We are in the process of purchasing the accounts of another bank (just one branch)and I want to make sure that these new customers receive the correct change in terms notification. We will be eliminating a bounce protection feature on all checking accounts acquired. This will occur on the acqisition date. Does my Bank have to give 30 days written notice prior to the acquisition date even if we don/t own the accounts yet? and if so under which regulation do I have to advise these customers of the elimination of this feature?

Section 230.4 --Account disclosures.

(a)2. Acquired accounts. New account disclosures need not be given when an institution acquires an account through an acquisition of or merger with another institution (but see Sec. 230.5(a) regarding advance notice requirements if terms are changed).

§230.5 Subsequent disclosures.

(a) Change in terms --(1) Advance notice required. A depository institution shall give advance notice to affected consumers of any change in a term required to be disclosed under §230.4(b) of this part if the change may reduce the annual percentage yield or adversely affect the consumer. The notice shall include the effective date of the change. The notice shall be mailed or delivered at least 30 calendar days before the effective date of the change.

I'd be interested in other folk's commnets, but I believe you have to honor the account the way it is for at least the first 30 days.

Since the bounce protection service relates neither to a deposit account nor an extension of credit, there are no federal rules that will govern the change in terms. Technically, since the customers have been informed previously that the former bank was under no obligation to pay overdrafted items, you might be able to get away with simply canceling the service without notice.

However, from a customer service perspective, I think it would be in your best interest to provide as much notice as possible.

Additionally, there may some state law considerations for cancellation of a service.

Note: edited after seeing Dean's post.

I do not agree with Dean's assessment that the bounce protection is a feature of the account. Bounce protection is a separate service that advances funds to cover overdrafts. My assessment is based on the fact that disclosure of overdraft fees is not required under 230.4. If regular OD fees are not associated with the account, bounce protection shouldn't be, either.

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I'd be interested in other folk's commnets, but I believe you have to honor the account the way for at least the first 30 days.

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Alternatively, you could have the bank that currently owns the accounts send a notice 30 days prior to the effective date of the sale of the accounts that says the program will be dropped for those accounts as of the sale date.

I thought about having the seller send out the notice but I would rather have full control. In addition to the elimination of the Bounce Protection feature we are also lowering the daily ATM cash withdrawal limits and daily point of sale debit card limits as well as extending the funds availability schedule for these new accounts for cash. I am basing my disclosure requirements on Reg E 205.8(a) and Reg CC 229.18(e) but am unsure of the reg that might apply to the bounce feature. What I disclose in my notice is that the above items will no longer be available on xx/xx/xxxx I am enclosing copies of all pertinent disclosures and directing them to those disclosues for more specific information relating to the changes. I am also including an application for our overdraft protection feature.

Can I get some sort of concensus regarding the bounce protection feature? Is it covered under any regulation? Also, can I get clarification regarding the timing of the notice? I was under the impression that we could make changes to accounts at any time as long as the required notification requirements were met. Are you guys/gals saying that the we can't change anything until 30 days after acquistion?

Please clarify???

I was under the impression that we could make changes to accounts at any time as long as the required notification requirements were met.

My position is that they aren't your accounts until acquisition. Therefore, any pre-notification does not fulfill the requirements of 230.5. Others may disagree.

Is it covered under any regulation? - No, not yet, but give the regulators some time, they'll eventually come up with something.

Are you saying you would not issue a 30 days notice if you were in my position because my bank does not own the accounts yet? Who should then notify the consumer? The seller is not making the changes and I am sure would not feel compelled to send out any notice (we couldn't require them to, the contract is already signed).

If we don't send out the notice I am sure the regulators would place the blame on us because the changes to the accounts will have happened after we acquired them.

What should I do????

Yes, that is what I am saying. You are buying/acquiring these accounts "as is". You have to notify the customer, but have to give them 30 days advance notice. Your clock doesn't start running until you acquire them. Change them before you've owned the accounts for 30 days and the regulators will cite you for not giving proper notification. I don't believe they will buy the argument that you gave them notification before they were yours.

I don't agree that the 30 day notice applies. Bounce Protection is not a feature of the deposit account - it is a separate service whereby the bank advances funds to cover an overdraft in a deposit account. If Bounce Protection is not part of the deposit account, the prior notification provisions of Reg DD does not apply.

Having said that, Dean's argument that you cannot communicate with the customers until they actually are your customers has some merit. That's where the lack of a guarantee of payment could come into play. There is no guarantee that the seller would automatically pay an item - you should be able to use that to return anything in the interim period.

Although Dean has a valid technical point, you can take some comfort from the fact that no one is likely to "ding" you if you, as the acquiring bank, make these disclosures.

Although there may not be a requirement to alert customers on the OD Privilege product, you should send out that alert, I believe.

As for the Reg E and Reg CC change notices, I encourage you to send them out as well. The change notice requirements here have some teeth, and you owe the information to these people, anyhow.

Thank you all for your input. I will issue the change in terms notice so that the consumer has the benefit of knowing what changes are going to be made to their accounts on the acquisition date.