New Disclosure Requirements for Overdraft Fees

Written By: Richard Honsa

The Truth in Savings Act (Regulation DD), which is administered by the Board of Governors of the Federal Reserve System, has been amended. Effective July 1, 2006 overdraft services and related fees require additional disclosures.

Three areas of interest are noted:

• Periodic Statement Disclosures
• Advertisements
• Account Opening Disclosures

Historically, banks have covered the overdrafts of customers at their discretion. In recent years, institutions have begun marketing overdraft services to their customers. Most institutions charge a fee for overdraft protection. Fees imposed are not uniform across the segment. Whereas, one bank may charge a one-time fee, another may levy a daily penalty for an existing overdraft. Since the purpose of TISA is to help consumers by compelling institutions to adequately disclose fees associated with depository accounts, fees for overdraft services are of some importance relative to the discussion. The new guidance provides for expanded disclosure requirements as follows. Any institution that promotes overdraft protection is required to separately disclose fees imposed on the periodic statement, both for the period, and in total for the year. Institutions that do not promote such services are not required to provide the new disclosures.

Advertising is covered under TISA as well. Under the new requirement, promoting overdraft services to existing customers is considered advertising and is subject to the new disclosure requirements, as follows:

• Fees
• Categories of transactions covered
• Period to repay
• Circumstances under which overdrafts not covered

In addition, limited disclosures are required on ATM screens, on automated telephone systems, and indoor signs.

Misleading advertising prohibitions are also extended to communications with existing customers. These include:

• Advertising “free” services that have some kind of fee associated with it
• Telling customers that all overdrafts are covered when, in fact, the institution may refuse to honor a particular transaction
• Calling overdraft services a “line of credit”

Finally, account-opening disclosures have been modified. All institutions must provide disclosures concerning overdraft protections regardless of whether or not an institution promotes overdraft services. Institutions are not required to disclose every transaction in which a fee will be imposed. Rather, a disclosure of fees for overdrafts related to ATM withdrawals, checks, or other electronic transactions is sufficient.

For more information see the following sites:

• Regulation DD Bulletin
• CFR 12 part 230
  

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