However, terminating or limiting the program would require renotification, consent and confirmation.
The opt-in requirement has been a source of contention among
regulators, media and consumer groups over the years. Straightforward opt-in marketing communications might ask: “Would you
like to add any overdraft service to your account?” Other banks
have taken a more aggressive stance which has raised UDAAP
questions. For example, a sales pitch that states, “The service is
free,” could be viewed as deceptive, when in fact there is a fee if
the service is used. Alternatively, marketing copy that incites action based on fear could be viewed as unfair, such as: “You don’t
want to be stuck with a broken down car with your kids in the
backseat”. In other cases, banks have continued to send emails
marketing overdraft services after the consumer has already declined the overdraft service or revoked consent. Such tactics do
not follow the spirit of Regulation E, nor do they align with the
advertisement of overdraft service requirements of Regulation DD.
Regulation DD, the implementing regulation for the Truth-in-Savings Act, provides regulatory requirements for advertising
overdraft services as well as certain periodic statement disclosures.
To comply with Regulation DD, the advertisement requirements
appear to be straightforward:
“any advertisement promoting the payment of overdrafts
shall disclose in a clear and conspicuous manner:
i. The fee or fees for the payment of each overdraft;
ii. The categories of transactions for which a fee for paying
an overdraft may be imposed;
iii. The time period by which the consumer must repay or
cover any overdraft; and
iv. The circumstances under which the institution will not
pay an overdraft.”
However, when you overlay unfair, deceptive or abusive acts
or practices (UDAP/UDAAP), the requirements become basic
elements to a more robust advertisement to ensure customers,
not just consumers, are provided full disclosures of the inner-workings of the overdraft service, available coverage options and
customer responsibilities. 1
A decade ago, a simple compliant disclosure may have read,
“You may be charged our standard overdraft fee of $30 for each
item created by check, in-person withdrawals, ATM withdrawals or
other electronic means paid under the limit. All negative balances
must be brought positive within 30 days. Whether your overdrafts
will be paid is discretionary, and we reserve the right not to pay.
For example, we typically do not pay overdrafts if your account is
not in good standing, or you are not making regular deposits, or
you have too many overdrafts. Please contact a customer service
representative for more details.”
However, today’s supervisory expectations have broadened to
include more robust disclosures to incorporate overdraft management tools also, such as:
■ ■ ■ Alerts via mobile or online banking;
■ ■ ■ Convenient funds transfer tools;
■ ■ ■ Account sweeps or overdraft lines of credit;
■ ■ ■ Caps on the number or amount of overdraft fees; and most
importantly,
■ ■ ■ Explaining the options in plain-English, detailed clearly and
conspicuously.
Moreover, more consent orders are issued for non-compliant
overdraft programs that arise from unfair, deceptive and abusive
acts and practices than Regulation E or DD.
The Guidance
The 2005 “Joint Guidance on Overdraft Protection Programs” (2005
Overdraft Guidance) issued by Office of the Comptroller of the
Currency (OCC); Board of Governors of the Federal Reserve System (FRB); Federal Deposit Insurance Corporation (FDIC); and
National Credit Union Administration (NCUA) is the cornerstone
for overdraft programs and services. The 2005 Overdraft Guidance
was issued to assist banks in the disclosures and administration
of overdraft programs. Issued in February 2005, the Guidance
addresses safety and soundness considerations, legal risks and
best practices, which still hold true today. Although some of the
recommendations in the 2005 Overdraft Guidance have since
been incorporated into Regulations E (e.g., opt-in) and DD (e.g.,
periodic statement disclosures), several recommendations remain
that are considered best practices and/or have become regulator
expectations, such as to:
■ ■ ■ Avoid promoting poor account management;
■ ■ ■ Train staff to explain program features and other choices;
■ ■ ■ Clearly explain the discretionary nature of program;
■ ■ ■ Distinguish overdraft services from “free” account features
free of charges,
■ ■ ■ Clarify that fees count against the disclosed overdraft dollar limit;
■ ■ ■ Demonstrate when multiple fees will be charged;
■ ■ ■ Explain the impact of transaction clearing policies;
■ ■ ■ Illustrate the type of transactions covered;
■ ■ ■ Provide election or opt-out of service—not just ATM/POS
transactions;
■ ■ ■ Alert consumers before a transaction triggers any fees;
■ ■ ■ Promptly notify consumers of overdraft program usage each
time used;
■ ■ ■ Monitor overdraft program usage; and
■ ■ ■ Fairly report program usage.
The agencies have issued additional guidance through FILs,
bulletins and letters. 2 Recently, the agencies issued the Interagency Statement Clarifying the Role of Supervisory Guidance.
Although this guidance covers all supervisory guidance, institutions should consider its application to overdraft products
and services, particularly the impact to safety and soundness.
Regulation DD, the implementing regulation
for the Truth-in-Savings Act, provides
regulatory requirements for advertising
overdraft services as well as certain
periodic statement disclosures.
