Clarifications to Reg E Opt-in Requirement
Written by Steve Van Beek
As you work through finalizing your Reg E opt-in process, do not forget about the clarifications the Federal Reserve recently published. Â Of course, the big clarification was that the Fed formally declared that financial institutions need an opt-in before charging a fee even for "gas station transactions" and other situations where funds were available when authorized but subsequent transactions cause the transaction to overdraw the account. Â As the preamble states:
"The final rule does not provide any exceptions for allowing overdraft fees for ATM and one-time debit card transactions to be imposed without consumer consent. For clarity, however, the Board is deleting ç 205.17(b)(4) and instead incorporating its content into a revised comment to ç 205.17(b)(1). For the reasons explained in the SUPPLEMENTARY INFORMATION to the Regulation E final rule, as well as the March 2010 proposed rule, the Board believes that adopting exceptions to the fee prohibition would undermine the consumerâÂÂs ability to understand the institutionâÂÂs overdraft practices and to make an informed choice. 74 FR 59045; 75 FR 9121. Moreover, permitting fees on transactions that are authorized on sufficient funds but settle on insufficient funds would create a disincentive to resolve inefficiencies in payment systems and in processing procedures, which would not benefit consumers.Â
The final rule clarifies that the prohibition on assessing overdraft fees under ç 205.17(b)(1) appliesto all institutions, including those institutions that have a policy and practice of declining to authorize and pay any ATM or one-time debit card transactions when they have a reasonable belief at the time of the authorization request that the consumer does not have sufficient funds available to cover the transaction." (emphasis in original).
Timing of Written Confirmation
The clarifications also make clear that institutions need to have procedures to ensure that overdraft fees are only assessed on transactions paid after the CU mails or delivers the written confirmation. Â Thus, institutions have an incentive to provide the written confirmation promptly after a member opts-in. Â See new comment 205.17(b)-7 on page 7Â and the preamble on pages 3-4 for more information on the Fed's rationale.
And, of course, the member's opt-in can not apply to any transactions conducted or paid prior to the member's opt-in. Â Thus, if a member finally opts-in on November 1, 2010 - the CU can not go back and charge fees for any transactions in the past even if they overdrew the account. Â The member's opt-in only applies to future transactions. Â And, the member retains the right to revoke his/her opt-in consent at any time in the future.Â
Opt-in is Per Account, Not Per Member
The Fed also added some clarification to an issue some credit unions have struggled with:
"Industry commenters also asked whether opt-ins for multiple accounts may be obtained on one consent form (or in the course of obtaining opt-ins through any other method, such as over the phone or on-line). Any determination as to whether an opt-in has been obtained from a consumer in compliance with the rule depends on the facts and circumstances. However, whether or not a single form is used to obtain consumersâ opt-ins, a separate opt-in decision must be made for each account, and the choices must be presented in a clear and readily understandable manner. Thus, a statement on the form that the consumerâÂÂs signature acts as an opt-in for all of the consumerâÂÂs accounts is not permissible under the final rule."  (emphasis added).  See the bottom of the first column on page 7.
While the CU can have multiple blanks on an opt-in form to allow members to opt-in for more than one account, the CU can not treat one opt-in as applicable to all a member's subaccounts.