THE FEDERAL RESERVE BOARD'S OVERDRAFT RULES “Outlook Live” Audio Conference Dana Miller, Attorney David Stein, Managing Counsel Division of Consumer and Community Affairs Federal Reserve Board December 10, 2009 The following presentation contains the views and opinions of the speaker and his or her interpretation of regulatory guidance. It does not necessarily reflect the views of the management of the Board of Governors of the Federal Reserve System.

Background 2  2005: Interagency Guidance on Overdraft Protection Programs and revisions to Reg. DD  April 2008: UDAP proposal  January 2009: Reg. DD final rule Reg. E proposal  November 2009: Reg. E final rule

Regulation DD Final Rule 3

Aggregate Fee Disclosures on Periodic Statements  Depository institutions must disclose on periodic statements aggregate costs of the overdraft service for the statement period and the calendar year-to-date. 4 Total For This Period Total Year-to-Date Total Overdraft Fees$60.00$ Total Returned Item Fees$0.00$

Balance Inquiry Disclosures 5  Institutions must disclose balance that does not include amounts the institution may provide to cover overdrafts.  Applies to balance inquiries made through any automated system, such as an ATM.  Amounts from overdraft lines of credit and linked accounts also must be excluded.  Second balance that includes available overdraft funds may be provided with prominent statement that balance includes those amounts (and if applicable, that those amounts are not available for all transactions).

Effective Date 6 January 1, 2010

Regulation E Final Rule 7

The Proposed Rule 8  Limited to ATM and one-time debit card transactions.  Prohibited financial institutions from charging overdraft fees for these transactions unless consumer is given notice and a choice regarding payment of overdrafts, and consumer chooses to have overdrafts paid.  Alternative opt-out and opt-in approaches proposed.  Board solicited comment on hybrid approach (opt-in for new customers, opt-out for existing customers).

The Final Rule: Opt-In 9  Opt-in for new and existing consumers.  Four requirements:  Provide opt-in notice, segregated from other information  Provide reasonable opportunity to opt in  Obtain consumer’s affirmative consent  Provide written confirmation to the consumer  Ongoing right to consent and to revoke consent.  Model form for compliance.

Application of Final Rule 10  Final rule does not apply to checks, ACH or recurring debit card transactions.  Consumer testing shows consumers want checks and other important bills paid.  Institutions may still offer an opt-in or opt-out for those transactions.  Institutions must have systems to identify whether or not a debit card transaction is recurring, but once they do, they may rely on merchant coding.

Non-Discrimination Provisions 11 Final rule includes two provisions designed to ensure that consumers do not feel compelled to opt in, and therefore have a meaningful choice with respect to the overdraft service:  Conditioning the opt-in  Variation of account terms

Conditioning the Opt-In 12  Financial institutions are prohibited from requiring consumers to opt into the overdraft service for ATM and one-time debit card transactions in order to have checks, ACH and other types of transactions paid.  Financial institutions are also prohibited from declining to pay checks and other transactions just because a consumer has not opted in.

Variation of Account Terms 13  Financial institutions must provide consumers who do not opt in with the same account terms, conditions and features—including price—as provided to consumers who do opt in.

No Exceptions to Fee Prohibition 14  Under the final rule, banks cannot charge overdraft fees unless the bank has provided notice and obtained the consumer’s opt-in.  The final rule does not have any exceptions to the fee prohibition.  The final rule does permit institutions to collect amount overdrawn.

Exceptions to Notice and Opt-In Requirements 15  The final rule contains an exception for institutions that have a policy and practice of declining to authorize and pay transactions when the institution has a reasonable belief that the consumer has insufficient funds.  This is an exception from the notice and opt-in requirements.  This is not an exception from the prohibition on charging fees for ATM and one-time debit card overdrafts.

Effective Date 16  Mandatory compliance date is July 1,  New customers: For accounts opened on or after July 1, 2010, notices must be provided and opt-in obtained before overdraft fees may be assessed.  Existing customers: For any consumer who has not opted in by August 15, 2010, institution must stop assessing overdraft fees.

Questions? 17