Archive for November 16, 2009
Federal Reserve Adopts Interim Final Rule for Notifying Consumers of Sale or Assignment of Mortgage Loans
The Federal Reserve Board has approved an interim final rule revising Regulation Z to implement a recent statutory amendment requiring that consumers receive notices whenever their mortgage loan is sold or transferred. To access the rule, click here.
The new disclosure requirement became effective immediately upon enactment of the Helping Families Save Their Homes Act in May, 2009. Under that Act, the purchaser or assignee of a mortgage loan must provide the required written disclosures within 30 days of the purchase or assignment.
The interim final rule is effective upon publication in the Federal Register. However, to allow time for any necessary operational changes, compliance with the interim final rule is optional for 60 days after publication. During the 60-day period, parties that acquire a mortgage loan continue to be subject to the statute’s requirements.
The Board is also soliciting comment on the interim rule for 60 days before considering the adoption of a permanent rule.
Federal Reserve Releases Final Rule on Overdraft Services
On November 12, 2009, the Board of Governors of the Federal Reserve System (the “Federal Reserve“) adopted a final rule (the “Final Rule“) amending Regulation E, which implements the Electronic Fund Transfer Act. The Final Rule requires financial institutions to obtain the affirmative consent of accountholders before assessing any fees for paying overdrafts caused by ATM or one-time debit card transactions. The blog entry discusses some of the most important provisions in the Final Rule.
Key Provisions of Final Rule
- Nature and Scope of the Opt-In Requirement. The Final Rule applies to ATM withdrawals and one-time debit card transactions (collectively, “Covered Transactions“). The term “one-time debit card transaction” includes any non-recurring debit-card transaction, regardless of whether the card is used at a point-of-sale, in an online transaction or in a telephone transaction. The Final Rule does not apply to check transactions, recurring debit card transactions or ACH transactions.
- Effective Date. For accounts opened prior to July 1, 2010, the Final Rule prohibits financial institutions from assessing any overdraft fees on an account on or after August 15, 2010 for paying a Covered Transaction unless the financial institution first obtains the accountholder’s affirmative consent. For accounts opened on or after July 1, 2010, accountholder consent must be obtained for an overdraft fee can be assessed for paying any Covered Transaction.
- Accounts Covered. Both existing and new accounts are subject to the Final Rule. If two or more customers hold an account jointly, a financial institution may treat the affirmative consent of any of the joint accountholders as an affirmative consent for that account.
- Reasonable Opportunity to Opt-In. Under the Final Rule, the accountholder’s decision to Opt-In must be evidenced by a “reasonable” notice and acceptance. Financial institutions must also send accountholders written confirmation of the accountholder’s Opt-In decision.
- Permissible Opt-In Methods. Under the Final Rule, a customer must use a “reasonable method” for opting in to an overdraft program. A financial institution provides a reasonable method if—
- The institution provides a mail-in form for its accountholder to fill-out and mail-in;
- The institution provides a readily-available telephone line that accountholders may call to provide affirmative consent;
- The institution provides an electronic means for the accountholder to affirmatively consent. For example, the institution could provide a form that can be accessed and processed at its web site, where the accountholder may click on a check box to provide consent and confirm that choice by clicking on a button that affirms the accountholder’s consent; or
- The institution provides a form for the accountholder to complete and present at a branch or office to affirmatively consent to the service.
- An institution does not obtain an accountholder’s affirmative consent by including preprinted language about the overdraft service in an account disclosure provided with a signature card or contract that the accountholder must sign to open the account and that acknowledges the accountholder’s acceptance of the account terms. Nor does an institution obtain an accountholder’s affirmative consent by providing a signature card that contains a pre-selected check box indicating that the accountholder is requesting the service.
- Written Confirmation Requirement. Regardless of the form of affirmative consent obtained from an accountholder, the financial institution must provide the accountholder with written confirmation of the decision to Opt-In. A financial institution may comply with this requirement by providing the accountholder with a copy of his or her completed opt-in form or by sending a letter or notice to the accountholder acknowledging the Opt-In.
- Financial Institutions Cannot “Condition” the Opt-In. The Final Rule prohibits financial institutions from making the payment of overdrafts for items not subject to the Final Rule (i.e., checks, ACH transactions and recurring debit card transactions) contingent upon the accountholder’s willingness to opt into an overdraft service that also includes Covered Transactions.
- Financial Institutions Cannot Use More Favorable Account Terms to “Encourage” Participation in an Overdraft Program. The Final Rule requires financial institutions to provide customers who do not opt into overdraft services for Covered Transactions with access to transaction accounts that feature the same account terms, conditions and features, including price, as provided to accountholders who do elect to Opt In. The Federal Reserve included this provision to prevent financial institution from “encouraging” accountholders to opt into overdraft programs by adding less favorable features, such as monthly maintenance fees, to accounts held by customers who do not opt into an overdraft program.
Federal Reserve Issues Proposed Gift Card Rule – Comment Period Starts Soon
On November 16, 2009, the Federal Reserve released a proposed rule (the “Proposal“) to amend Regulation E to implement the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (“Credit CARD Act“). If adopted in its current form, the Proposal would place several new restrictions on the use and issuance of prepaid products, primarily gift cards.
- Products covered. The Proposal covers gift certificates, store gift cards and general use prepaid cards, as those terms are defined in the Credit CARD Act.
- The Proposal covers both retail gift cards and network-branded gift cards. Retail gift cards can be used to buy goods or services at a single merchant or affiliated group of merchants; network-branded gift cards are redeemable at any merchant that accepts the card brand.
- The Proposal would not apply to other types of prepaid cards, including reloadable prepaid cards that are not marketed or labeled as a gift card or gift certificate and prepaid cards received through a loyalty, award or promotional program.
- Fee Restrictions. The Proposal would not allow merchants or issuers to impose dormancy, inactivity or service fees unless three conditions are satisfied. These three conditions are present when:
- there has been at least one year of inactivity on the certificate or card;
- no more than one such fee is charged per month; and
- the consumer is given clear and conspicuous disclosures about the fees.
- The Proposal would also restrict monthly maintenance or service fees, balance inquiry fees and transaction-based fees (e.g., reload fees and point-of-sale fees).
- Expiration Date Restrictions. The Proposal would ban the sale or issuance of a gift certificate, store gift card, or general-use prepaid card that has an expiration date of less than five years after the date a certificate or card is issued or the date funds are last loaded.
- No Replacement Fees. The Proposal would ban fees for replacing an expired card or certificate if the underlying funds remain valid.
