Bankin’ Bits

           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.