CUNA Regulatory Comment Call


December 13, 2005

NCUA’s Interim Final Rule for Overdraft Privilege Plans

EXECUTIVE SUMMARY

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Associate General Counsel Mary Dunn at mdunn@cuna.coop and to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.coop; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you would like a copy of the proposed changes, or you may access them here.

BACKGROUND

TISA requires financial institutions to disclose yields, fees, and other terms concerning deposit accounts to consumers at account opening, upon request, when changes in terms occur, and on periodic statements. There are also rules prohibiting advertisements that are misleading or inaccurate. The Federal Reserve Board’s (Fed’s) Regulation DD implements TISA, which includes official staff commentary that interprets the regulation and provides guidance in applying the regulation to specific transactions. Credit unions are covered under substantially similar rules that are issued by the National Credit Union Administration.

DESCRIPTION OF THE INTERIM FINAL RULE

Periodic Statements

For credit unions that promote the payment of overdrafts in advertisements, the rule will now require that they must separately disclose on their periodic statements the total amount of fees and charges imposed for paying overdrafts, as well as the total amount of fees charged for returning items unpaid. These totals must be provided for both the statement period and for the calendar year-to-date for any account in which the advertisement applies.

Also, fees for paying overdrafts and fees for returning items unpaid may not be grouped together as fees for insufficient funds. In addition to the per item fee, the term “fees” also includes interest charges, any other periodic fee, and fees charged for maintaining an account in an overdraft status. Credit unions may indicate in a current statement that fees for a prior period were waived, but that must not affect the total for the current statement period. The credit union may reflect the adjustment in the year-to-date total.

This new requirement will not apply to credit unions that do not promote the payment of overdrafts and will not apply to credit unions that promote a service of transferring funds from another account in order to avoid an overdraft. The official staff interpretations provide examples of when a credit union is promoting the payments of overdrafts in an advertisement. In addition to print, broadcast, telephone, or electronic advertisements and promotions, other specific examples include indicating the overdraft limit for an account on a periodic statement, stating on an automated teller machine (ATM) receipt or screen the account balance that includes available overdraft funds, and indicating this information on automated systems, such as a telephone response system or on the Internet website.

A credit union that does not otherwise promote the payment of overdrafts would not trigger this requirement solely by conducting the following activities:

These disclosures must be made beginning on the first statement period that begins after the credit union advertises the payment of overdrafts. Credit unions may disclose total fees imposed for the calendar year either since the beginning of the year or since the beginning of the first statement period for that year in which such disclosures were required. These disclosure requirements will no longer apply to an account after at least two years have passed since the last advertisement was made that promoted this account.

A credit union that acquires an account must provide the disclosures on the first statement period after the acquiring credit union promotes the payment of overdrafts for that account. These disclosures do not have to be provided if the acquiring credit union does not promote overdrafts, even if the previous institution promoted the service.

Account-opening Disclosures

TISA requires the disclosure of any fee that may be imposed in connection with the account and the conditions in which it may be imposed. Under the final rule, credit unions must now specify in their TISA account-opening disclosures the categories of transactions for which an overdraft fee may be imposed. This requirement will apply to all credit unions, not just those that promote the payment of overdrafts in an advertisement, as is the case for the requirements for periodic statements, as described above.

This description does not have to be an exhaustive list. Model language is included in which the credit union may simply state that the fee is imposed for overdrafts “created by checks, in-person withdrawals, ATM withdrawals, or by other electronic means,” as applicable. However, describing the fee as a fee for “overdrafts items” will not be sufficient as this would not describe whether it would apply only to share drafts or whether it applies to other transactions, such as ATM withdrawals or other types of electronic transactions.

Advertising Rules

Credit unions that promote the payment of overdrafts will be required to include the following disclosures in their advertisements about this service.

Stating the available overdraft limit or the amount of funds available on a periodic statement would be considered an advertisement that would trigger the required disclosures. The rule provides exceptions to these requirements, similar to those described above for periodic statement disclosures. For example, the advertising disclosure requirements will not apply when providing educational materials, responding to member-initiated inquiries about overdrafts or deposit accounts, or notifying a member about a specific overdraft in their account.

These advertising disclosures are also not required on ATM receipts or for advertisements using broadcast media, such as television or radio, or outdoor media, such as billboards. These exceptions do not apply to advertisements on Internet websites, ATM screens, advertisements on telephone response systems, or those sent by e-mail. However, the specific disclosures described above regarding the categories of transactions covered and the circumstances in which the credit union will not pay an overdraft will not be required for advertisements made on an ATM screen or by use of a telephone response machines. These disclosure requirements also do not apply to advertisements for signs inside the credit union, except these signs must indicate that fees may apply and that the member should contact an employee for further information about fees and terms. Although methods of advertisements described in this paragraph provide exceptions from disclosure requirements, credit unions that advertise in this manner will still be required to comply with the periodic statement disclosure requirements, as described above.

Prohibiting Misleading Advertisements

The rule will expand TISA’s prohibition against advertisements, announcements, or solicitations for new accounts that are misleading or misrepresent the deposit contract to now include communications with current members about the terms of their existing accounts. The following are examples of misleading advertisements:

QUESTIONS TO CONSIDER REGARDING NCUA’s INTERIM FINAL RULE ON OVERDRAFT PRIVILEGE PLANS

Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Lilly Thomas • Assistant General Counsel • (202) 508-6733 • lthomas@cuna.com
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com