Reg DD - Opt-in & Opt-out Requirements

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Question:

The commentary on the Reg DD changes seems a bit unclear with regard to the opt-in and opt-out requirements for banks that do not utilize an overdraft program. Is a bank that does not have an overdraft program, but does pay overdrafts on a discretionary basis, required to allow customers to opt-out of having their overdrafts paid through whatever means?

Answer:

Regulation DD does not have any requirement for an opt-in or opt-out provision. There was a proposed amendment (not adopted) to Regulation AA that would have mandated an opt-out, and a proposal (also not adopted) to amend Regulation DD to provide a mandatory form of opt-out notice if the Reg AA amendment (or similar rule) had been adopted.

Both of those proposals were withdrawn. Instead, the Fed proposed and finalized amendments to Regulation E that will be effective 7/1/2010. Those amendments address only overdraft services covering ATM and one-time debit card transactions, and will require that financial institutions make disclosures about such overdraft services and obtain a consumer's opt-in or affirmative consent to such overdraft services. Institutions will not be permitted to assess any form of overdraft fee or charge for an ATM or one-time debit card transaction that overdraws a consumer's account without receipt of an opt in. Institutions that currently assess overdraft charges for ATM and one-time debit card transactions will have to discontinue the practice unless they provide disclosures and the consumers opt in prior to August15, 2010.

"Overdraft service" includes any payment of a transaction that overdraws the available balance of a consumer account for a fee, whether or not it's pursuant to a "plan" or "program." It includes overdraft fees in connection with "old-fashioned" ad hoc overdraft decision-making procedures. It does not include the payment of overdrafts with funds transferred from a line of credit subject to Regulation Z (including an overdraft line of credit, HELOC or credit card account) or from funds in another account of the consumer in the same institution.

First published on BankersOnline.com 1/18/10