Negative Balance and Sustained Overdraft Fees under Reg E
Written by Steve Van Beek As I mentioned in yesterday's post on Reg E, credit unions need to pay close attention to the clarifications the Federal Reserve issued recently on the Reg E final rule. Â The clarifications contain two new comments and detailed analysis by the Federal Reserve on negative balance and sustained overdraft fees that CUs will want to read. Â The preamble is on pages 4-6 of this PDF with the two new sections of the official staff commentary on page 8. Outstanding Negative Balance - Comment 205.17(b)-8. The Fed clarified in this comment that CUs can not charge negative balance fees to members if the only negative balance is solely from ATM or one-time debit card transactions:
"8. Outstanding Negative Balance. If a fee or charge is based on the amount of the outstanding negative balance, an institution is prohibited from assessing any such fee if the negative balance is solely attributable to an ATM or one-time debit card transaction, unless the consumer has opted into the institutionâÂÂs overdraft service for ATM or one-time debit card transactions. However, the rule does not prohibit an institution from assessing such a fee if the negative balance is attributable in whole or in part to a check, ACH, or other type of transaction not subject to the prohibition on assessing overdraft fees in ç 205.17(b)(1)."  Â
Notice that the rule does not prohibit a negative balance fee that is attributed "in whole or in part to a check, ACH, or other type of transaction" not subject to the new Reg E rules. Â See the examples in Comment 9 for more information. Daily or Sustained Overdraft, Negative Balance or Similar Fee or Charge - Comment 205.17(b)-9. First off, note that the Federal Reserve named this comment very broadly. Â Financial institutions will not be able to come up with a creative term for their fee in an attempt to move outside the rules. Â As the comment indicates:
"If a consumer has not opted into the institutionâÂÂs overdraft service for ATM or one-time debit card transactions, the fee prohibition in ç 205.17(b)(1) applies to all overdraft fees or charges for paying those transactions, including but not limited to daily or sustained overdraft, negative balance, or similar fees or charges. Thus, where a consumerâÂÂs negative balance is solely attributable to an ATM or one-time debit card transaction, the rule prohibits the assessment of such fees unless the consumer has opted in."
The Fed then goes on to give examples of when the CU could charge negative balance or sustained overdraft fees when the negative balance is attributed to a combination of ATM/one-time debit card transactions and checks/ACH or recurring debit card transactions. Â Â Credit unions will want to review the assumptions the Fed uses and the examples themselves to determine when they may be able to charge negative balance or sustained overdraft fees. Of course, if a member opts-in to overdraft coverage for ATM and one-time debit card transactions - CUs could properly charge the disclosed fees in those situations. Â For the Fed's assumptions and the examples - see page 8 for Comment 9 to 205.17(b).