New ODP Information Requirements Analyzed Final Regulation DD Changes Issued
By Andy Zavoina and John Burnett
Banks have until July 1, 2006, to comply with the newest rules dealing with the marketing of "bounce protection" plans. The rules, issued as final amendments to Regulation DD on May 20, 2005, include a new periodic statement requirement that warrants the added lead time for implementation.
Earlier Guidance
Federal regulators issued guidance documents for banks operating these plans -- sometimes referred to as "overdraft protection" -- in February 2005. That guidance was the subject of a previous BankersOnline Special Briefing. Bankers were reminded that pending amendments to the Fed's Regulation DD might further affect delivery and marketing of bounce protection services.
Statement changes
Banks that promote the payment of overdrafts in an advertisement will be required to add four new disclosures to periodic statements for any account to which the advertisement applies. The added fields are 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. Those disclosures will be required both for the statement period and for the calendar year to date.
Institutions will trigger the requirement for added statement information if they promote their policy of paying some overdrafts (other than by use of overdraft lines of credit subject to Regulation Z), in ads using broadcast media, brochures, telephone solicitations or email, or on internet sites, ATM screens or receipts, billboards, or indoor signs.
Institutions also trigger the requirement by including a message on a periodic statement informing a consumer of an ODP limit or the amount available for overdrafts; or by disclosing an overdraft limit or including the amount of that limit in a balance disclosed by any means, including on an ATM receipt or screen, or on an automated system, such as a telephone response system, or the institution's internet site.
Section-by-section overview
Definition of advertisement
Under present definitions in section 230.2, information given to account holders about their existing accounts is not an advertisement. The amendment includes communications to existing customers promoting the payment of overdrafts in the definition. Changes to the Commentary detail types of communications that will continue to be excluded.
Initial account disclosures
Changes to section 230.4 will require more information about overdraft fees in initial disclosures. For example, the rule will require institutions to describe the types of transactions that can result in overdraft fees.
Combining fees on statements
Section 230.6 and its Commentary are updated to specify types of fees that cannot be grouped together on periodic statements. Monthly maintenance fees cannot be combined with excess-activity charges; per items fees of differing amounts (referred to as "transfer fees" in the Commentary) cannot be combined; fees for EFT cannot combined with fees for other services; and fees for paying overdrafts cannot be combined with fees for bouncing items.
Misleading ads
The Commentary to section 230.8 is changed to provide specific examples of advertising that will be considered misleading. Most of the examples involve ODP program promotions and address consumer complaints.
It will be misleading to:
Describe an overdraft plan not subject to Regulation Z as a line of credit.
State "all checks will be paid" even within a certain range or dollar amount if the financial institution has discretion to pay or return items.
State that consumers may allow accounts to stay overdrawn, since such plans typically require a relatively short period for return to a positive balance.
Describe only one trigger, such as a non sufficient check, as applicable to an overdraft program when the program is also accessed by other means such as ATM transactions.
Advertise any account-related service for which there is a fee in an ad that also describes an account as "free" or "no cost," unless the ad clearly and conspicuously indicates there is a cost for the service. The prohibition against using "free" or "no cost" for accounts subject to maintenance or activity charges is unchanged.
Added statement disclosures
New Section 230.11 details the requirement for added periodic statement information. The Commentary provides implementation guidance, as well as a detailed list of actions that will not be considered "promotion of the payment of overdrafts" and thus will not trigger the statement requirements. There is a provision allowing banks to stop adding the four dollar amounts to statements two years after the bank stops ODP promotion.
Bounce protection ads
Section 230.11 also includes specific requirements for ads promoting bounce protection, including --
The fee or fees for the payment of each overdraft;
The categories of transactions for which a fee for paying an overdraft may be imposed;
The time period by which the consumer must repay or cover any overdraft; and
The circumstances under which the institution will not pay an overdraft.
Items 2 and 4 are not required in connection with any advertisement made on an ATM screen or using a telephone response machine. There are also specific situations in which the added disclosures are not required at all, found in section 230.11(b)(2).
The Federal Register version of the Fed's amendments was published May 24, 2004, and is found here.
The Fed stated in its announcement that it was not ruling out the possibility that Regulation Z might be amended in the future to place ODP programs under Truth in Lending rules.
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