Comments on Regulation E—Overdraft Practices

Published: March 30, 2009

Read the full comment

The Center for Responsible Lending, along with Consumer Action, Consumer Federation of America, Consumers Union, National Association of Consumer Advocates, National Consumer Law Center (on behalf of its low-income clients), and U.S. PIRG provide the following comments regarding the Federal Reserve Board's proposed rule to amend Regulation E pursuant to the Electronic Funds Transfer Act. 

Summary of recommendations:

  • Revisit the proposal to use the Board's UDAP authority under FTC Act to require institutions to provide a choice about coverage for checks and ACH transactions.
  • Require institutions to obtain account holders' affirmative opt-in before charging them overdraft fees for debit card purchases and ATM withdrawals.
  • Allow no exceptions that would result in a debit card purchase or ATM withdrawal triggering an overdraft fee for account holders whohave not chosen coverage. Instead, place the expectation on institutions, card processors, and merchants to resolve operational issues among themselves. If overdrafts are inadvertently covered, the account holder should not be charged a fee.
  • Prohibit institutions from treating checks and ACH transactions differently depending on whether a consumer chooses fee-based overdraft coverage for debit card purchases and ATM transactions. Otherwise, account holders may be unduly discouraged from choosing to not have overdrafts from debit card purchases and ATM transactions covered.
  • Require institutions to offer checking accounts with identical terms, except for whether overdrafts from debit card purchases and ATM withdrawals are covered for a fee. Otherwise, institutions may design accounts aimed to steer account holders into fee-based coverage.
  • Require notice of the right to opt-in/opt-out before existing account holders are charged their first overdraft fee following the effective date.
  • Prohibit overdraft fees caused solely by debit holds under any circumstances. The Board's current proposal would continue to allow account holders who have not in fact overspent their accounts to be charged overdraft fees, which is simply unjustifiable.

Issue:Overdraft Loans
Agency(-ies): Federal Reserve Board (Fed)

The Center for Responsible Lending, along with Consumer Action, Consumer Federation of America, Consumers Union, National Association of Consumer Advocates, National Consumer Law Center (on behalf of its low-income clients), and U.S. PIRG provide the following comments regarding the Federal Reserve Board’s proposed rule to amend Regulation E pursuant to the Electronic Funds Transfer Act.