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Federal Reserve Bank of Dallas
2200 N. PEARL ST.
DALLAS, TX 75201-2272

July 8, 2004

Notice 04-38
TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District

SUBJECT
Proposed Amendments to Regulation DD
(Truth in Savings Act)
DETAILS
The Board of Governors is seeking public comment on a proposal to amend
Regulation DD, which implements the Truth in Savings Act, and the staff commentary to the
regulation, to address concerns about the uniformity and adequacy of information provided to
consumers when they overdraw their accounts. The proposed amendments, in part, address a
specific service offered by depository institutions, commonly referred to as “bounced-check
protection” or “courtesy overdraft protection.”
Bounced-check protection is an automated service that is sometimes provided to
deposit account consumers as an alternative to a traditional line of credit. To address concerns
about the marketing of bounced-check protection services, a proposed revision to the regulation
would expand the prohibition against misleading advertisements to cover communications with
current consumers about existing accounts; the staff commentary would provide examples.
Proposed revisions to Regulation DD would require additional fee and other disclosures about
automated overdraft services, including in advertisements. The Board also is proposing
amendments of general applicability that would require institutions to provide more uniform
disclosures about overdraft and returned-item fees.
The Board must receive comments by August 6, 2004. Please address comments to
Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

-2and Constitution Avenue, N.W., Washington, DC 20551. Also, you may mail comments electronically to regs.comments@federalreserve.gov. All comments should refer to Docket No.
R-1197.
The public can also view and submit comments on proposals by the Board and other
federal agencies from the www.regulations.gov web site.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 31760–67, Vol. 69, No. 109 of the
Federal Register dated June 7, 2004, is attached.
MORE INFORMATION
For more information, please contact Eugene Coy, Banking Supervision Department,
(214) 922-6201. Paper copies of this notice or previous Federal Reserve Bank notices can be
printed from our web site at www.dallasfed.org/banking/notices/index.html.

31760

Proposed Rules

Federal Register
Vol. 69, No. 109
Monday, June 7, 2004

FEDERAL RESERVE SYSTEM
12 CFR Part 230
[Regulation DD; Docket No. R–1197]

Truth in Savings
Board of Governors of the
Federal Reserve System.
ACTION: Proposed rule.
AGENCY:

SUMMARY: The Board proposes to amend
Regulation DD, which implements the
Truth in Savings Act, and the staff
commentary to the regulation, to
address concerns about the uniformity
and adequacy of information provided
to consumers when they overdraw their
accounts. The proposed amendments, in
part, address a specific service offered
by depository institutions, commonly
referred to as ‘‘bounced-check
protection’’ or ‘‘courtesy overdraft
protection.’’
Bounced-check protection is an
automated service that is sometimes
provided to deposit account consumers
as an alternative to a traditional line of
credit. To address concerns about the
marketing of bounced-check protection
services, a proposed revision to the
regulation would expand the
prohibition against misleading
advertisements to cover
communications with current
consumers about existing accounts; the
staff commentary would provide
examples. Proposed revisions to
Regulation DD would require additional
fee and other disclosures about
automated overdraft services, including
in advertisements. The Board also is
proposing amendments of general
applicability that would require
institutions to provide more uniform
disclosures about overdraft and
returned-item fees.
DATES: Comments must be received on
or before August 6, 2004.
ADDRESSES: You may submit comments,
identified by Docket No. R–1197, by any
of the following methods:
• Agency Web site: http://
www.federalreserve.gov. Follow the

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instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• E-mail:
regs.comments@federalreserve.gov.
Include docket number in the subject
line of the message.
• FAX: 202/452–3819 or 202/452–
3102.
• Mail: Jennifer J. Johnson, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue, NW., Washington,
DC 20551. All public comments are
available from the Board’s web site at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm as
submitted, except as necessary for
technical reasons. Accordingly, your
comments will not be edited to remove
any identifying or contact information.
Public comments may also be viewed
electronically or in paper in Room MP–
500 of the Board’s Martin Building (20th
and C Streets, NW.) between 9 a.m. and
5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT:
Elizabeth A. Eurgubian, Attorney, or Ky
Tran-Trong or Krista P. DeLargy, Senior
Attorneys, Division of Consumer and
Community Affairs, Board of Governors
of the Federal Reserve System, at (202)
452–3667 or 452–2412; for users of
Telecommunications Device for the Deaf
(‘‘TDD’’) only, contact (202) 263–4869.
SUPPLEMENTARY INFORMATION:
I. The Truth in Savings Act
The Truth in Savings Act (TISA), 12
U.S.C. 4301 et seq., is implemented by
the Board’s Regulation DD (12 CFR part
230). The purpose of the act and
regulation is to assist consumers in
comparing deposit accounts offered by
depository institutions, principally
through the disclosure of fees, the
annual percentage yield (APY), the
interest rate, and other account terms.
An official staff commentary interprets
the requirements of Regulation DD (12
CFR part 230 (Supp. I)). Credit unions
are governed by a substantially similar
regulation issued by the National Credit
Union Administration.
Under TISA and Regulation DD,
disclosures must be given upon a
consumer’s request and before an
account is opened. Institutions are not
required to provide periodic statements;

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but if they do, the act requires that fees,
yields, and other information be
provided on the statements. Notice must
be given to accountholders before an
adverse change in account terms occurs
and prior to the renewal of certificates
of deposit (time accounts).
TISA and Regulation DD contain rules
for advertising deposit accounts. There
is a prohibition against advertisements,
announcements, or solicitations that are
inaccurate or misleading, or that
misrepresent the deposit contract.
Institutions are also prohibited from
describing an account as free (or using
words of similar meaning) if a regular
service or transaction fee is imposed, if
a minimum balance must be
maintained, or if a fee is imposed when
a customer exceeds a specified number
of transactions. In addition, the act and
regulation impose substantive
restrictions on institutions’ practices
regarding the payment of interest on
accounts and the calculation of account
balances.
II. Concerns About Bounced-Check
Protection Services
Historically, depository institutions
have used their discretion on an ad hoc
basis to pay overdrafts for consumers on
transaction accounts, usually imposing
a fee. Over the years, some institutions
automated the process for considering
whether to honor overdrafts to reduce
the costs of reviewing individual items,
but generally institutions did not inform
customers of their internal policies for
determining whether an item would be
paid or returned. More recently, thirdparty vendors have developed and sold
automated programs to institutions,
particularly to smaller ones. What
generally distinguishes the vendor
programs from institutions’ in-house
automated processes is the addition of
marketing plans that appear designed to
promote the generation of fee income by
stating a dollar amount that consumers
would be allowed to overdraw and by
encouraging consumers to overdraw
their accounts and use the service as a
line of credit.
While bounced-check protection
services vary among institutions, many
programs have the following
characteristics:
• Institutions inform consumers that
overdraft protection is a feature of their
accounts and promote the use of the
service. Institutions also inform

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Federal Register / Vol. 69, No. 109 / Monday, June 7, 2004 / Proposed Rules
consumers of their aggregate dollar limit
under the overdraft protection program.
• Coverage is automatic for
consumers who meet the institution’s
criteria (e.g., account has been open a
certain number of days, deposits are
made regularly). Typically, the
institution performs no credit
underwriting.
• Overdrafts generally are paid up to
the aggregate limit set by the institution
for the specific class of accounts,
typically $100 to $500.
• Many program disclosures state that
payment of an overdraft is discretionary
on the part of the institution, and may
disclaim any legal obligation of the
institution to pay any overdraft.
• The service may extend to check
transactions as well as other
transactions, such as withdrawals at
automated teller machines (‘‘ATMs’’),
transactions using debit cards, preauthorized automatic debits from a
consumer’s account, telephone-initiated
funds transfers, and on-line banking
transactions.
• A flat fee is charged each time the
service is triggered and an overdraft
item is paid. Commonly, a fee in the
same amount would be charged even if
the overdraft item were not paid. A
daily fee also may apply for each day
the account remains overdrawn.
• Some institutions offer closed-end
loans to consumers who do not bring
their accounts to a positive balance
within a specified time period. These
repayment plans allow consumers to
repay their overdrafts and fees in
installments.
In November 2002, when it published
the annual proposed update to the staff
commentary to Regulation Z, the Board
solicited comment and information from
the public about how bounced-check
protection services are designed and
operated, to determine the need for
guidance to depository institutions
under Regulation Z or other laws (67 FR
72618, December 6, 2002). The Board
received approximately 350 comment
letters; most were from industry
representatives describing how the
services work.
Consumer advocates, state agency
representatives, and others believed that
bounced-check protection services
should be subject to TILA and
Regulation Z. They noted that in
addition to warning consumers about
the high cost of the service, Truth in
Lending disclosures would apprise
consumers about the true nature of the
service as a credit transaction. Industry
commenters opposed coverage under
TILA, stating that the current disclosure
requirements under TISA are adequate,

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and that coverage under TILA would be
burdensome. The Board believes that
consumers would benefit from more
uniform and complete information
about the costs and terms of overdraft
services not covered under TILA,
including in advertisements.
Improvements in the disclosures
provided to consumers could aid them
in understanding the costs associated
with overdrawing their accounts and
promote better account management.
The Board is not proposing at this time
to cover these services under TILA and
Regulation Z, although further
consideration of the need for such
coverage may be appropriate if concerns
about these overdraft programs persist
in the future.
Paying consumers’ occasional or
inadvertent overdrafts is a longestablished customer service provided
by depository institutions. The Board
recognized this longstanding practice
when it initially adopted Regulation Z
in 1969; the regulation provided that
these transactions are generally exempt
from coverage under Regulation Z
where there is no written agreement
between the consumer and institution to
pay an overdraft and impose a fee. See
§ 226.4(c)(3). The exemption was
designed to facilitate depository
institutions’ ability to accommodate
consumers on an ad-hoc basis.
The Board’s study of bounced-check
protection services has identified a
number of concerns about some
programs. One major concern relates to
the adequacy of information provided to
consumers whose accounts are eligible
for bounced-check protection services.
The proposed revisions to Regulation
DD and the staff commentary are
intended to improve the information
provided to consumers about these
overdraft services.
Other concerns center on institutions’
marketing practices. Although the
service is designed to protect consumers
against occasional inadvertent
overdrafts, some institutions’
promotional materials make the service
appear to be a line of credit, apparently
to promote a consumer’s repeated use of
the service. Many of the marketing plans
include material that informs consumers
of the availability of the bounced-check
protection service, and also of the
maximum aggregate dollar amount of
overdrafts the institution will pay. Some
marketing plans encourage consumers
to use the service to meet short-term
credit needs, and not just as protection
against inadvertent overdrafts. Some
institutions have encouraged consumers
specifically to use an overdraft as an
advance on their next paycheck.
Notwithstanding the marketing

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promises, however, qualifying language
disclaims any legal obligation by the
institution to pay any overdraft. In some
cases, deposit accounts that are
promoted as being ‘‘free’’ also promote
bounced-check protection services that
involve substantial fees. In addition,
some institutions do not clearly inform
consumers that ATM withdrawals, debit
card transactions, or other electronic
transfers may routinely be authorized
under these overdraft services and that
fees will be imposed in such cases.
Proposed revisions to Regulation DD’s
advertising rules and disclosure
requirements are intended to address
these concerns.
In addition to the Board’s proposed
revisions to Regulation DD and the staff
commentary, the member agencies of
the Federal Financial Institution
Examination Council (FFIEC) have
developed proposed supervisory
guidance for institutions that offer
bounced-check protection services. The
proposed interagency guidance, which
is being published for comment, would
include best practices addressing the
marketing and operation of bouncedcheck protection services. For example,
institutions would be encouraged to
obtain customers consent to receive
overdraft protection or inform
customers how they may ‘‘opt out’’ of
the service, avoid encouraging routine
or intentional overdrafts, and to
promptly notify consumers when they
access an overdraft protection service.
III. Concerns About Uniform Disclosure
of Overdraft Fees
The Board has concerns about the
uniformity and adequacy of cost
disclosures provided to consumers
regarding overdraft and returned-item
fees under Regulation DD. Many
institutions already provide timely
information to consumers about
overdrafts in their accounts and the fees
imposed, including notices that are sent
at the time the overdraft occurs and on
periodic statements. These practices and
disclosures are not uniform among
institutions, however, and some
consumers may not receive adequate
information on a timely basis.
Fees for paying overdrafts and for
returned items are typically flat fees
unrelated to the amount of the item.
These amounts may be significant when
there are multiple overdrafts although
the items may represent relatively small
dollar amounts. Even when consumers
are aware that an account is or may
become overdrawn, they do not
necessarily know the number of
overdraft items that will result or the
total fees that will be imposed, both of
which are determined by the order in

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which items drawn on the account are
presented and the institution’s policies
regarding the order in which items are
paid. Accordingly, some consumers may
not be aware of the total amount of fees
being imposed and the amount by
which the account is overdrawn until
the next periodic statement is received.
And when the periodic statement is
provided, it may intersperse fees among
other items rather than providing a total.
As a result, the overall cost of obtaining
credit through an overdraft service is
not clearly presented to consumers.
TISA was enacted, in part, for the
purpose of requiring clear and uniform
disclosures regarding deposit account
terms and fees assessable against these
accounts. Such disclosures allow
consumers to make meaningful
comparisons among different accounts
and to make informed judgments about
the use of their accounts. To further the
purposes of TISA, the Board is
proposing uniform requirements for
notifying consumers about returneditem fees and overdraft fees (whether
the overdraft is created by check, by
ATM withdrawal or other electronic
transfer, or by other means). These rules
will also help ensure that where an
overdraft is paid, consumers are
uniformly notified about the account’s
status. Information about overdrafts and
returned items that is provided on a
regular and timely basis may enable
consumers to avoid unnecessary fees; it
may assist consumers to better consider
their approach to account management
and determine whether the account’s
terms and features are suited to their
needs or whether other types of
accounts or services would be more
appropriate.
IV. Summary of Proposed Revisions
Pursuant to its authority under
Section 269(a) of TISA, the Board is
proposing the following revisions to
Regulation DD and the staff commentary
to address concerns about the
uniformity and adequacy of institutions’
disclosure of overdraft fees generally,
and to address concerns about
advertised automated overdraft services
(‘‘bounced-check protection services’’)
in particular:
Disclosures Concerning Overdraft Fees
Generally
Periodic statements. Institutions that
provide periodic statements would be
required to include the total amount of
fees imposed for overdrafts and the total
amount of fees for returned items for the
statement period and for the calendar
year to date.
Account-opening disclosures.
Institutions would be required to

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specify in the account-opening
disclosures provided under the Truth in
Savings Act whether overdraft
protection fees may be imposed in
connection with checks, automated
teller machine (ATM) withdrawals, or
other electronic fund transfers.
Additional Protections for Accounts
With Certain Overdraft Protection
Services (Bounced-Check Protection)
Additional advertising disclosures. To
reduce consumer confusion about the
nature of the overdraft service and how
it differs from a traditional line of credit,
institutions that market automated
overdraft payment services that are not
covered by TILA would have to include
in their advertisements about the
service: the fee for the payment of each
overdraft item, the types of transactions
covered, the time period consumers
have to repay or cover any overdraft,
and the circumstances under which the
institution would not pay an overdraft.
An exemption in Regulation DD for
broadcast media, billboards, and
telephone response machines, which
applies to other types of advertising
disclosures, would also apply here.
Prohibiting misleading
advertisements. TISA prohibits
advertisements, announcements, or
solicitations that are misleading or that
misrepresent the deposit contract.
Currently, Regulation DD applies the
prohibition only to advertisements for
prospective accounts. To address
concerns about overdraft protection
services, Regulation DD would be
amended to also apply the prohibition
to communications with consumers
about the terms of their current
accounts.
Examples of misleading
advertisements. The staff commentary
would also be revised to provide five
examples of advertisements that would
ordinarily be deemed misleading: (1)
Representing an overdraft protection
service as a ‘‘line of credit;’’ (2)
representing that the institution will
honor all checks or transactions, when
the institution retains discretion at any
time not to honor any transaction; (3)
representing that consumers may
overdraw their accounts and maintain a
negative balance for an indefinite or
extended period when the terms of the
service require consumers to promptly
return the deposit account to a positive
balance; (4) describing a service solely
as protection against bounced checks
when the overdraft service may be
imposed in connection with ATM
withdrawals and other electronic fund
transfers that permit consumers to
overdraw their account; and (5)
describing an account as ‘‘free’’ or ‘‘no

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cost’’ and also promoting a service for
which there is a fee (including a
bounced-check protection service),
unless the advertisement clearly and
conspicuously indicates there is a cost
associated with the service.
V. Section-by-Section Analysis
Section 230.2

Definitions

2(b) Advertisements
TISA prohibits institutions from
making any advertisement,
announcement, or solicitation relating
to a deposit account that is inaccurate
or misleading or that misrepresents its
deposit contract. 12 U.S.C. 4302(e).
Regulation DD defines ‘‘advertisement’’
to include ‘‘a commercial message
appearing in any medium, that
promotes directly or indirectly the
availability of, or a deposit in, an
account.’’ See § 230.2(b). Under the
existing staff commentary, institutions’
communications with consumers about
existing accounts are not considered
‘‘advertisements’’ under Regulation DD.
See comment 2(b)–2.iii. The Board is
proposing to revise the definition of an
advertisement to cover communications
with existing consumers for some
purposes. The revised definition does
not affect rules for triggering additional
disclosures when an advertisement
states an APY or bonus; the existing
definition of ‘‘advertisement,’’ which
would continue to apply for this
purpose, would be redesignated as
§ 230.2(b)(1) and would also be
modified for stylistic consistency; no
substantive change is intended.
Proposed § 230.2(b)(2) applies TISA’s
prohibition against misleading or
inaccurate advertisements or
misrepresentations of the deposit
contract to communications with
consumers about existing accounts. The
expanded definition of an advertisement
that covers existing accounts would also
apply in determining whether a
communication is an advertisement that
triggers additional disclosures about
overdraft protection services.
An advertisement includes a
commercial message that invites, offers,
or otherwise promotes a deposit or other
service in connection with an account
or class of accounts. The revision to the
definition of ‘‘advertisement’’ does not
affect providing required disclosures on
an account, such as at account opening,
on a periodic statement, or on an
electronic terminal receipt (as required
by TISA or the Electronic Fund Transfer
Act, 15 U.S.C. 1693 et seq.), for
example. See new comment 2(b)–2.
Current comment 2(b)–2 would be
redesignated as comment 2(b)–3.

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Section 230.4

Account Disclosures

4(b) Content of Account Disclosures
4(b)(4) Fees
Under TISA and Regulation DD,
before an account is opened, institutions
must provide a schedule describing all
fees that may be charged in connection
with the account. The schedule must
also disclose the amount of the fee and
the conditions under which the fee will
be imposed. 12 U.S.C. 4303;
§ 230.4(b)(4). When terms required to be
disclosed in the schedule change and
adversely affect accountholders, notice
of the change must be provided 30 days
in advance. 12 U.S.C. 4305; § 2305(a).
Currently the guidance for describing
fees is quite general, providing that
‘‘naming and describing the fee will
typically satisfy these requirements.’’
See comment 4(b)(4)–3. Proposed
comment 4(b)(4)–5 would require
institutions to state in their accountopening disclosures the types of
transactions for which an overdraft
protection fee may be imposed. Solely
describing an overdraft protection fee as
a ‘‘fee for overdrafts’’ or ‘‘fee for
overdraft items’’ would not provide
sufficient notice to consumers as to
whether the fee applies to overdrafts by
check only or whether it also applies to
overdrafts by other means. The
proposed comment would clarify that
the disclosure must indicate that a fee
may be imposed in connection with
checks, ATM withdrawals, or other
electronic fund transfers that overdraw
the account, if that is the case.
Section 230.6
Disclosures

Periodic Statement

6(a) General Rule
6(a)(3) Fees Imposed
Although periodic statements are not
required by TISA, an institution that
provides such statements must disclose
any fees or charges imposed on the
account during the statement period. To
assist consumers in better
understanding the costs associated with
overdrawing their accounts, the Board is
proposing to revise the requirements for
providing cost disclosures on periodic
statements.
Under Regulation DD, fees must be
itemized on a periodic statement by
type, for example, by separately listing
the monthly service charge, ATM fees,
and returned check fees. When multiple
fees of the same type are charged in a
single period, comment 6(a)(3)–2 in the
current staff commentary to the
regulation states that institutions have
the option of showing each fee as a
separate charge or, alternatively,
aggregating all fees of the same type and

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disclosing a single dollar amount for
that category. For clarity, this guidance
would be moved to § 230.6(a)(3)(i) of the
regulation.
Under proposed § 230.6(a)(3)(ii),
institutions would be required to
disclose overdraft fees or returned-item
fees on periodic statements on an
aggregate basis for the statement period.
Institutions that currently disclose each
fee as a separate charge on periodic
statements could continue to do so as an
additional voluntary disclosure.
Comment 6(a)(3)–2 provides guidance
on itemizing and describing fees on
periodic statements. The comment
would be revised to reflect the proposed
revisions to the regulation concerning
overdraft fees and returned-item fees
and to clarify that these two types of
fees may not be grouped together as fees
for insufficient funds.
To highlight the overall cost to
consumers of presenting items on an
account with insufficient funds on a
routine basis, proposed § 230.6(a)(3)(ii)
would require institutions’ periodic
statements to show the total amounts for
overdraft fees and returned-item fees for
the calendar year to date. The Board
believes that disclosure of year-to-date
totals would better inform consumers
about the cumulative effect of using an
overdraft service on a regular basis. An
institution’s disclosures regarding the
total overdraft fees paid by a consumer
during the calendar year might also
serve as a source of information for
financial institutions seeking to monitor
consumers’ frequency in overdrawing
their accounts. The Board requests
comment on whether the requirement to
disclose cumulative year-to-date fee
totals should be limited to institutions
that market overdraft payment services,
and thereby encourage the routine use
of the service.
Section 230.8

Advertising

Under the proposal, § 230.8(a) of
Regulation DD would be reorganized for
clarity. The regulation and staff
commentary would be revised to
specifically address the promotion of
bounced-check protection services.
8(a) Misleading or Inaccurate
Advertisements
8(a)(1)
Some bounced-check protection
services, typically those provided under
programs developed by third-party
vendors, include marketing plans that
appear designed to increase customer
usage of overdrafts. Some marketing
plans include materials that encourage
consumers to overdraw their accounts
and use the service as a line of credit by

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stating that overdrafts up to a specific
dollar amount will be paid. Some
marketing plans also include statements
suggesting that consumers may treat the
service as a line of credit, for example,
to take an advance on their next
paycheck or to cover unexpected
expenses.
Notwithstanding the marketing
promises, the vendors’ programs
include qualifying language disclaiming
any legal obligation by the institution to
pay any individual overdraft, regardless
of the amount. The institutions’
reservation of the right not to pay
overdrafts may not appear prominently
or conspicuously in the marketing
materials. Moreover, unlike traditional
lines of credit, consumers using
bounced-check protection services
generally are not permitted to carry a
credit balance forward at a
predetermined and disclosed rate of
interest. Instead, consumers using the
service are generally charged a flat fee
for each overdraft item and are expected
to repay the entire overdraft amount
within a short period. Under these
circumstances, implying that the
overdraft service is a traditional line of
credit or suggesting that the service can
be used like a line of credit may be
inconsistent with the actual terms and
limitations of the service.
As discussed above, Regulation DD
would be revised to apply TISA’s
prohibition against misrepresentations
and misleading advertisements to
communications with consumers about
their existing accounts, to cover
institutions’ marketing of depositrelated services, including bouncedcheck protection services. A new
comment 8(a)–10 would be added to
provide guidance on the types of
advertisements that may violate the
rule.
Five new examples would be added to
the commentary relating to the
promotion of overdraft payment
services. The staff commentary would
be revised to state that institutions may
not mislead consumers by representing
an overdraft service as a ‘‘line of credit’’
unless the service is subject to the
Board’s Regulation Z. An advertisement
could also mislead consumers if it
represents that the institution will
honor all checks or authorize all
transactions that overdraw an account,
with or without a specified dollar limit,
when the institution retains discretion
at any time not to honor checks or
authorize transactions.
A third example would state that an
advertisement could mislead consumers
by representing that consumers with
overdrawn accounts are allowed to
maintain a negative balance when the

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terms of the account’s overdraft service
require consumers to promptly return
the deposit account to a positive
balance. The fourth example provides
that promotional materials describing a
service solely as protection against
bounced checks could mislead
consumers if the service also applies to
ATM withdrawals and other debit card
transactions and electronic fund
transfers.
A fifth new example of misleading
advertisements relates to the
advertisement of free accounts. Under
Regulation DD, an institution may not
describe an account as ‘‘free’’ (or use a
similar term) if any maintenance or
activity fee may be imposed on the
account. Examples of fees that trigger
the prohibition against advertising an
account as free are listed in comment
8(a)–3.
Comment 8(a)–4 lists certain accountrelated fees that are not considered to be
maintenance or activity fees, for
example, check-printing fees, stoppayment fees, or fees associated with
checks that are returned unpaid.
Likewise, fees for bounced-check
protection services would not be
considered maintenance or activity fees,
because the fees relate to the
institution’s provision of credit as
opposed to fees related to the use of the
consumer’s own funds in the account.
Nevertheless, there has been concern
that some institutions promote bouncedcheck protection services as a feature of
their free checking accounts, and that
consumers may be misled into thinking
that overdraft protection on such
accounts is without costs.
The commentary would be revised to
state that an advertisement would be
deemed misleading if the account is
described as ‘‘free’’ and also promotes
account-related services for which there
is a fee, unless the advertisement clearly
and conspicuously indicates there is a
cost associated with the advertised
service. Under proposed comment 8(a)–
10, the advertisement may, but need
not, state the actual cost of the service,
although such a disclosure may be
required under proposed § 230.8(f) for
certain advertisements. The proposed
comment applies to fees for accountrelated services that are not considered
‘‘maintenance or activity fees’’ (such as
fees for bounced-check protection or for
specially designed checks). Regulation
DD’s prohibition against advertising an
account as ‘‘free’’ if the institution
imposes a ‘‘maintenance or activity fee’’
is unaffected by the proposal.
Comment is also solicited on other
types of advertisements of overdraft
protection services that would
potentially mislead consumers about (i)

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the terms, limitations, costs, or nature of
the service and (ii) the fact that the
service is not a traditional line of credit.
For example, where an institution’s
payment of overdrafts is automated,
does advertising to consumers that the
institution will pay overdrafts up to a
specified dollar amount mislead
consumers about the nature of the
service? Furthermore, would such an
advertisement potentially mislead
consumers about whether the bank may
not pay an overdraft? Does encouraging
consumers to use the service to obtain
credit instead of using it to cover
inadvertent overdrafts mislead
consumers about the actual terms of the
service? Do advertisements that
encourage the regular or routine use of
the service mislead consumers about the
cost of the service?
Section 230.8(a)(1) is revised for
stylistic consistency, without
substantive change.
8(a)(2)
TISA’s limitation on advertising an
account as free is implemented in
§ 230.8(a). This provision would be
redesignated as § 230.8(a)(2), without
any substantive change.
8(f) Additional Disclosures in
Connection With Automated Overdraft
Services
TISA and Regulation DD require
additional information to be provided if
an advertisement for a deposit account
refers to a specific rate of interest, yield,
or rate of earnings. 12 U.S.C. 4302;
§ 230.8(c). Advertisements for bonuses
on deposit accounts also trigger
additional information. § 230.8(d). TISA
authorizes the Board to exempt
‘‘broadcast and electronic media and
outdoor advertising from stating some
additional information, if the Board
finds the disclosures to be unnecessarily
burdensome.’’ 12 U.S.C. 4302(b). These
limited disclosure rules are
implemented in § 230.8(e)(1). The
exemptions for broadcast and electronic
media do not extend to advertisements
posted on the Internet or sent by e-mail.
A principal concern about
institutions’ promotion of overdraft
protection services is that consumers
may be led to believe that the service
represents a traditional line of credit.
Some marketing materials focus on the
dollar amount of the overdraft limit,
which may lead consumers to believe
that a line of credit is being provided.
Some advertisements create the
impression that the service can be relied
upon to obtain short term extensions of
credit from time to time (up to a given
amount) at minimal cost. These
promotions may mislead or confuse

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consumers regarding the nature, costs,
terms, and limitations of the service.
This problem may be magnified
somewhat because marketed automated
overdraft services are relatively new.
Where consumers are targeted with
advertisements about overdraft
protection services, additional
disclosures could reduce the potential
that some consumers would be misled,
and generally educate consumers about
the nature of the service to enable them
to compare the terms offered by
different financial institutions.
Accordingly, in order to ensure that
advertisements promoting overdraft
protection services are not misleading,
the Board is proposing to revise
Regulation DD to require certain
disclosures in advertisements for
automated overdraft payment services.
To reduce consumer confusion about
the costs, terms, and limitations of the
service and how it differs from a
traditional line of credit, advertisements
would be required to disclose (1) the fee
for the payment of each overdraft item;
(2) the types of transactions covered; (3)
the amount of time the consumer has to
repay or cover any overdraft; and (4) the
circumstances under which the
institution would not pay an overdraft.
The proposed rule would provide an
exemption for certain types of
advertisements to mirror exemptions
provided for other types of advertising
disclosures. Under TISA and Regulation
DD, advertisements that state the annual
percentage yield for an account must
also disclose certain other information.
The regulation specifically exempts
from these disclosure requirements,
advertisements using broadcast media,
outdoor billboards, and telephone
response machines. These exemptions
were based on concerns about the
practical limitations of time and space
for these types of media; these concerns
are not as significant for print
advertising or marketing on Internet
Web sites. These exemptions would also
apply to the advertising rules for
automated overdraft payment services
under proposed § 230.8(f). Proposed
comment 8(f)–1 would clarify that for
purposes of the advertising disclosures,
institutions may describe the types of
transactions covered in the same
manner as the disclosures required
before account-opening (see proposed
comment 4(b)(4)–5).
Comment 8(f)–2 provides that in
describing the circumstances under
which an institution will not pay an
overdraft, a general description will
typically satisfy the requirement, for
example, statements such as ‘‘overdrafts
will not be paid if your account is not
in good standing, you are not making

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regular deposits, or you have too many
overdrafts.’’
Comment 8(f)–3 clarifies the
relationship between the general
guidance in comment 8(a)–10.v. (the
rules for advertisements that promote
free accounts as well as an accountrelated service for which a fee is
charged) and the requirements of
§ 230.8(f) when the account-related
service being advertised is an automated
overdraft service.
VI. Form of Comment Letters
Comment letters should refer to
Docket No. R–1197 and, when possible,
should use a standard typeface with a
font size of 10 or 12; this will enable the
Board to convert text submitted in paper
form to machine-readable form through
electronic scanning, and will facilitate
automated retrieval of comments for
review. Comments may be mailed
electronically to
regs.comments@federalreserve.gov.
VII. Solicitation of Comments
Regarding the Use of ‘‘Plain Language’’
Section 722 of the Gramm-LeachBliley Act of 1999 requires the Board to
use ‘‘plain language’’ in all proposed
and final rules published after January
1, 2000. The Board invites comments on
whether the proposed rules are clearly
stated and effectively organized, and
how the Board might make the proposed
text easier to understand.
VIII. Initial Regulatory Flexibility
Analysis
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) requires federal
agencies to publish an initial regulatory
flexibility analysis to describe the
impact of proposed rules on small
entities. A final regulatory flexibility
analysis will be prepared and will
consider comments received during the
public comment period.
1. Statement of the objectives of the
proposal. The Board is proposing
revisions to Regulation DD to address
the uniformity and adequacy of
insitutions’ disclosure of overdraft fees
generally, and to address concerns about
advertised automated overdraft services
(‘‘bounced-check protections services’’)
in particular. As stated more fully
above, the existing regulation would be
amended to provide that depository
institutions offering certain overdraft
payment services would be required to
provide more complete information
regarding those services. Accountopening disclosures and other
marketing materials would describe
more completely how fees may be
triggered. The total dollar amount of
overdraft and returned-item fees for the

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period and for the calendar year to date
would be required on periodic
statements. Certain advertising practices
would be prohibited, and additional
disclosures would be required.
TISA was enacted, in part, for the
purpose of requiring clear and uniform
disclosures regarding deposit account
terms and fees assessable against these
accounts. Such disclosures allow
consumers to make meaningful
comparisons between different accounts
and also allow consumers to make
informed judgments about the use of
their accounts. 12 U.S.C. 4301. TISA
authorizes the Board to prescribe
regulations to carry out the purpose and
provisions of the statute. 12 U.S.C.
4308(a)(1). The act expressly states that
the Board’s regulations may contain
‘‘such classifications, differentiations, or
other provisions, * * * as, in the
judgment of the Board, are necessary or
proper to carry out the purposes of [the
Act], to prevent circumvention or
evasion of the requirements of [the Act],
or to facilitate compliance with the
requirements of [the Act].’’ 12 U.S.C.
4308(a)(3). The Board believes that the
proposed revisions to Regulation DD
discussed above are within the
Congress’ broad grant of authority to the
Board to adopt provisions that carry out
the purposes of the statute.
2. Small entities affected by the
proposal. The number of small entities
affected by this proposal is unknown.
Approximately 14,580 depository
institutions in the United States that
must comply with the Truth in Savings
Act have assets of $150 million or less
and thus are considered small entities
for purposes of the Regulatory
Flexibility Act, based on 2003 call
report data. Approximately 5,900 are
institutions that must comply with the
Board’s Regulation DD; approximately
8,860 are credit unions that must
comply with National Credit Union
Administration regulations, which must
be substantially similar to the Board’s
Regulation DD. The Board believes
small depository institutions that offer
accounts where overdraft or returneditem fees are imposed currently send
periodic statements on those accounts.
Periodic statement disclosures would
need to be revised to display aggregate
overdraft and aggregate returned-item
fees for the statement period and year to
date. Account-opening disclosures and
marketing materials would have to be
reviewed, and perhaps revised.
3. Other federal rules. The Board
believes no federal rules duplicate,
overlap, or conflict with the proposed
revisions to Regulation DD.
4. Significant alternatives to the
proposed revisions. As discussed above,

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31765

the Board requests comment on whether
the requirement to disclose cumulative
year-to-date totals for overdraft and
returned-item fees should be limited to
institutions that market overdraft
payment services, and thereby
encourage the routine use of the service.
IX. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR 1320 Appendix A.1), the Board
reviewed the rule under the authority
delegated to the Board by the Office of
Management and Budget. The Federal
Reserve may not conduct or sponsor,
and an organization is not required to
respond to, this information collection
unless it displays a currently valid OMB
control number. The OMB control
number is 7100–0271.
The collection of information that is
revised by this rulemaking is found in
12 CFR part 230 and in Appendix B.
This collection is mandatory (15 U.S.C.
4301 et seq.) to evidence compliance
with the requirements of Regulation DD
and the Truth in Savings Act (TISA).
Institutions are required to retain
records for twenty-four months. The
respondents/recordkeepers are for-profit
depository institutions, including small
businesses. This regulation applies to all
types of depository institutions, not just
state member banks. Under Paperwork
Reduction Act regulations, however, the
Federal Reserve accounts for the burden
of the paperwork associated with the
regulation only for state member banks.
Other agencies account for the
paperwork burden on their respective
constituencies under this regulation.
The proposed revisions provide that
depository institutions offering certain
overdraft payment services would be
required to provide more complete
information regarding those services.
Account-opening disclosures and other
marketing materials would describe
more completely how fees may be
triggered. The total dollar amount of
overdraft and returned-item fees for the
period and for the calendar year to date
would be required on periodic
statements, and year-to-date totals
would be required. Certain advertising
practices would be prohibited, and
additional disclosures would be
required. Although the proposal adds
these requirements, it is expected that
these revisions would not significantly
increase the paperwork burden of
depository institutions. With respect to
state member banks, it is estimated that
there are 976 respondent/recordkeepers.
Current annual burden is estimated to
be 146,644 hours.
Because the records are maintained at
state member banks and the notices are

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not provided to the Federal Reserve, no
issue of confidentiality arises under the
Freedom of Information Act.
The Federal Reserve requests
comments from depository institutions,
especially state member banks, that will
help to estimate burden of the various
disclosures that would be made in the
first year this proposed regulation
would be effective. Comments are
invited on: (a) The cost of compliance;
(b) ways to enhance the quality, utility,
and clarity of the information to be
disclosed; and (c) ways to minimize the
burden of disclosures on respondents,
including through the use of automated
disclosure techniques or other forms of
information technology. Comments on
the collection of information should be
sent to the Office of Management and
Budget, Paperwork Reduction Project
(7100–0271), Washington, DC 20503,
with copies of such comments sent to
Cynthia Ayouch, Federal Reserve Board
Clearance Officer, Division of Research
and Statistics, Mail Stop 97, Board of
Governors of the Federal Reserve
System, Washington, DC 20551.
Text of Proposed Revisions
Certain conventions have been used
to highlight the proposed revisions.
New language is shown inside boldfaced arrows while language that would
be deleted is set off with bold-faced
brackets.
List of Subjects in 12 CFR Part 230
Advertising, Banks, Banking,
Consumer protection, Reporting and
recordkeeping requirements, Truth in
savings.
For the reasons set forth in the
preamble, the Board proposes to amend
Regulation DD, 12 CFR part 230, as set
forth below:
PART 230—TRUTH IN SAVINGS
(REGULATION DD)
1. The authority citation for part 230
continues to read as follows:
Authority: 12 U.S.C. 4301 et seq.

2. Section 230.2 is amended by
revising paragraph (b) to read as follows:
§ 230.2

Definitions.

*

*
*
*
*
(b) Advertisement means a
commercial message, appearing in any
medium, that promotes directly or
indirectly:
fl(1)fi The availability flor termsfi
of, or a deposit in, a flnewfi account
fl; and
(2) For purposes of § 230.8(a) and (f)
of this part, the terms of, or a deposit in,
a new or existing account.fi
*
*
*
*
*

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3. Section 230.6 is amended by
republishing the introductory text and
revising paragraph (a)(3) to read as
follows:
§ 230.6

Periodic statement disclosures.

(a) General rule. If a depository
institution mails or delivers a periodic
statement, the statement shall include
the following disclosures:
*
*
*
*
*
(3) Fees imposed. Fees required to be
disclosed under § 230.4(b)(4) of this part
that were debited to the account during
the statement period. The fees shall be
itemized by type and dollar amounts.
fl(i) General. Except as provided in
paragraph (a)(3)(ii) of this section, when
fees of the same type are imposed more
than once in a statement period, a
depository institution may itemize each
fee separately or group the fees together
and disclose a total dollar amount for all
fees of that type.
(ii) Overdraft and returned-item fees.
Institutions must disclose a total dollar
amount for all overdraft fees and a total
dollar amount for all returned-item fees
for the statement period and for the
calendar year to date. The total dollar
amount for overdraft fees shall include
all overdrafts on the account, whether
created by check, by ATM withdrawal
or other electronic transfer, or by other
means. Institutions may itemize each
overdraft fee or returned-item fee, in
addition to providing the disclosures
required by this paragraph.fi
*
*
*
*
*
4. Section 230.8 is amended by
revising paragraph (a) and adding a new
paragraph (f) to read as follows:
§ 230.8

Advertising.

(a) Misleading or inaccurate
advertisements. An advertisement shall
not:
fl(1)fi Be misleading or inaccurate
florfi øand shall not¿ misrepresent a
depository institution s deposit contract.
fl(2)fi øAn advertisement shall not¿
Refer to or describe an account as ‘‘free’’
or ‘‘no cost’’ (or contain a similar term)
if any maintenance or activity fee may
be imposed on the account. The word
‘‘profit’’ shall not be used in referring to
interest paid on an account.
*
*
*
*
*
fl(f) Additional disclosures in
connection with automated overdraft
services. Except for an advertisement
subject to paragraph (e)(1) of this
section, any announcement, solicitation,
or advertisement promoting an
automated overdraft service that is not
subject to the Board’s Regulation Z (12
CFR part 226) shall disclose in a clear
and conspicuous manner:

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(1) The fee for the payment of each
overdraft;
(2) The types of transactions for
which a fee for overdrawing an account
may be imposed;
(3) The time period by which the
consumer must repay or cover any
overdraft; and
(4) The circumstances under which
the institution would not pay an
overdraft.fi
*
*
*
*
*
5. In Supplement I to part 230:
a. Under Section 230.2 Definitions,
under (b) Advertisement, existing
paragraph 2. is redesignated as
paragraph 3.; a new paragraph 2. is
added; and newly designated paragraph
3.iii. is revised.
b. Under Section 230.4 Account
disclosures, under (b)(4) Fees, a new
paragraph 5. is added.
c. Under Section 230.6 Periodic
statement disclosures, under (a)(3) Fees
imposed, paragraph 2. is revised.
d. Under Section 230.8 Advertising,
under (a) Misleading or inaccurate
advertisements, a new paragraph 10. is
added, a new paragraph title (f)
Additional disclosures in connection
with automated overdraft services is
added, and new paragraph (f) 1. through
(f) 3. are added.
Supplement I To Part 230—Official
Staff Interpretations
Section 230.2 Definitions
*
*
*
*
(b) Advertisement
*
*
*
*
*
fl2. Existing accounts. For purposes
of the prohibition on misleading
advertisements in § 230.8(a) of this part
and disclosure requirements under
§ 230.8(f) of this part, an advertisement
includes a commercial message in
visual, oral, or print media that invites,
offers, or otherwise promotes a deposit
in, or other service available in
connection with, an existing consumer
account or class of accounts. An
institution is not promoting a deposit or
service solely by providing disclosures
required by Federal or other applicable
law at account opening, on a periodic
statement, or on an electronic terminal
receipt.fi
fl3.fi * * *
iii. flFor purposes of § 230.8(b) of
this part through § 230.8(e) of this
part,fi information given to consumers
about existing accounts, such as current
rates recorded on a voice-response
machine or notices for automatically
renewable time account sent before
renewal.
*
*
*
*
*
*

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Federal Register / Vol. 69, No. 109 / Monday, June 7, 2004 / Proposed Rules
misleading, inaccurate, or misrepresent
the deposit contract are:
*
*
*
*
*
i. Representing an overdraft
(b) Content of account disclosures
protection service as a ‘‘line of credit,’’
*
*
*
*
*
unless the service is subject to the
(b)(4) Fees
Board’s Regulation Z, 12 CFR part 226.
*
*
*
*
*
ii. Representing that the institution
fl5. Fees for overdrawing an account.
will honor all checks or authorize all
Under § 230.4(b)(4) of this part
transactions that overdraw an account,
institutions must disclose the
with or without a specified dollar limit,
conditions under which a fee may be
when the institution retains discretion
imposed. In satisfying this requirement
at any time not to honor checks or
institutions must specify the types of
authorize transactions.
transactions for which an overdraft fee
iii. Representing that consumers with
may be imposed. In describing the
an overdrawn account are allowed to
conditions, an institution must state
maintain a negative balance when the
whether the fee applies to overdrafts
terms of the account’s overdraft service
created by check, or by ATM
require consumers to promptly return
withdrawal or other electronic transfer,
the deposit account to a positive
as applicable. For example, where a fee
may be imposed in such circumstances, balance.
iv. Describing a service solely as
disclosing a fee for covering an overdraft
protection against bounced checks when
‘‘created by check, or by ATM
withdrawal or other electronic transfer’’ the service being promoted allows
would typically satisfy this requirement; consumers to overdraw their accounts
by other means, such as ATM
disclosing a fee ‘‘for overdraft items’’
withdrawals, debit card transactions, or
would not.fi
other electronic fund transfers.
*
*
*
*
*
v. Advertising an account-related
Section 230.6 Periodic statement
service for which a fee will be charged
disclosures
in an advertisement that also uses the
(a) General rule
word ‘‘free’’ or ‘‘no cost’’ (or a similar
*
*
*
*
*
term) to describe the account, unless the
(a)(3) Fees imposed
advertisement clearly and
*
*
*
*
*
conspicuously indicates that there is a
2. Itemizing fees by type. In itemizing
cost associated with the service. If the
fees imposed more than once in the
fee is a maintenance or activity fee
period, institutions may group fees if
under § 230.8(a)(2) of this part, however,
they are the same type. fl(But overdraft
an advertisement may not describe the
and returned-item fees each must be
account as ‘‘free’’ or ‘‘no cost’’ (or
separately totaled for the statement
contain a similar term) even if the fee is
period and cumulatively for the
disclosed in the advertisement.fi
calendar year. See § 230.6(a)(3)(ii).)fi
*
*
*
*
øBut¿ fl When fees of the same type are *
fl(f) Additional disclosures in
grouped togetherfi the description must
connection with automated overdraft
make clear that the dollar figure
services.
represents more than a single fee, for
1. Types of transactions. Disclosing
example, ‘‘total fees for checks written
that a fee may be imposed for covering
this period.’’ Examples of fees that may
overdrafts on an account ‘‘created by
not be grouped together are—
check, or by ATM withdrawal or other
i. Monthly maintenance and excesselectronic transfer’’ would typically
activity fees.
satisfy the requirements of § 230.8(f)(2)
ii. ‘‘Transfer’’ fees, if different dollar
of this part where the fee may be
amounts are imposed—such as $.50 for
imposed in these circumstances. See
deposits and $1.00 for withdrawals.
comment 4(b)(4)–5.
iii. Fees for electronic fund transfers
2. Circumstances for nonpayment. In
and fees for other services, such as
describing the circumstances under
balance-inquiry or maintenance fees.
fliv. Fees for transactions that
which an institution will not pay an
overdraw an account and fees for
overdraft, a general description will
returning checks or other items
typically satisfy the requirement, for
unpaid.fi
example, statements such as ‘‘overdrafts
will not be paid if your account is not
*
*
*
*
*
in good standing, or you are not making
Section 230.8 Advertising
regular deposits, or you have too many
(a) Misleading or inaccurate
overdrafts.’’
advertisements
3. Advertising an account as ‘‘free.’’
Comment 8(a)–10.v. provides general
*
*
*
*
*
guidance to institutions that advertise
fl10. Examples. Examples of
advertisements that would ordinarily be free accounts with an account-related
Section 230.4

Account disclosures

31767

service for which a fee will be charged,
and requires that the advertisement state
that a cost is associated with the service.
If the advertised account-related service
is an overdraft service subject to the
requirements of § 230.8(f) of this part,
institutions must disclose the fee for the
payment of each overdraft, not merely
that a cost is associated with the
overdraft service, as well as other
required information.fi
*
*
*
*
*
By order of the Board of Governors of the
Federal Reserve System, May 27, 2004.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 04–12521 Filed 6–4–04; 8:45 am]
BILLING CODE 6210–01–P


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102