Limits on Charges for Certain Overdrafts
This section of the chapter describes the rules that Regulation E imposes on an institution that offers overdraft services for ATM and one-time debit-card transactions. The regulation prohibits such an institution from charging a fee for an overdraft that results from an ATM transaction or a one-time debit-card transaction unless a number of conditions have been met. The conditions require the institution to get the consumer’s informed consent to the overdraft service and the fee or charge.
The rules also prohibit such an institution from treating a consumer differently with respect to other accounts based on whether the consumer consented to the overdraft service.
These rules apply to new accounts opened on July 1, 2010, and later. For accounts opened prior to that date, the prohibition against imposing a fee or charge applies beginning August 15, 2010.
Scope of Requirements
The requirements are a part of Regulation E, which means that they apply only to consumer accounts. The prohibition on imposing a fee or charge applies only to overdrafts that are caused by ATM transactions or one-time debit-card transactions. ATM transactions are those that are performed at an ATM. A one-time debit-card transaction is a debit-card transaction other than a periodic scheduled repeating payment, such as the periodic payment of an insurance premium.
Overdrafts caused by other transactions, such as by checks, are not subject to these rules.
The overdraft service requirements also do not apply to a line of credit subject to Regulation Z, including transfers from a credit card account, home equity line of credit, or an overdraft line of credit.
Conditions on Fees and Charges
Here are the conditions Regulation E imposes.
- The institution provides the consumer with a notice that describes the overdraft service [12 CFR 1005.17(b)(1)(i)]
- The institution provides the consumer with a reasonable opportunity to consent, or opt in, to the overdraft service [12 CFR 1005.17(b)(1)(ii)]
- The institution obtains the consumer’s consent, or opt-in, to the overdraft service [12 CFR 1005.17(b)(1)(iii)]
- The institution provides the consumer with a written confirmation of the consumer’s consent, or an electronic confirmation if the consumer agrees. [12 CFR 1005.17(b)(1)(iv)]
In short, before the institution can impose a fee or charge for an overdraft of this type, the institution must notify the consumer about the service, get the consumer’s consent, and provide a written confirmation to the consumer.
The notice to the consumer must be substantially similar to a model form provided in the Regulation. [12 CFR 1005.17(d)] The notice must include a description of the overdraft service, the dollar amount of fees imposed, limits on fees, an explanation of the consumer’s right to opt in, and any available alternative plans for covering overdrafts. [12 CFR 1005.17(d)(1)-(6)]
Different Treatment Based on Opt in
In addition to putting conditions on the charging of fees, the Regulation E rules also prohibit an institution from treating a consumer differently based on whether the consumer opted in to the overdraft service.
In particular, the institution is prohibited from basing its decision whether to pay overdrafts caused by other types of transactions on whether the consumer opted in to this overdraft service. [12 CFR 1005.17(b)(2)(i) and (ii)] For example, an institution cannot decide to never pay overdrafts caused by checks of consumers who did not opt into the ATM and one-time debit card overdraft service.
Also, institutions must make available to consumers who do not opt in the same account terms and conditions that are available to consumers who do opt in. [12 CFR 1005.17(b)(3)]
In short, institutions must be careful not to discriminate against consumers who do not opt in to the ATM or one-time debit-card transaction overdraft service.