Adopted RegulationsQuestions and Answers Regarding New Overdraft Protection Regulations
February 21, 2006
(New Part 6.8, amendments to Part 32 and emergency amendment to Part 6.8 of the General Regulations of the Banking Board)
A. Separate Notice Requirement - Section 6.8(e) of the General Regulations of the Banking Board
1. Does the separate notice requirement have application only to consumer accounts or does it apply to commercial accounts as well?
The separate notice requirement applies to accounts of all types.
2. Does this requirement obligate a bank to provide the separate notice in cases where the bank charges a fee for items presented or received against insufficient funds and/or uncollected balances (i.e., fees that the bank may charge independent of wildcard authority) but imposes no additional charges (such as a continuous overdraft fee) pursuant to the grant of expanded powers made available through the Banking Department's exercise of its wild card authority?
The separate notice requirement in the regulation does not apply to a banking institution unless it charges fees under the authority of Part 6.8; i.e., fees beyond the one-time insufficient funds fee previously permitted under the Banking Department's regulations. While not required, providing a separate notice where only already permissible fees are charged would be a desirable practice.
3. Does the separate notice requirement apply at all if a bank does not have an overdraft protection program? If the answer is yes, what is the significance of the reference to "overdraft protection" in the context of the information that banks must disclose in the separate notice?
The separate notice requirement applies if the banking institution charges fees under the authority of Part 6.8, that is, fees beyond the one-time insufficient funds fee previously permitted by the Banking Department's regulations, whether or not the banking institution considers that such fees are being charged in connection with an overdraft protection "program". Under the regulation, such fees are considered overdraft protection whether or not part of a "program".
4. Must the separate notice include a description of a bank's insufficient funds fee (i.e., how much is charged and how the fee is determined) in addition to a description of additional fees that may be incurred for overdrafts in a customer's account, even though such detailed information is provided elsewhere in a bank's account opening documentation that is provided to the customer? Would the notice be sufficient if it indicates the circumstances when an insufficient funds fee will be charged to the customer's account but refers the customer to the bank's fee schedule for the applicable charge and how it is determined?
5. Does the separate notice have to specify fees associated with overdrafts in a customer's account that are in addition to NSF fees and explain how such fees are determined, or is it sufficient to say that the customer may incur additional fees if the customer fails to timely repay the amount of any overdraft in his or her account, while referring the customer to the bank's fee schedule for the applicable charges and how they are determined?
The separate notice is not required to include a description of the banking institution's insufficient funds fee, although such a description may be desirable in assisting the customer to understand the banking institution's charges. As to any fee beyond the one-time fee previously permitted under the Banking Department's regulations, the notice must specify what the fee is, the manner in which it is imposed and how the customer will be notified of any change therein. The banking institution is not required under Part 6.8(e) to send a separate notice of any subsequent changes in overdraft fee(s), although such a practice may be desirable.
6. Must an explanation of the "parameters, costs and limitations of overdraft protection" include detailed information on the features and terms of a bank's overdraft line of credit products or overdraft arrangements that allow customers to link savings accountsto checking accounts to cover their checking account overdrafts?
No. The separate notice is required only with regard to fees beyond those previously permitted under the Banking Department's regulations.
7. Can additional overdraft fees (i.e., fees that may be charged based on the new wildcard authority) be charged in advance of providing the separate notice as long as the notice is provided within 90 days of the effective date of the amended regulation?
B. Disclosure of Order of Posting Checks and Other Items - Section 32.4 of the General Regulations of the Banking Board
1. By what date must a bank provide the expanded disclosure in regard to the order in which it pays "items" if it currently discloses the order in which it pays checks?
Section 32.4 of the Banking Department's regulations provides for prompt implementation of the required disclosure for new customers, and provides for disclosure “within 120 days of the effective date” of the section for existing customers. The Banking Department believes that under this section a comparable implementation schedule is required for the recent amendments to Section 32.4. These amendments expand the current requirement that a banking institution disclose the order in which it pays checks to require disclosure of the order in which it pays the broader category of "items". In the case of banking institutions that are required to provide a one-time Part 6.8(e) notice, it is permissible, and may desirable, to include the disclosure concerning the clearing order for items in the same notice.
C. Effective Date
1. What is the effective date of the amendments to Parts 6 and 32?
The amendments to Part 6 and Part 32 are expected to become effective on February 22, 2006. However, the separate notice required by Part 6.8(e) must be given not later than 90 days after the effective date of that Part. The disclosure to depositors required by the amendments to Part 32.4 of the order in which items (rather than only checks) are paid is required for new accounts at the time the account is opened and for existing accounts within 120 days after the effective date of those amendments.