the promotion of overdraft services.
    TISA's limitation on advertising an account as free is currently 
implemented in Sec.  230.8(a). This provision has been redesignated as 
Sec.  230.8(a)(2), without any substantive change.
8(f) Additional Disclosures in Connection With Overdraft Services
    Proposed Sec.  230.8(f) would have required advertisements 
promoting an automated overdraft service to include certain fee and 
other information about the service. This requirement is in Sec.  
230.11(b) in the final rule. Section 230.8(f) of the final rule 
contains a cross-reference to the new advertising disclosures in Sec.  
230.11(b).

Section 230.11 Additional Disclosure Requirements for Institutions 
Advertising the Payment of Overdrafts

    New Sec.  230.11 consolidates the disclosure requirements 
previously set forth in Sec. Sec.  230.6(a)(3) and 230.8(f) of the 
proposed rule. Section 230.11(a) contains the disclosure requirements 
for periodic statements. The final rule is narrower than the proposal 
and only applies to institutions that promote the payment of overdrafts 
in advertisements. Section 230.11(a) requires these institutions to 
separately disclose the total fees for paying overdrafts and the total 
fees for returning items unpaid on periodic statements. The disclosures 
must be made for the statement period and for the calendar year to date 
for each account to which the advertisement applies. Section 230.11(b) 
requires institutions that promote the payment of overdrafts in 
advertisements to provide certain additional disclosures about the 
nature of the overdraft service. The Board believes that consolidating 
these rules in a new section will help facilitate compliance with the 
regulation for institutions that choose to promote the payment of 
overdrafts.
11(a) Periodic Statement Disclosures of Fees for Overdrafts and for 
Returned Items Unpaid
    To assist consumers in better understanding the costs associated 
with overdrawing their accounts, the Board proposed to revise the 
requirements for providing cost disclosures on periodic statements. 
Although periodic statements are not required by TISA, an institution 
that provides such statements must disclose any fees or charges imposed 
on the account during the statement period. Under Regulation DD, fees 
must be itemized on a periodic statement by type, for example, by 
separately listing the monthly service charge, ATM fees, and returned 
check fees. When multiple fees of the same type are charged in a single 
period, comment 6(a)(3)-2 in the current staff commentary states that 
institutions have the option of showing each fee as a separate charge 
or, alternatively, aggregating all fees of the same type and disclosing 
a single dollar amount for that category. The Board proposed to add 
Sec.  230.6(a)(3)(ii) to require all institutions to disclose 
separately the total dollar amount of overdraft fees and the total 
dollar amount of returned-item fees on an aggregate basis for the 
statement period and for the calendar year to date. As discussed above, 
under Sec.  230.11(a)(1) of the final rule, only institutions that 
promote the payment of overdrafts in an advertisement are required to 
provide the aggregate fee disclosures on periodic statements. 
Institutions must provide the disclosures for all accounts to which the 
institution's advertisement applies.
    Section 230.11(a)(2) describes certain communications that 
institutions may make concerning the payment of overdrafts that would 
not trigger the new periodic statement disclosures. Sections 
230.11(a)(3) through (5) provide guidance on how an institution can 
comply with the rule after it commences advertising the payment of 
overdrafts, and after an institution acquires accounts through a merger 
or acquisition. Additional comments have

[[Page 29588]]

been added for clarity in response to concerns raised by commenters.
    Consumer representatives that commented believe that consumers need 
better information about the cost of using certain overdraft services, 
but they assert that disclosing aggregate fees for the statement cycle 
and year to date would be insufficient to provide consumers with the 
information necessary to compare the cost of overdraft services with 
the costs of alternative forms of short-term credit such as payday 
loans, tax refund anticipation loans, and traditional overdraft lines 
of credit. They recommend that instead of adopting the proposed 
revisions to Regulation DD, the Board should cover certain overdraft 
services under Regulation Z so that periodic statements would provide 
consumers with an APR.
    Where the institution has not agreed in writing to pay overdrafts, 
a charge assessed against a deposit account for paying an overdraft has 
not been considered a finance charge and disclosures under Regulation Z 
are not required. This exception was established in Regulation Z from 
its inception in 1969. As noted above, the Board's adoption of final 
rules under Regulation DD does not preclude a future determination that 
TILA disclosures would also benefit consumers.
    Industry commenters generally oppose the proposed requirement to 
disclose aggregate totals for overdraft fees and returned-item fees 
because they believe it would be costly and would provide little 
benefit to consumers. Several commenters disagree with the view that 
consumers do not receive sufficient information about the costs 
associated with overdrawing their account, observing that consumers 
receive a schedule of fees at account-opening, notice of fees imposed 
upon each overdraft, and an itemization of fees on periodic statements. 
Many of these commenters also assert that the itemization of fees on 
periodic statements provides a sufficient basis for consumers to 
determine an aggregate total for fees imposed during the statement 
cycle and calendar year to date. Most industry commenters stated that 
the typical industry practice of providing a notice after each 
overdraft is a more effective and timely means of alerting consumers 
about the cost of overdrafts. Some financial institutions oppose 
additional disclosures about overdraft fees on periodic statements 
because, in their view, it would detract from information on the 
periodic statement about other types of fees, such as ATM withdrawal 
fees. A few industry commenters question how an institution can provide 
year-to-date totals that would be reset to zero each January when a 
statement period is not tied to a calendar month.
    Most industry commenters express concern about the cost of 
implementing changes to the way fees are disclosed on periodic 
statements, which would involve changes to data collection and 
reporting systems, as well as training and compliance management costs. 
They note that most institutions' systems do not currently aggregate 
fee data across different statement cycles, which would be necessary to 
disclose year-to-date totals. Some commenters also note that systems 
changes would be needed for some institutions to distinguish between 
fees imposed for paying overdrafts and fees for handling items that are 
returned unpaid. Six financial institutions provided cost estimates. At 
the low end, one institution that stated it uses a third-party vendor 
for data processing estimated the cost at $20,000, while two other 
institutions that outsource data processing estimated the cost to be 
about $300,000. Two institutions (including one with $1.5 billion in 
assets) provided cost estimates between $50,000 and $125,000. Bank of 
America, noting that it operates the largest banking network in the 
United States, estimated that expenses for the initial systems 
modifications for paper statements would exceed $1 million.
    The Board specifically asked for comment on whether the requirement 
to disclose cumulative year-to-date fee totals on periodic statements 
should be limited to institutions that market overdraft services. 
Industry commenters were divided. Several banks that do not promote 
overdraft services supported limiting the rule; these were generally 
larger institutions that stated the proposed revisions should focus on 
institutions whose marketing practices have raised the most concerns. 
These commenters urged the Board to exempt institutions that do not 
market overdraft services from being required to disclose aggregate 
fees for the statement period and year to date. But more industry 
commenters stated that the rule, if adopted, should apply to all 
institutions and not just institutions that market overdraft services. 
Some of these commenters believe a rule based on ``marketing'' would be 
too vague; others assert that if the cost disclosure is useful, it 
would be just as beneficial to consumers regardless of whether the 
service is marketed. One commenter also noted that institutions' 
contracts with third-party vendors may limit the cost of system changes 
from being imposed directly on individual depository institutions if 
the changes must be made by all institutions.
    TISA was enacted, in part, for the purpose of requiring clear and 
uniform disclosures regarding deposit account terms and the fees 
assessable against these accounts. Such disclosures allow consumers to 
make informed judgments about the use of their accounts, including the 
consideration of other available options. In proposing that 
institutions disclose the aggregate amount of fees imposed for 
overdrafts and returned items, the Board sought to ensure that 
consumers are more clearly presented with the overall cost of 
overdrawing their accounts, particularly in light of the fact that 
institutions' payment of overdrafts has become more routine due to the 
use of automated systems, and that many institutions encourage 
consumers to use their overdraft service. Currently, institutions may 
itemize each fee on the periodic statement, including overdraft and 
returned-item fees; the itemized charges may be interspersed among 
other transactions in the account. A periodic statement that itemizes 
each transaction and fee during the statement cycle, without isolating 
the total cost of overdrawing the account, does not present a clear 
picture of the total cost associated with overdrawing the account.
    Fees for paying overdrafts and for returned items are typically 
flat fees unrelated to the amount of the transaction. These amounts may 
be significant when there are multiple overdrafts, although the items 
may represent relatively small dollar amounts. Even when consumers are 
aware that their account is or may become overdrawn, they do not 
necessarily know the number of overdraft items that will be paid or 
returned, or the total fees that will be imposed, both of which are 
determined by the order in which items are presented and the 
institution's policies regarding the order in which items are paid. 
Thus, consumers may not be aware of the total amount of fees being 
imposed and the amount by which the account is overdrawn until the next 
periodic statement is received. The Board believes disclosure of the 
aggregate costs may better enable consumers to consider their approach 
to account management and determine whether the account's terms and 
features are suited to their needs or whether other types of accounts 
or services would be more appropriate.
    The Board is also mindful, however, of the compliance costs 
associated with the proposed rule. Limiting the rule to

[[Page 29589]]

institutions that advertise the payment of overdrafts avoids imposing 
compliance burdens on institutions that pay overdrafts infrequently, 
such as institutions that only pay overdrafts on an ad hoc basis. 
Requiring institutions to provide aggregate fee disclosures if they 
promote the payment of overdrafts would provide better cost information 
for consumers who are encouraged to overdraw their accounts and who are 
most likely to benefit from the aggregate fee disclosures.
    There may be consumers who use overdraft services frequently even 
though their institution does not market the service; however, a rule 
based on individual consumer behavior is more difficult to administer. 
Accordingly, under Sec.  230.11(a)(1), the requirement for disclosing 
aggregate fees for paying overdrafts and for returning items unpaid is 
limited to institutions that promote the payment of overdrafts in an 
advertisement. The total dollar amount for paying overdrafts includes 
all fees or charges imposed by an institution for paying overdrafts or 
other items when there are insufficient funds and the account becomes 
overdrawn. The final rule also clarifies that the required disclosures 
must be provided for the statement period and for the calendar year to 
date, for any account to which the advertisement applies. Institutions 
that do not promote the payment of overdrafts and have merely automated 
their traditional practice of paying overdrafts on an ad hoc basis are 
not covered by Sec.  230.11(a)(1). These institutions may continue to 
itemize fees on periodic statements but whether they itemize fees or 
group them together by type, institutions must distinguish between fees 
for paying overdrafts and fees for returning unpaid items. Institutions 
that do not promote the payment of overdrafts may also group like fees 
together and provide a total for the statement period on a voluntary 
basis, consistent with the current rules.
    The definition of ``advertisement'' is broad and includes ``a 
commercial message appearing in any medium, that promotes directly or 
indirectly the availability'' the terms of a deposit account. Thus, the 
rules for overdraft services would cover any type of promotion, 
regardless of the advertisement's content, format or the marketing 
channel used. For example, messages posted on a depository 
institution's Internet site would be covered, as would promotional e-
mail messages and messages printed on an institution's periodic 
statement. Oral messages communicated in a telephone solicitation would 
also be covered. See comment 11(a)(1)-1(i).
    To ease compliance, the final rule specifies certain types of 
communications and practices that would not trigger the requirement for 
disclosing aggregate fees on periodic statements. See Sec.  
205.11(a)(2). The safe harbors seek to provide additional certainty to 
institutions in determining whether compliance with the rule is 
required in particular circumstances. For example, the safe harbors 
clarify that an institution is not promoting the payment of overdrafts 
when providing information about the status of the account or a 
particular transaction, such as when notifying a consumer that the 
account has become overdrawn or when including the amount the account 
is overdrawn on a periodic statement. Similarly, an institution is not 
deemed to be promoting the payment of overdrafts when it provides 
notice to a consumer, such as at an ATM, that completing a requested 
transaction may trigger a fee for overdrawing the account, or when it 
provides a general notice that items overdrawing an account may trigger 
a fee.
    An institution also is not promoting overdraft services by 
providing legally required disclosures, by discussing in a deposit 
account agreement the institution's right to pay overdrafts, or by 
providing educational materials that do not specifically describe the 
institution's overdraft service (such as the brochure on ``bounce 
protection'' published by the Federal financial regulatory agencies). 
The rules for overdraft services also would not apply to advertisements 
for overdraft lines of credit covered by TILA and Regulation Z.
    The safe harbors also provide relief in circumstances where 
institutions would have practical difficulties in complying with the 
rule. In particular, there are safe harbors for consumer-initiated and 
face-or-face discussions to relieve institutions of the burden of 
monitoring individual conversations and responses; this also enables 
institutions to respond to consumers' direct questions about their 
accounts without concern that the discussion might trigger additional 
disclosure requirements. The final rule clarifies that institutions are 
within the safe harbor when responding (whether by telephone, 
electronically, or otherwise) to consumer-initiated inquiries about 
deposit accounts and overdrafts. The revised final rule also explains 
the limits of this safe harbor; the safe harbor for consumer-initiated 
inquiries does not apply to institutions' automated systems that are 
programmed to provide information about the institution's overdraft 
service, such as an ATM machine, a telephone response machine, or the 
institution's Internet site. In these cases, the consumer initiates the 
contact, but the institution has control over the pre-programmed 
message that provides information about available overdraft limits, and 
thus, the same compliance issues as individual inquiries are not 
presented.
    Section 230.11(a)(3) addresses the timing of the aggregate fee 
disclosures after an institution begins promoting the payment of 
overdrafts. An institution must make the disclosures under Sec.  
230.11(a)(1) for accounts to which the advertisement applies, starting 
with the first statement period that begins after the institution 
advertises the payment of overdrafts. For example, if a consumer's 
statement period typically closes on the 15th of each month, an 
institution that promotes the payment of overdrafts with respect to the 
consumer's account on July 1, 2006 must provide the aggregate fee 
disclosures on subsequent periodic statements for that consumer 
beginning with the statement reflecting the period from July 16, 2006, 
through August 15, 2006. In calculating and disclosing total fees for 
the year-to-date, institutions have the option of including fees 
imposed since the beginning of the calendar year, or starting with the 
first full statement period that begins after the institution 
advertises the payment of overdrafts with respect to the consumer's 
account.
    Comment 11(a)(3)-1 explains that only institutions that continue to 
advertise the payment of overdrafts on or after the mandatory 
compliance date of July 1, 2006 will be required to provide aggregate 
fee periodic statement disclosures for their consumers. Under Sec.  
230.11(a)(4) of the final rule, an institution is no longer required to 
provide the disclosures under Sec.  230.11(a)(1) two years after the 
institution last promotes its overdraft service with respect to that 
account, when the likely effect of the advertisement on consumers' use 
is presumably dissipated.
    Where an institution acquires deposit accounts, for example, by 
merging with or acquiring another institution, under Sec.  230.11(a)(5) 
the acquiring institution must thereafter provide the aggregate fee 
disclosures required by Sec.  230.11(a)(1) only if the acquiring 
institution promotes the payment of overdrafts with respect to the 
acquired accounts. If disclosures are required for the acquired 
accounts, the acquiring institution may, but is not required, to 
include fees imposed prior to the acquisition in the aggregate totals. 
Comment 11(a)(5)-1 explains that if the acquiring institution does not 
advertise the payment of overdrafts, or its advertisements do not

[[Page 29590]]

apply to the acquired accounts, the institution need not provide the 
aggregate fee disclosures for the acquired accounts even if the 
depository institution that previously held the accounts advertised the 
payment of overdrafts for those accounts.
    In response to commenters' requests for clarification, additional 
guidance has been added to the staff commentary. Comment 11(a)(1)-1 
provides examples of circumstances in which an institution would 
trigger the periodic statement requirements. For example, an 
institution promotes the payment of overdrafts by stating an overdraft 
limit or includes the amount of funds available for overdrafts on a 
periodic statement. See comment 11(a)-1(ii). Similarly, an institution 
promotes the payment of overdrafts if it states an overdraft limit or 
includes the dollar amount of the overdraft limit in an account balance 
disclosed on an ATM receipt or by a telephone response system. See 
comment 11(a)-1(iii). Comment 11(a)(1)-3 provides that an institution 
does not promote the payment of overdrafts, however, if it promotes a 
service providing for the transfer of funds from another deposit 
account of the consumer to avoid creating an overdraft.
    Comment 11(a)(1)-2 explains that the aggregate fee disclosures must 
be provided on periodic statement for all accounts to which an 
advertisement promoting the payment of overdrafts applies. Accordingly, 
if an institution specifies the types of accounts for which the 
overdraft service applies, the institution is not required to provide 
the disclosures for other types of accounts offered by the institution. 
An institution is required to provide the new aggregate fee disclosures 
for all of its accounts, however, if the institution generally promotes 
the payment of overdrafts without specifying the accounts to which the 
advertisement applies.
    Comment 11(a)(1)-4 clarifies that the total dollar amount disclosed 
for fees charged to the account for paying overdrafts includes per-item 
fees as well as interest charges, daily or other periodic fees, and 
fees charged for maintaining an account in overdraft status. It also 
includes fees charged when there are insufficient funds because 
previously deposited funds are subject to a hold or are uncollected. 
The disclosure would not include, however, fees for transferring funds 
from another account to avoid an overdraft, or fees charged in 
connection with a line of credit where the institution agrees in 
writing to pay items that overdraw the account and the service is 
subject to the Board's Regulation Z.
    Comment 11(a)(1)-5 clarifies that in disclosing fees for returning 
items unpaid, an institution should not include fees imposed when the 
account holder deposits items that are returned.
    In some cases, an institution may provide a statement for the 
current period reflecting that fees imposed during a previous period 
were waived and credited to the account. In response to commenters' 
request for clarification, comment 11(a)(1)-6 provides that such 
adjustments should not affect the total disclosed for fees imposed 
during the current statement period. The comment also notes, however, 
that institutions may, but are not required to, reflect the adjustment 
in the fee total for the calendar year to date.
    In response to commenters' suggestions, comment 11(a)(1)-7 provides 
guidance on how depository institutions may disclose the year-to-date 
fee totals when the institution's statement cycle does not coincide 
with the calendar month. In such cases, the institution may disclose a 
year-to-date total by aggregating fees for 12 monthly cycles, starting 
with the cycle that begins during January. Alternatively, the 
institution may provide a year-to-date total based on the calendar 
year.
    Comment 11(a)(1)-8 provides that institutions that promote the 
payment of overdrafts may continue to itemize overdraft and returned 
item fees on periodic statements as an additional voluntary disclosure 
in addition to the disclosures required by Sec.  230.11(a)(1).
11(b) Advertising Disclosures for Overdraft Services
    TISA and Regulation DD require additional information to be 
provided if an advertisement for a deposit account refers to a specific 
rate of interest, yield, or rate of earnings. 12 U.S.C. 4302; Sec.  
230.8(c). Advertisements for bonuses on deposit accounts also trigger 
additional information. Sec.  230.8(d). TISA authorizes the Board to 
exempt ``broadcast and electronic media and outdoor advertising from 
stating some additional information, if the Board finds the disclosures 
to be unnecessarily burdensome.'' 12 U.S.C. 4302(b). These limited 
disclosure rules are implemented in Sec.  230.8(e)(1). The exemptions 
for broadcast and electronic media do not extend to advertisements 
posted on the Internet or sent by e-mail.
    A principal concern about institutions' promotion of the payment of 
overdrafts is that consumers may be led to believe that the service 
represents a traditional line of credit. Some advertisements of 
overdraft services focus on the dollar amount of the overdraft limit, 
which may mislead some consumers to believe that a line of credit for 
that amount will be provided. Other advertisements create the 
impression that the payment of overdrafts can be relied upon to obtain 
short-term extensions of credit from time to time (up to a given 
amount) at minimal cost. These promotions may mislead or confuse 
consumers regarding the nature, costs, terms, and limitations of the 
service. This problem may be magnified somewhat because marketed 
overdraft services are relatively new.
    Additional disclosures in advertising could reduce the potential 
that some consumers would be misled, and enable consumers to compare 
the terms offered by different financial institutions. Accordingly, the 
Board proposed to add Sec.  230.8(f) to require that the following 
disclosures be included in advertisements for ``automated'' overdraft 
services not subject to Regulation Z: (1) The fee for overdrawing an 
a