Brian J. Mischel

The Board of Governors of the Federal Reserve System (Federal Reserve) has adopted a final rule prohibiting financial institutions from assessing an overdraft fee for paying automated teller machine (ATM) and one-time debit card transactions unless the consumer affirmatively consents, or opts in, to the overdraft service for those types of transactions.  The opt-in provision establishes requirements for a clear disclosure of fees and terms of overdraft services for ATM and one-time debit card transactions, providing consumers a better understanding of the costs involved and a choice to decline such services.  The final rule does not apply to other types of transactions, such as check transactions, automated clearinghouse (ACH) transactions and recurring debit card transactions.   

Opt-In Requirement

The final rule requires consumers to opt in for the institution’s overdraft service for ATM and one-time debit card transactions before fees or charges may be assessed on their accounts.  One-time debit card transactions may include a point-of-sale, online or telephone transaction.  The opt-in requirement applies to all consumers, including those who opened accounts prior to the mandatory compliance date of July 1, 2010.  The final rule allows a consumer to revoke his or her opt-in consent at any time.  An institution also may terminate the consumer’s access to the overdraft service for any reason, including excessive use of the service.

Content & Format of Required Notice

The opt-in information for providing consent must be separate from other types of consents to ensure the information is not hidden within other account documents and potentially overlooked by the consumer.  The required notice should include a description of the institution’s overdraft service and indicate the consumer has the right to opt in to payment of overdrafts for ATM and one-time debit card transactions.  The description should disclose the institution’s policies regarding payment of overdrafts for other transactions, such as checks, ACH transactions and automatic bill payments.  An institution should indicate that it pays overdrafts at its discretion and should include a statement that it may decline a transaction if an overdraft is not authorized and paid.  The notice must include all applicable overdraft fees, including but not limited to:

• Per item or transaction fees
• Daily overdraft fees
• Sustained overdraft fees
• Negative balance fees

The notice must be provided in writing or if the consumer agrees, electronically.  Click here to view the model disclosure form adopted in the final rule to satisfy the notice requirement.

Providing Opportunity for Affirmative Consent

An institution must provide a consumer with a reasonable opportunity to provide affirmative consent.  The final rule lists examples of reasonable methods an institution can employ to allow a consumer to do so:

• Mail – The consumer completes a form and mails back to consent to the service
• Telephone – The consumer calls a readily available telephone line to consent to the service
• Electronic means – The consumer accesses the institution’s website and clicks a check box on a form to provide consent and confirms that choice by clicking on a button
• In person – The consumer completes a form and presents at a branch or office to consent to the service

Confirmation of Consent

An institution must provide the consumer a copy of his or her completed opt-in form by sending a letter or notice acknowledging the consumer has elected to opt in to the institution’s service.  The written confirmation notice must include a statement informing the consumer of his or her right to revoke the opt in at any time. 

Conditioning the Opt-In

The final rule forbids institutions from considering the consumer’s decision not to opt in when deciding whether to pay overdrafts for checks, ACH transactions and recurring debit card transactions.  An institution must consistently apply the same criteria when determining whether to pay an overdraft for a check, ACH transaction or recurring debit card transaction for a consumer regardless of whether the consumer has opted in to the institution’s overdraft service for ATM and one-time debit card transactions.  Many institutions will be required to reprogram systems to distinguish ATM and one-time debit card transactions from other transactions.

Same Account Terms, Conditions & Features

The final rule requires an institution to provide the same account terms, conditions or features to a consumer who does not opt in to an institution’s overdraft service for ATM and one-time debit card transactions.  This includes, but is not limited to:

• Interest rates paid and fees assessed
• The type of ATM or debit card provided to the consumer, e.g., PIN-only cards and PIN and signature debit functionality
• Minimum balance requirements
• Account features, e.g., online bill payment services

Mandatory Compliance Date

The mandatory compliance date is July 1, 2010.  For accounts opened prior to July 1, 2010, an institution must not assess any fees or charges on or after August 15, 2010, for paying an ATM or one-time debit card transaction pursuant to the overdraft service, unless the institution has obtained the consumer’s affirmative consent. 

For the complete final rule published in the Federal Register, click here.  

Contact your BKD advisor if you have additional questions.