Regulation DD Proposal

July 18, 2008


Ms. Jennifer J. Johnson
Board of Governors of the
   Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551

RE: Docket No. R-1315 – Regulation DD Proposal

Dear Ms. Johnson:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the Federal Reserve Board’s (Board’s) proposed rule to amend Regulation DD, the Truth in Savings Act (TISA) with regard to overdraft protection plans. The proposal is intended to complement and be consistent with the proposal published recently by the National Credit Union Administration (NCUA), the Board, and the Office of Thrift Supervision (OTS) that addresses unfair and deceptive practices as they pertain to credit cards and overdraft protection plans. CUNA will be submitting a comprehensive comment letter to NCUA in response to the unfair and deceptive practices proposal that should be reviewed in conjunction with the comments outlined below. By way of background, CUNA represents approximately 90% of our nation’s 8,300 federal and state-chartered credit unions, which serve more than 90 million members. CUNA’s letter was developed under the auspices of the CUNA Consumer Protection Subcommittee.

Summary of CUNA’s Comments


Opt-out Notice

The unfair and deceptive practices proposal that was recently issued by the Board, NCUA, and OTS will require financial institutions to provide consumers with a reasonable opportunity to “opt-out” of an overdraft protection plan. The opt-out notice must be provided both before a fee is charged for the first time and during each periodic statement cycle in which a fee is assessed, if the consumer does not choose to opt-out. The proposal issued by the Board to amend Regulation DD outlines the content and timing requirements for providing this notice.

CUNA and credit unions support the idea that consumers should be able to opt-out of an overdraft protection program if they do not want this service, and that this should be provided at the time the plan is first provided to them. Not only is this a reasonable requirement, but this also provides a good opportunity to provide educational information to consumers so they can make an informed choice as to whether to use this service. In addition, credit unions will also always honor a request from a member who decides at any time that he or she no longer wants to participate in the program.

However, some credit unions currently accommodate members on a case-by-case basis by honoring overdrafts on a very infrequent basis, which we would not consider an overdraft “plan” as contemplated under the proposal. Although CUNA would support providing these members with some form of informal means of indicating they do not want this accommodation, we do not otherwise believe that this proposal should cover these types of arrangements.

Although we support the requirement to give consumers a notice that provides them the right to opt-out at the time the overdraft service is first offered to them, we strongly oppose the provisions that will require credit unions and other financial institutions to also provide an additional opt-out notice during any periodic statement period in which the service is used, whether it is provided on the periodic statement or in a separate notice. Such a requirement will simply be too burdensome for credit unions and the information provided, in combination with the other significant disclosures provided on the periodic statements, will be too overwhelming for members, who will likely ignore this additional information.

This problem will be compounded because many financial institutions may simply decide that the most efficient means to comply with these provisions will be to provide the opt-out notice on every periodic statement, regardless of whether the service is used during that time period. This will only increase the risk that consumers will ignore this information, while increasing burdens for financial institutions, which include higher postage and processing costs.

For this reason, we believe the requirement to provide these additional opt-out rights will provide very little benefit for consumers, while resulting in significant burdens for credit unions and other financial institutions. If the Board continues to believe that providing the right to opt-out at the time the overdraft service is first offered is not sufficient and that additional notices are still necessary, then we suggest that the Board only require that financial institutions provide an additional opt-out notice once each year, instead of on each periodic statement in which the service is used. This is similar to the annual privacy notice requirements under the Gramm-Leach-Bliley Act (GLBA) and while we believe annual notice requirements are also unnecessary, this would be far preferable for both financial institutions and consumers than the current proposal. Again, as stated above, credit unions will always honor a request from a member who decides at any time that he or she no longer wants to participate in the program, regardless of when that request is received.

Furthermore, we believe that the proposed opt-out notice requirements should not apply at all to credit unions or other financial institutions that currently use an “opt-in” approach with regard to their overdraft protection plans. Under this approach, consumers have to affirmatively choose to enroll in these plans before the credit union will cover the overdrafts, as opposed to the more common “opt-out” approach in which consumers are covered under the overdraft plan, unless they inform the institution that they do not want to participate. It would make no sense to apply the proposed requirements to financial institutions that use an opt-in approach, especially the requirement to provide notices during the periodic statement periods in which overdrafts occur. Consumers who on their own initiative inform their financial institution that they wish to participate in the overdraft protection plan have clearly expressed their intentions, and it is simply unnecessary to provide them with additional notices of their right to opt-out of a service in which they voluntarily elected to participate.

As for other aspects of the proposal that will require financial institutions to provide consumers with the right to opt-out of overdraft protection programs, we suggest the Board clarify that these notices may be provided electronically, consistent with the federal E-Sign Act and with the Board’s electronic disclosure rules that were issued in 2007. Under these provisions, financial institutions and others may provide disclosures electronically, as long as appropriate consent is received from the consumer.

Although the E-Sign Act allows electronic disclosures under these circumstances, we believe the Board should amend the proposal to clarify these options for consumers, similar to certain provisions of the GLBA requirements for annual privacy notices. For example, under the GLBA rules, privacy notices may be received electronically, if the consumer agrees, and consumers may also exercise their right to opt-out by email or other electronic means. We believe similar methods should be incorporated under the proposal with regard to the opt-out notices for overdraft protection plans.

Disclosure of Overdraft Fees

In 2005, both the Board and NCUA amended Regulation DD to require financial institutions that “promote the payment” of overdrafts to disclose on the periodic statement the fees charged for overdraft services and the fees charged for returning items unpaid, both for the statement period and for the year-to-date. This proposal will expand these disclosure requirements to all financial institutions, regardless of whether they promote the payment of overdrafts.

Extending this requirement to all financial institutions will require significant processing changes, as was the case for those institutions that were required to comply with the 2005 rule changes. Before requiring financial institutions to make this investment, we strongly urge the Board to conduct a survey of those financial institutions that are required to comply with these disclosure requirements because they “promote the payment” of overdrafts. This survey should collect information to determine whether consumers believe the disclosures regarding overdraft fees and returned check fees are useful. We suspect the survey will demonstrate that these disclosures are not helpful and, instead, are another example of information overload that is confusing to consumers.

Balance Inquiries

When responding to a consumer’s inquiry regarding the available balance on an account, the proposal will require financial institutions to disclose only the amount of funds available for the consumer’s immediate use or withdrawal, which must not include any additional amounts available under an overdraft protection plan. This would apply to any automated system, such as an ATM (regardless of whether the institution owns the machine), Internet website, and telephone response system.

CUNA strongly supports this proposed change and believes it is necessary to ensure that these systems are not structured as a means to mislead consumers into incurring overdraft fees by overdrawing their accounts. The Board’s proposal will help achieve this goal.

Effective Dates

This Regulation DD proposal is intended to complement and be consistent with the proposal recently published by NCUA, the Board, and the OTS that addresses unfair and deceptive practices as they pertain to credit cards and overdraft protection plans. Because of the interrelationship between these two proposals, we strongly believe that the effective date of these two proposals should be the same.

Also, as mentioned in our comment letter in response to the recent changes to the Regulation Z open-end rules, the unfair and deceptive practices proposal and the comprehensive Regulation Z proposal issued last year will involve very extensive and far-reaching revisions to the Regulation Z open-end rules, and credit unions and others should be given a significant amount of time to prepare for these changes. In that comment letter, we urged that mandatory compliance for all these Regulation Z proposals should not be required for at least two years after all of these proposals are issued in final form. This will be necessary to ensure that credit unions have sufficient time to revise the disclosures, provide appropriate staff training, and implement the necessary data processing changes. We also believe the mandatory compliance date for this Regulation DD proposal should be the same, since it is interrelated to the unfair and deceptive practices proposal that also includes significant changes to Regulation Z.

Thank you for the opportunity to comment on the Board’s proposed rule to amend Regulation DD, the Truth in Savings Act. If you have questions about our comments, please contact Senior Vice President and Deputy General Counsel Mary Dunn or me at (202) 638-5777.


Jeffrey P. Bloch
Senior Assistant General Counsel