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Thursday,
January 29, 2009

Part II

Federal Reserve System
12 CFR Parts 205, 226, 227, and 230

Department of the
Treasury
Office of Thrift Supervision
12 CFR Part 535

National Credit Union
Administration

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12 CFR Part 706
Electronic Fund Transfers; Proposed Rule;
Truth in Lending; Unfair or Deceptive
Acts or Practices; Truth in Savings; Final
Rules and Proposed Rule

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Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 / Proposed Rules

FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R–1343]

Electronic Fund Transfers
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Proposed rule; request for
public comment.

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SUMMARY: The Board is proposing to
amend Regulation E, which implements
the Electronic Fund Transfer Act, and
the official staff commentary to the
regulation, which interprets the
requirements of Regulation E. The
proposal would limit the ability of a
financial institution to assess an
overdraft fee for paying automated teller
machine (ATM) withdrawals and onetime debit card transactions that
overdraw a consumer’s account, unless
the consumer is given notice of the right
to opt out of the payment of such
overdrafts, and the consumer does not
opt out. As an alternative approach, the
proposal would limit the ability of a
financial institution to assess an
overdraft fee for paying ATM
withdrawals and one-time debit card
transactions that overdraw a consumer’s
account, unless the consumer
affirmatively consents, or opts in, to the
institution’s payment of overdrafts for
these transactions. In addition, the
proposal would prohibit financial
institutions from assessing an overdraft
fee if the overdraft would not have
occurred but for a debit hold placed on
funds in the consumer’s account that
exceeds the actual amount of the
transaction.
DATES: Comments must be received on
or before March 30, 2009.
ADDRESSES: You may submit comments,
identified by Docket No. R–1343, by any
of the following methods:
• Agency Web Site: http://
www.federalreserve.gov. Follow the
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 the 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.

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All public comments are available
from the Board’s Web site at http://
www.federalreserve.gov/generalinfo/
foia/ProposedRegs.cfm as submitted,
unless modified 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 form 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: Ky
Tran-Trong, Counsel, Dana Miller,
Attorney, or Vivian Wong, Senior
Attorney, Division of Consumer and
Community Affairs, Board of Governors
of the Federal Reserve System,
Washington, DC 20551, at (202) 452–
2412 or (202) 452–3667. For users of
Telecommunications Device for the Deaf
(TDD) only, contact (202) 263–4869.
SUPPLEMENTARY INFORMATION:

I. Statutory Background
The Electronic Fund Transfer Act (15
U.S.C. 1693 et seq.) (EFTA or Act),
enacted in 1978, provides a basic
framework establishing the rights,
liabilities, and responsibilities of
participants in electronic fund transfer
(EFT) systems. The EFTA is
implemented by the Board’s Regulation
E (12 CFR part 205). Examples of the
types of transactions covered by the Act
and regulation include transfers
initiated through an ATM, point-of-sale
(POS) terminal, automated
clearinghouse (ACH), telephone billpayment plan, or remote banking
service. The Act and regulation provide
for the disclosure of terms and
conditions of an EFT service;
documentation of EFTs by means of
terminal receipts and periodic account
activity statements; limitations on
consumer liability for unauthorized
transfers; procedures for error
resolution; and certain rights related to
preauthorized EFTs. Further, the Act
and regulation restrict the unsolicited
issuance of ATM cards and other access
devices.
The official staff commentary (12 CFR
part 205 (Supp. I)) interprets the
requirements of Regulation E to
facilitate compliance and provides
protection from liability under Sections
915 and 916 of the EFTA for financial
institutions and other persons subject to
the Act. 15 U.S.C. 1693m(d)(1). The
commentary is updated periodically to
address significant questions that arise.

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II. Background
Overview of Overdraft Services
Historically, if a consumer sought to
engage in a transaction that would
overdraw his or her deposit account, the
consumer’s financial institution used its
discretion on an ad hoc basis to
determine whether to pay the overdraft.
If an overdraft was paid, the institution
usually imposed a fee on the consumer’s
account. In recent years, many
institutions have largely automated the
overdraft payment process. Automation
is used to apply specific criteria for
determining whether to honor
overdrafts and to set limits on the
amount of coverage provided.
Overdraft services vary among
institutions but often share certain
common characteristics. In most cases,
consumers that meet a depository
institution’s criteria are automatically
enrolled in overdraft services. While
institutions generally do not underwrite
on an individual account basis when
enrolling the consumer in an overdraft
service, most institutions will review
individual accounts periodically to
determine whether the consumer
continues to qualify for the service and
the amount of overdraft coverage
provided. Most institutions disclose that
the payment of overdrafts is
discretionary, and that the institution
has no legal obligation to pay any
overdraft.1
In the past, institutions generally
provided overdraft coverage only for
check transactions. In recent years,
however, the service has been extended
to cover overdrafts resulting from noncheck transactions, including ATM
withdrawals, debit card transactions at
POS, online transactions, preauthorized
transfers, and ACH transactions.2
1 These transactions are generally not covered
under Regulation Z (Truth in Lending) if there is
no written agreement between the consumer and
institution to pay an overdraft and impose a fee. See
12 CFR 226.4(c)(3).
2 According to the FDIC’s Study of Bank
Overdraft Programs, nearly 70 percent of banks
surveyed implemented their automated overdraft
program after 2001. In addition, 81 percent of banks
surveyed that operate automated programs allow
overdrafts to be paid at ATMs and POS debit card
terminals. See FDIC Study of Bank Overdraft
Programs 8, 10 (November 2008) (hereinafter, FDIC
Study) (available at: http://www.fdic.gov/bank/
analytical/overdraft/
FDIC138_Report_FinalTOC.pdf). See also Overdraft
Protection: Fair Practices for Consumers: Hearing
before the House Subcomm. on Financial
Institutions and Consumer Credit, House Comm. on
Financial Services, 110th Cong., at 72 (2007)
(hereinafter, Overdraft Protection Hearing)
(available at http://www.house.gov/apps/list/
hearing/financialsvcs_dem/hr0705072.shtml)
(stating that as recently as 2004, 80 percent of banks
still declined ATM and debit card transactions
without charging a fee when account holders did
not have sufficient funds in their account).

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Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 / Proposed Rules
A flat fee is charged each time an
overdraft is paid, regardless of the
amount of the overdraft. Institutions
commonly charge the same amount for
paying the overdraft as they would if
they returned the item unpaid. Some
institutions may also impose a fee for
each day the account remains
overdrawn.
According to a recent report from the
Government Accountability Office
(GAO), the average cost of overdraft and
insufficient funds fees was just over $26
per item in 2007.3 The GAO also
reported that large institutions on
average charged between $4 and $5
more for overdraft and insufficient fund
fees compared to smaller institutions.4
In addition, the GAO noted that a small
number of institutions (primarily large
banks) apply tiered fees to overdrafts,
charging higher fees as the number of
overdrafts in the account increases.5
Industry and Consumer Group
Perspectives

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From the industry’s perspective,
automated overdraft services enable
institutions to reduce the cost of
manually reviewing individual items,
and also ensure that all consumers are
treated consistently with respect to
overdraft payment decisions. Industry
representatives observe that whether an
overdrawn check is paid or returned,
the consumer will be charged the same
amount by the consumer’s financial
institution. Industry representatives also
assert, however, that when an
overdrawn check is paid, consumers
receive significant benefits because they
can avoid additional fees that would be
charged by the merchant if the item was
3 See Bank Fees: Federal Banking Regulators
Could Better Ensure That Consumers Have
Required Disclosure Documents Prior to Opening
Checking or Savings Accounts, GAO Report 08–281,
at 14 (January 2008) (hereinafter, GAO Bank Fees
Report). See also Bankrate 2008 Checking Account
Study, posted October 27, 2008 (available at:
http://www.bankrate.com/brm/news/chk/chkstudy/
20081027-bounced-check-fees-a1.asp?caret=2)
(reporting an average overdraft fee of approximately
$29 per item).
4 See GAO Bank Fees Report at 16. A recent
survey suggests that the cost difference in overdraft
fees between small and large institutions may be
larger than reported by the GAO, however. See also
‘‘Disparities in Checking Overdraft Fees by
Geography and Size,’’ Press release, Moeb$ Services
(October 25, 2008) (Moeb$ 2008 Pricing Survey
Press Release) (available at: http://moebs.com/
AboutUs/Pressreleases/tabid/58/ctl/Details/mid/
380/ItemID/29/Default.aspx) (reporting that banks
with more than $20 billion in assets charged on
average $33.43 per overdrawn check compared to
$24.28 per overdrawn check for banks and credit
unions with less than $100 million in assets).
5 According to the GAO, of the financial
institutions that applied up to three tiers of fees in
2006, the average overdraft fees were $26.74, $32.53
and $34.74, respectively. See GAO Bank Fees
Report at 14.

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returned unpaid, and other adverse
consequences, such as the furnishing of
negative information to a consumer
reporting agency.6
In contrast, consumer groups assert
that overdraft transactions are a highcost form of lending that trap low- and
moderate-income consumers into
paying high fees. Consumer groups also
state that consumers are often enrolled
in overdraft services automatically
without their request or consent. In
addition, consumer groups believe that
by honoring overdrafts, institutions
encourage consumer reliance on the
service and therefore, consumers incur
greater costs in the long run than they
would if the transactions were not
honored. Consumer groups note, for
example, that historically, institutions
declined a consumer’s request for an
ATM withdrawal or debit card
transaction if the consumer did not have
sufficient funds in his or her account.7
Today, however, institutions are more
likely to cover those overdrafts and
assess a fee on the consumer’s account
for doing so.8 According to consumer
groups, this practice can be particularly
costly in connection with debit card
overdrafts because the dollar amount of
the fee is likely to considerably exceed
the dollar amount of the overdraft.9 In
addition, multiple fees may be assessed
in a single day for a series of smalldollar transactions. Because of these
costs, consumer groups assert that most
consumers would prefer that their bank
decline debit card transactions if the
transactions would overdraw their
account.10
6 See,

e.g., Overdraft Protection Hearing at 44.
e.g., Overdraft Protection Hearing at 72
(stating that as recently as 2004, 80 percent of banks
still declined ATM and debit card transactions
without charging a fee when account holders did
not have sufficient funds in their account).
8 See, e.g., FDIC Study at 10 (reporting that 81
percent of banks surveyed that operate automated
programs allow overdrafts to be paid at ATMs and
POS debit card terminals).
9 See, e.g., Overdraft Protection Hearing at 72.
10 See Leslie Parrish, Consumers Want Informed
Choice on Overdraft Fees and Banking Options, Ctr.
for Responsible Lending (April 16, 2008) (reporting
the results of a survey indicating that 80 percent of
consumers would prefer that a debit card
transaction be declined if a $5 purchase would
result in an overdraft and an accompanying $34 fee)
(available at: http://www.responsiblelending.org/
pdfs/final-caravan-survey-4-16-08.pdf). But see 80
Percent of Consumers Have Not Paid Overdraft Fees
in Past Year, Says ABA Survey, Press Release,
American Bankers Association (August 30, 2007)
(reporting survey results indicating that of those
consumers who had paid an overdraft fee in the
past 12 months, 88 percent had wanted the
payment covered) (available at: http://
www.aba.com/Press+Room/
083007ABASurvey.htm).
7 See,

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5213

Previous Agency Actions
In February 2005, the Board, Federal
Deposit Insurance Commission (FDIC),
Office of the Comptroller of the
Currency (OCC), and National Credit
Union Administration (NCUA)
(collectively, the federal banking
agencies) issued guidance on overdraft
protection programs in response to the
increased availability and customer use
of overdraft protection services (Joint
Guidance).11 The Joint Guidance
addresses three primary areas—safety
and soundness considerations, legal
risks, and best practices. The Office of
Thrift Supervision (OTS) issued
separate guidance (OTS Guidance) that
focuses on safety and soundness
considerations and best practices.12 The
best practices described in the Joint
Guidance and the OTS Guidance
address the marketing and
communications that accompany the
offering of overdraft services, as well as
the disclosure and operation of program
features, including the provision of
consumer choice to opt out of the
overdraft service.13
In May 2005, the Board revised
Regulation DD and the staff commentary
pursuant to its authority under the
Truth in Savings Act (TISA) to address
concerns about institutions’ disclosure
of overdraft fees generally, and the
advertisement of overdraft services.14
The goal of the Regulation DD revisions
was to improve the uniformity and
adequacy of disclosures provided to
consumers about overdraft and
returned-item fees to assist consumers
in better understanding the costs
associated with the payment of
overdrafts. In addition, the final rule
addressed some of the Board’s concerns
about institutions’ marketing practices
with respect to overdraft services.
May 2008 FTC Act and Regulation DD
Proposals
In May 2008, the Board, along with
the OTS and the NCUA (collectively,
the Agencies), proposed to exercise their
authority under the Federal Trade
Commission Act (FTC Act) to prohibit
institutions from assessing any fees on
a consumer’s account in connection
11 See Interagency Guidance on Overdraft
Protection Programs, 70 FR 9127, Feb. 24, 2005.
12 See OTS Guidance on Overdraft Protection
Programs, 70 FR 8428, Feb. 18, 2005.
13 The federal banking agencies have also
published a consumer brochure on overdraft
services. The brochure, entitled ‘‘Protecting
Yourself from Overdraft and Bounced-Check Fees,’’
can be found at: http://www.federalreserve.gov/
pubs/bounce/default.htm.
14 70 FR 29582, May 24, 2005. A substantively
similar rule applying to credit unions was issued
separately by the NCUA. 71 FR 24568, Apr. 26,
2006.

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with an overdraft service, unless the
consumer is given notice and the right
to opt out of the institution’s overdraft
service, and the consumer does not opt
out. 73 FR 28904, May 19, 2008. The
proposed opt-out right would have
applied to overdrafts resulting from all
methods of payment, including checks,
ACH transactions, ATM withdrawals,
recurring payments, and POS debit card
transactions. The proposal also would
have required institutions to provide
consumers with the option of opting out
only of the payment of overdrafts for
ATM withdrawals and debit card
transactions at POS. In addition, the
proposal would have prohibited
institutions from assessing overdraft
fees where the overdraft would not have
occurred but for a debit hold placed on
funds in the consumer’s account in
excess of the actual transaction amount.
Concurrent with the issuance of the
May 2008 FTC Act Proposal, the Board
separately issued a proposal under
Regulation DD (Truth in Savings),
which set forth proposed form, content,
and timing requirements for providing
the opt-out notice. 73 FR 28730, May 19,
2008. To facilitate compliance, the
Regulation DD proposal contained a
model form that institutions could use
to satisfy the opt-out notice
requirement. Collectively, the two
proposals on overdraft services were
intended to ensure that consumers
understand how overdraft services
operate generally and have the
opportunity to avoid the associated
costs where such services do not meet
their needs.
In addition to the proposed
requirements regarding the form and
content of the opt-out notice, the
Regulation DD proposal set forth
proposed revisions that would require
all institutions to provide aggregate
totals for overdraft fees and for returned
item fees for the statement period and
the year-to-date. Currently, only
institutions that promote the payment of
overdrafts are subject to this
requirement. The Regulation DD
proposal also addressed balance
disclosures provided to consumers
through automated systems, such as
ATMs and online banking services.
These provisions are adopted in final
form under Regulation DD elsewhere in
today’s Federal Register.
Overview of Comments Received
The Agencies received approximately
1,500 comment letters on the proposed
opt-out right for overdraft services
under the May 2008 FTC Act Proposal.
Consumer groups, members of Congress,
the FDIC, and individual consumers
supported the Agencies’ proposal, but

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urged the Agencies to require
institutions to obtain a consumer’s
affirmative consent (that is, an opt-in)
before any fees could be charged for
paying an overdraft. Some of these
commenters also argued that overdraft
services provide extensions of credit
that should be subject to the Truth in
Lending Act (TILA) so that consumers
would be better able to compare the cost
of overdraft services to the cost of other
credit alternatives.
In contrast, the majority of industry
commenters opposed the proposed rule.
Industry commenters asserted that
consumers derive substantial benefit
from overdraft services, particularly in
connection with check transactions.
While institutions generally assess the
same fee whether a check is paid or
returned, industry commenters observed
that the payment of overdrafts for
checks enables consumers to avoid
other adverse consequences, such as
merchant fees, the furnishing of
negative information for credit reports,
and violations of bad check laws. Some
industry commenters urged the Board to
instead use other regulatory authority,
such as Regulations DD or E, to address
concerns about overdraft services.
Industry commenters also asserted
that consumers may not fully
understand the implications of opting
out, and that those who elect to do so
might unintentionally incur significant
costs. In this regard, industry
commenters and the OCC stated that if
the opt-out right applied to check
transactions, more checks would be
returned unpaid. Industry commenters
and the OCC also noted a potential
unintended consequence of the proposal
could be that institutions would
lengthen their availability schedules to
the extent permitted by the Board’s
Regulation CC, 12 CFR part 229, to
ensure that there are sufficient funds in
the payor’s account to cover a deposited
check. As a result, they argued,
consumers may experience a longer
waiting period before gaining access to
deposited funds than currently is the
case today.
With respect to implementing the
proposed opt-out requirement, industry
commenters raised a number of
operational issues. These commenters
were most concerned about the
feasibility of limiting the opt-out right
only to overdrafts paid in connection
with ATM withdrawals and POS debit
card transactions. Some industry
commenters, however, argued that if the
Agencies deemed it necessary to create
a consumer opt-out right, it should be
limited to ATM withdrawals and POS
debit card transactions. These
commenters noted that the majority of

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complaints about overdraft services
arise in connection with debit card
transactions in which the amount of the
overdraft fee is substantially higher than
the amount of the overdraft. Industry
commenters also questioned the merits
of requiring institutions to provide an
opt-out notice following the assessment
of an overdraft fee in light of the costs
of printing and mailing additional optout notices.
With respect to the debit hold
provision, individual consumers and
consumer groups generally supported
the Agencies’ proposal. Industry
commenters, in contrast, expressed
concern about the operational burdens
associated with the proposal because it
could require institutions to
retroactively monitor, and adjust,
overdraft fees that have been assessed to
a consumer’s account. Industry
commenters also urged the Agencies to
instead adopt a disclosure-based rule
applying to merchants that are
responsible for placing the hold.
The Board also received over 600
comments in response to the Regulation
DD proposal regarding the timing,
format and content of the opt-out notice.
Most of the comments came from
individual consumers, who supported
the proposed rule. The remaining
comments came from financial
institutions, industry trade associations,
consumer groups, members of Congress,
other federal banking agencies, state and
local governments, and others.
Consumer groups supported the
proposed content and model form for
notifying consumers of their right to opt
out of an overdraft service, but urged the
Board to enhance the model form in
various ways, including making the optout notice more prominent. Several
industry commenters argued that the
proposed model form was unduly
biased towards encouraging consumers
to opt out, and did not sufficiently
explain that the payment of overdrafts
was discretionary. Some industry
commenters also urged the Board to
eliminate the requirement to provide
notice of the opt-out right following the
assessment of an overdraft fee, stating
that an initial notice was sufficient to
apprise consumers of that right.
Consumer Testing
In addition to reviewing the
comments received on the two
proposals, the Board worked with a
testing consultant, Macro International,
Inc. (Macro), to revise the proposed
model opt-out notice and conduct
consumer testing of the revised notice.
Two rounds of one-on-one interviews
with a diverse group of consumers were
completed in the fall of 2008. In general,

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after reviewing the model disclosures,
test participants generally understood
the concept of overdraft coverage, and
that they would be charged fees if their
institution paid their overdrafts.
Participants also appeared to
understand that if they opted out of
overdraft coverage, this meant their
checks would not be paid and they
could be charged fees by both their
institution and by the merchant.
During the first round of testing,
Macro tested an opt-out form that
allowed consumers to opt out of the
payment of overdrafts for all transaction
types, including checks and recurring
debits. In the second round of testing,
Macro tested an opt-out form that
limited the opt-out right to ATM
withdrawals and one-time debit card
transactions made at POS and online.
The majority of participants during both
rounds indicated that they likely would
not opt out if the opt-out also applied
to checks. However, when asked if they
would opt out if the choice was limited
to opting out of overdrafts in connection
with ATM withdrawals and one-time
debit card purchases, half of the
participants indicated that they would
consider doing so.15

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III. Summary of Proposal
Overdrafts
The Board is proposing amendments
to Regulation E and the staff
commentary to assist consumers in
understanding how overdraft services
provided by their institutions operate
and to ensure that consumers have the
opportunity to limit the overdraft costs
associated with ATM withdrawals and
one-time debit card transactions where
such services do not meet their needs.
The Board is proposing two alternative
approaches in proposed § 205.17 of
Regulation E. In addition, as stated
elsewhere in today’s Federal Register,
the Board is not taking action on the
May 2008 FTC Act (Regulation AA) and
Regulation DD Proposals regarding
consumers’ right to opt out of overdraft
services.
Under the first approach, institutions
would be required to provide consumers
with notice of the right to opt out of the
institution’s overdraft service for ATM
withdrawals and one-time debit card
transactions. The notice must be
provided to the consumer before the
institution may assess any fees or
charges to a consumer’s account for
paying such overdrafts. Under this
approach, the opt-out notice would
generally be given at account opening
(or any time before any overdraft fees
15 See

Review and Testing of Overdraft Notices.
Macro International, December 8, 2008.

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are assessed) and subsequently for each
periodic statement cycle in which the
institution assesses a fee or charge to the
consumer’s account for paying an
overdraft.
Under the second approach,
institutions would be required to
provide consumers with notice of the
right to opt in, or affirmatively consent,
to the institution’s overdraft service for
ATM withdrawals and one-time debit
card transactions. The notice must be
provided, and the consumer’s
affirmative consent obtained, before the
institution could assess a fee or charge
on the consumer’s account for paying
such overdrafts. Under this approach,
additional notices following the
assessment of a fee or charge for paying
an ATM or one-time debit card overdraft
would not be required once the
consumer has opted in to the overdraft
service.
Both approaches would permit
institutions to implement the
consumer’s choice by providing an
account that would not permit the
payment of overdrafts for ATM
withdrawals and one-time debit card
transactions. The proposal provides two
alternatives for implementing the
consumer’s choice for both of the optout and opt-in approaches. Under one
alternative, the proposal would require
an institution to provide an account that
has the same terms, conditions, or
features that are provided for consumers
who do not opt out, except for features
that limit the institution’s payment of
such overdrafts. Under another
alternative, the proposal would allow
institutions to vary the terms,
conditions, or features for the account
that does not permit the payment of
ATM and one-time debit card
overdrafts, provided that the differences
are not so substantial that they
discourage a reasonable consumer from
exercising his or her right to opt out of
the payment of such overdrafts (or
compel a reasonable consumer to opt
in).
To facilitate compliance, the proposal
provides model forms that institutions
may use to satisfy their disclosure
obligations. The Board intends to
conduct additional consumer testing of
the proposed model forms following
issuance of this proposal.
Debit Holds
The Board is also proposing to
prohibit institutions from assessing an
overdraft fee where the overdraft would
not have occurred but for a debit hold
placed on funds in an amount that
exceeds the actual transaction amount
and where the merchant can determine
the actual transaction amount within a

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5215

short period of time after authorization
of the transaction (for example, fuel
purchases at a gas station). The
prohibition, set forth in proposed
§ 205.19, would not apply if the
institution adopts procedures designed
to release the hold within a reasonable
period of time.
In light of this proposal, and as
discussed elsewhere in today’s Federal
Register, the Board is not taking action
on the proposed FTC Act (Regulation
AA) amendments regarding debit holds.
IV. Legal Authority
The Board is issuing the proposed
opt-out (and opt-in) and debit hold
provisions of this proposal pursuant to
its authority under Sections 904(a) and
904(c) of the EFTA (15 U.S.C. 1693b).
Section 904(a) of the EFTA authorizes
the Board to prescribe regulations
necessary to carry out the purposes of
the title. The express purposes of the
EFTA are to establish ‘‘the rights,
liabilities, and responsibilities of
participants in electronic fund transfer
systems’’ and to provide ‘‘individual
consumer rights.’’ See EFTA Section
902(b); 15 U.S.C. 1693. In addition,
Section 904(c) of the EFTA provides
that regulations prescribed by the Board
may contain any classifications,
differentiations, or other provisions, and
may provide for such adjustments or
exceptions for any class of electronic
fund transfers, that the Board deems
necessary or proper to effectuate the
purposes of the title, to prevent
circumvention or evasion, or to facilitate
compliance.
The legislative history of the EFTA
makes clear that the Board has broad
regulatory authority. The Senate Report
states that section 904 of the EFTA
‘‘authorizes the Federal Reserve Board
to promulgate regulations to carry out
the act’s purposes’’ and notes that the
Senate Committee on Banking, Housing,
and Urban Affairs ‘‘regards regulations
as essential to the act’s effectiveness.’’ 16
According to the Senate Report, such
regulations ‘‘will add flexibility to the
act by permitting the Board to modify
the act’s requirements to suit the
characteristics of individual EFT
services. Moreover, since no one can
foresee EFT developments in the future,
regulations would keep pace with new
services and assure that the act’s basic
protections continue to apply.’’ 17 The
Senate Report states that the intent was
to give the Board ‘‘flexibility in
determining whether new or developing
electronic services should be covered by
16 S. Rep. No. 95–1273, 95th Cong., 2d Sess., at
26 (Oct. 4, 1978).
17 S. Rep. No. 95–1273, at 26.

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the act and, if so, to what extent.’’ 18
‘‘This delegation of authority to the
Board is an important aspect of this
legislation as it would enable the Board
to examine new services on a case-bycase basis and would contribute
substantially to the act’s overall
effectiveness.’’ 19
The proposed opt-out (and opt-in)
rules are intended to carry out the
express purposes of the EFTA by: (a)
Establishing notice requirements to help
consumers better understand the cost of
overdraft services for certain EFTs; and
(b) providing consumers with a choice
as to whether they want overdraft
services for ATM withdrawals and onetime debit card transactions in light of
the costs associated with those services.
The proposed opt-out (and opt-in) rules
include provisions designed to prevent
circumvention or evasion of the
requirement to provide the consumer
with choice regarding these overdraft
services. These rules also include
provisions, including exceptions,
designed to facilitate compliance by
financial institutions in light of certain
operational constraints.
The proposed debit hold rule is
intended to carry out the express
purposes of the EFTA by ensuring that
consumers generally are not assessed
fees for overdrafts that would not have
occurred but for the placement of the
hold. The proposed debit hold rule
contains classifications, differentiations,
and other provisions, including
adjustments and exceptions, designed to
facilitate compliance by financial
institutions in light of certain
operational constraints.
The proposed disclosures that would
implement the proposed opt-out (and
opt-in) requirements are issued
pursuant to the Board’s authority under
Sections 904, 905 and 906(b) of the
EFTA. 15 U.S.C. 1693b, 1693c and
1693d(c).
V. Section-by-Section Analysis

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Section 205.12

Relation to Other Laws

Section 205.12(a) explains the
relationship between Regulation E and
Regulation Z when an access device
permits a consumer to obtain an
extension of credit incident to an EFT.
In general, Regulation E governs the
issuance of access devices and the
addition of an EFT service to an
accepted credit card, and Regulation Z
governs the issuance of a combined
credit card and access device and the
addition of a credit feature to an
accepted credit card. See § 205.12(a).
18 S.
19 S.

Rep. No. 95–1273, at 25.
Rep. No. 95–1273, at 26.

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The proposal would amend Regulation
E to clarify that both the issuance of an
access device with an overdraft service
and the addition of an overdraft service
to an accepted access device are
governed by Regulation E.
Currently, § 205.12(a)(1)(ii) states that
the EFTA and Regulation E govern the
‘‘issuance of an access device that
permits credit extensions (under a
preexisting agreement between a
consumer and a financial institution)
only when the consumer’s account is
overdrawn or to maintain a specified
minimum balance in the consumer’s
account.’’ As the Board stated in the
original March 1979 final rule, this
provision was intended to clarify that
Regulation E, rather than Regulation Z,
applies to the issuance of ‘‘access
devices that are also credit cards solely
by virtue of their capacity to access an
existing overdraft credit line attached to
the consumer’s account.’’ 61 FR 18468,
18472, March 28, 1979 (adopting
§ 205.4(c) where this provision
originally appeared).
When the rule was originally adopted,
the primary means of covering
overdrafts incurred in connection with
EFTs was through an overdraft line of
credit linked to a debit card or other
access device. Today, however,
consumers are more likely to have these
overdrafts covered by their institution’s
overdraft service, rather than by a
separate overdraft line of credit. In both
cases, the Board believes that Regulation
E should apply to ensure consistent
treatment.
Accordingly, the Board is proposing
to amend § 205.12(a)(1)(ii) to provide
that Regulation E governs the issuance
of an access device that permits
extensions of funds under an overdraft
service (as defined below under
proposed § 205.17) when the
consumer’s account is overdrawn.
Proposed § 205.12(a)(1)(iii) provides
that Regulation E also covers the
addition of an overdraft service to a
previously accepted access device. See
also comment 12(a)–2, as proposed to be
revised. Proposed comment 12(a)–3
clarifies that the addition of an overdraft
service to an accepted access device
does not constitute the addition of a
credit feature under Regulation Z.
In addition, the Board is also
proposing to amend § 205.12(a)(1)(i) to
conform the regulation to reflect the
redesignation of the definition of the
term ‘‘accepted credit card’’ under
Regulation Z, adopted elsewhere in
today’s Federal Register. See 12 CFR
226.12, comment 2. Current
§ 205.12(a)(1)(iii), which provides that
Regulation E’s liability limits and error
resolution rules also apply to extensions

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of credit under an overdraft line of
credit, would be redesignated as
§ 205.12(a)(1)(iv) and revised to include
a reference to overdraft services.
Section 205.17 Requirements for
Overdraft Services
Background
In the February 2005 Joint Guidance
on overdraft protection services, the
federal banking agencies recommended
as a best practice that institutions obtain
a consumer’s affirmative consent to
receive overdraft protection.
Alternatively, the Joint Guidance stated
that where overdraft protection is
automatically provided, institutions
should provide consumers the
opportunity to ‘‘opt out’’ of the overdraft
program and provide consumers with a
clear disclosure of this option. 70 FR at
9132.20
Although it appears that most
institutions provide consumers the right
to opt out of overdraft services, this
practice is not uniform across all
institutions.21 Moreover, even where an
opt-out right is provided, this right may
not be clearly disclosed to consumers.
For example, some institutions may
disclose the opt-out right in a clause in
their deposit agreement, which many
consumers may not notice or may not
consider relevant because they do not
expect to overdraw their accounts. In
other cases, the clause may not be
written in clearly understandable
language. Accordingly, to ensure that all
consumers are given a meaningful
choice regarding overdraft services, the
May 2008 FTC Act Proposal would have
established notice and opt-out
requirements for institutions providing
such services. The content and format of
the opt-out notice were set forth in the
Board’s Regulation DD Proposal.
Discussion
Based on the comments received in
response to the May 2008 FTC Act and
Regulation DD Proposals, the results of
limited consumer testing, and its own
analysis, the Board believes that
concerns about overdraft services can be
appropriately addressed under its
rulemaking authority under the EFTA
20 The OTS made similar recommendations in its
separate guidance. See 70 FR at 8431.
21 According to the FDIC’s Study of Bank
Overdraft Programs, 75.1% of institutions surveyed
permit consumers to opt out of their automated
overdraft program, while 11.1% of institutions
require consumers to opt in. According to the FDIC,
banks that do not promote automated programs
were less likely to give consumers either the option
to opt in or to opt out of the automated overdraft
program. See FDIC Study at 27. See also Moeb$
2008 Pricing Survey Press Release (reporting that
89.9% of institutions offer some form of a consumer
opt-out).

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and Regulation E. The Board has a
number of reasons for reaching this
conclusion.
First, the Board has considered the
benefits to consumers of covering check
transactions under an overdraft service.
In particular, while a consumer will
generally be charged the same fee by the
financial institution whether or not a
check is paid, if the institution covers
an overdrawn check, the consumer may
avoid other adverse consequences, such
as the imposition of additional
merchant returned item fees.22 Such
benefits are not evident, however, with
regard to the payment of overdrafts for
certain types of EFTs, specifically ATM
withdrawals and one-time debit card
transactions. For those types of
transactions, if the transaction is
declined because of insufficient funds
in the consumer’s account, the
consumer would not incur any
merchant returned item fees and
typically would avoid any fees assessed
by the financial institution.
Accordingly, the Board believes it is
unnecessary to apply an opt-out (or optin) rule to check transactions in the
proposed rule and that a more targeted
rule covering overdraft services is
appropriate.
Second, the Board has considered the
cost impact to consumers from overdraft
fees assessed in connection with ATM
and debit card overdrafts.23 For onetime debit card transactions in
particular, the amount of the fee
assessed may substantially exceed the
amount overdrawn.24 Given the costs
22 According to one survey, the average merchant
fee for a returned check is $27.78. See Moeb$ 2008
Pricing Survey Press Release. See also FDIC Study
at 16 n.18 (stating that the fee amounts for paying
an overdraft and for returning an item unpaid were
the same for 98.1 of the surveyed institutions
operating automated overdraft programs that
reported the two fees).
23 According to the FDIC’s Study of Bank
Overdraft Programs, the median dollar amount for
debit card transactions resulting in an overdraft is
$20. The FDIC’s study also reported that POS/debit
overdraft transactions accounted for the largest
share of all insufficient funds transactions (41.0%).
See FDIC Study at 78–79. This compares to the
average cost of overdraft and insufficient funds fees
of over $26 per item in 2007, as reported by the
GAO. See Bank Fees: Federal Banking Regulators
Could Better Ensure That Consumers Have
Required Disclosure Documents Prior to Opening
Checking or Savings Accounts, GAO Report 08–281,
at 14 (January 2008). See also FDIC Study at 15, 18
(reporting a median per item overdraft fee of $27
for banks surveyed); Eric Halperin, Lisa James and
Peter Smith, Debit Card Danger: Banks Offer Little
Warning and Few Choices as Customers Pay a High
Price for Debit Card Overdrafts, Ctr. for Responsible
Lending at 8 (January 25, 2007) (estimating that the
median amount by which a consumer overdraws
his or her account for a debit card purchase is $17).
24 See Overdraft Protection Hearing at 72 (stating
that consumers pay $1.94 in fees for every one
dollar borrowed to cover a debit card POS
overdraft).

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associated with overdraft services in
these circumstances, consumers may
prefer not to have these overdrafts paid.
In the Board’s limited consumer testing,
some participants stated that they
would prefer to have ATM withdrawals
and debit card transactions declined if
they had insufficient funds, rather than
incur an overdraft fee.
Third, the Board notes that addressing
overdrafts under its authority under the
EFTA and Regulation E would ensure
that if finalized, the rule would apply to
all depository institutions, including
state-chartered credit unions which
would not have been covered by the
NCUA’s FTC Act authority.
Thus, for the reasons discussed above,
the Board is proposing to prohibit
account-holding financial institutions
from assessing overdraft fees or charges
on a consumer’s account for paying an
overdraft on an ATM withdrawal or
one-time debit card transaction
(whether at POS, online or by
telephone), unless the consumer is
given notice and a reasonable
opportunity to opt out of the
institution’s overdraft service in
connection with those transactions, and
the consumer does not opt out. As
discussed below, the Board is also
proposing an alternative approach that
would prohibit an account-holding
financial institution from assessing any
fees on a consumer’s account for paying
an ATM withdrawal or one-time debit
card transaction that overdraws the
account, unless the consumer opts in, or
affirmatively consents, to the service.
1. First Alternative Approach—Opt-Out
Requirement
A. Definition—§ 205.17(a)
Proposed § 205.17(a) defines
‘‘overdraft service’’ to mean a service
under which a financial institution
assesses a fee or charge on a consumer’s
account held by the institution for
paying a transaction (including a check
or other item) when the consumer has
insufficient or unavailable funds in the
account. The term is intended to cover
circumstances when an institution
assesses a fee for paying an overdraft
pursuant to any automated program or
service, whether promoted or not, or as
a non-automated, ad hoc
accommodation. The term does not
include an institution’s payment of
overdrafts pursuant to a line of credit
subject to the Board’s Regulation Z,
including transfers from a credit card
account, a home equity line of credit, or
an overdraft line of credit. The term also
does not include any overdrafts paid
pursuant to a service that transfers
funds from another account of the

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5217

consumer (including any account that
may be jointly held by the consumer
and another person) held at the
institution. The Board is not proposing
to include these methods of covering
overdrafts under this proposal because
they require the express agreement of
the consumer.
B. Opt-Out Requirement—§ 205.17(b)
General rule and scope of opt-out.
Proposed § 205.17(b)(1) sets forth the
general rule prohibiting an accountholding institution from assessing a fee
or charge on a consumer’s account for
paying an overdraft on an ATM
withdrawal or a one-time debit card
transaction pursuant to the institution’s
overdraft service, unless the consumer
is given notice and a reasonable
opportunity to opt out of the service,
and the consumer does not opt out.25
The proposed opt-out would apply to
any ATM withdrawal, including
withdrawals made at proprietary or
foreign ATMs. The proposed opt-out
would also apply to any one-time debit
card transaction, regardless of whether
the consumer uses a debit card at a
point-of-sale (for example, at a merchant
or a store), in an online transaction, or
in a telephone transaction.
Proposed comment 17(b)–1 clarifies
that a consumer’s election to opt out of
a financial institution’s overdraft service
does not prohibit the institution from
paying any overdrafts for ATM
withdrawals or one-time debit card
transactions. If the institution pays an
overdraft for these transactions,
however, it would generally be
prohibited from assessing an overdraft
fee or charge, except as permitted under
the exceptions set forth in proposed
§ 205.17(b)(5), discussed below. The
rule would not, however, limit the
institution’s ability to debit the
consumer’s account for the amount of
the overdraft, if the institution is
permitted to do so under applicable law.
The proposed opt-out would not
apply to other types of transactions,
including check transactions and
preauthorized EFTs.26 As discussed
above with respect to checks, the
payment of overdrafts for these
transactions may enable consumers to
avoid other possible adverse
consequences that might result if such
items are returned unpaid, such as
merchant returned item fees. Consumers
may also be more likely to use checks
25 As further discussed below under proposed
§ 205.17(c), notice must be provided both before the
institution’s assessment of any fees or charges for
paying an overdraft, and subsequently after the
consumer has incurred any such fees or charges.
26 The EFTA and Regulation E generally do not
apply to check transactions. See § 205.3(c).

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and preauthorized EFTs to pay for
significant household expenses, such as
utilities and rent. In the Board’s limited
consumer testing, participants indicated
that they were more likely to pay
important bills using checks and
preauthorized EFTs, and to use debit
cards for their discretionary purchases.
The opt-out also generally would not
apply to ACH transactions. For example,
if the consumer provides his or her
checking account number to authorize
an ACH transfer online or by telephone,
the institution would be permitted to
pay the item if it overdraws the
consumer’s account and assess a fee for
doing so. The Board notes that in many
cases, ACH transactions serve as a
replacement for check transactions,
such as where a check is converted to
a one-time ACH debit to the consumer’s
account.27 In addition, the payment of
an overdraft for an ACH transaction
could enable consumers to avoid
merchant returned item fees.
Operational considerations. As
discussed above, the May 2008 FTC Act
Proposal would have required
institutions to offer consumers the
option of opting out of the payment of
overdrafts only for ATM withdrawals
and POS debit card transactions in
addition to the option to opt out of the
payment of overdrafts for all transaction
types. In response, industry commenters
stated that many processors do not
currently have systems set up to
distinguish paying overdrafts for some,
but not all, payment channels, and that
the reprogramming costs would be
significant. Specifically, industry
commenters stated that most systems
today could either pay overdrafts for all
transaction types or pay overdrafts for
none; however, these systems were not
set up to pay overdrafts for certain
transaction types (e.g., checks and
ACH), but not others (e.g., ATM and
POS debit card transactions). Some
industry commenters also asserted that
most systems today are unable to readily
differentiate between POS debit card
transactions and other types of debit
card transactions, such as a
preauthorized transfer. A few industry
commenters, however, argued that any
opt-out right should be limited to ATM
withdrawals and POS debit card
transactions because the majority of
complaints about overdraft services
arise in connection with these
transactions.
Notwithstanding the programming
changes that would be required by the
27 See Geoffrey Gerdes, ‘‘Recent Payment Trends
in the United States,’’ Federal Reserve Bulletin at
A79 (October 2008) (noting that the number of
checks converted to electronic payments in 2006
was 2.6 billion up from 0.3 billion in 2003).

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proposed rule, the benefits of enabling
consumers to have a choice regarding
the payment of overdrafts for ATM
withdrawals and one-time debit card
transactions may outweigh the
associated reprogramming costs. From a
consumer’s perspective, any benefits
from overdrawing the consumer’s
account for ATM withdrawals and onetime debit card transactions may be
substantially outweighed by the costs
associated with the overdraft. Unlike for
check and ACH transactions where the
consumer could be assessed fees by both
the institution and the merchant or
other payee, the consequence of not
having overdraft services for ATM and
one-time debit card transactions is to
have a transaction denied with no fees
assessed. If a one-time debit card
transaction is denied, the consumer can
provide another form of payment, such
as cash or a credit card. For ATM
transactions, consumers may reasonably
expect that their withdrawal request
will be denied if they do not have
sufficient funds in their accounts.
For these reasons, the Board is
proposing to limit the scope of the optout to ATM withdrawals and one-time
debit card transactions. To minimize the
cost impact on institutions, however,
the Board anticipates allowing
substantial lead time for institutions to
implement the necessary programming
changes. Comment is requested on
whether the proposed opt-out should
also apply to recurring debit card
transactions and ACH transactions.
Comment is also solicited on an
appropriate implementation period for
the proposed rule.
Reasonable opportunity for opt-out.
Proposed § 205.17(b)(1)(ii) provides that
once a consumer has received an optout notice, the consumer must be given
a reasonable opportunity to opt out of
an institution’s overdraft service for
ATM withdrawals and one-time debit
card transactions. Proposed comment
17(b)–2 provides examples to illustrate
what would constitute a reasonable
opportunity to opt out, including
reasonable methods for opting out.
The first three examples provide a
generally applicable safe harbor for optout periods of 30 days after the
consumer is provided an initial notice
informing the consumer of the opt-out
right. During this period, an institution
generally would be prohibited from
assessing any fees or charges for paying
an overdraft for an ATM withdrawal or
a one-time debit card transaction.
Although 30 days would be a safe
harbor, an institution may decide that a
shorter waiting period could be
adequate depending on the
circumstances. Comment is requested

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regarding whether a shorter time frame,
such as 15 or 20 days, may be more
appropriate.
Proposed comment 17(b)–2.i contains
an example of a reasonable method of
opting out when the institution provides
a written form that the consumer can fill
out and mail to opt out. See proposed
Model Form A–9(A) in Appendix A,
discussed below. Proposed comment
17(b)–2.ii provides that an institution
could also provide a toll-free telephone
number that the consumer may call to
exercise the opt-out. Proposed comment
17(b)–2.iii provides that an institution
may provide an electronic means to opt
out, such as a form that can be accessed
and processed at an Internet Web site,
provided that the institution directs the
consumer to the specific Web site
address where the form may be located,
rather than solely referring to the
institution’s home page.
The fourth example provides that an
institution may provide an opt-out
notice prior to or at account-opening
and require the consumer to decide
whether to opt out as a necessary step
to opening the account. See proposed
comment 17(b)–2.iv. For operational
reasons, an institution may not want to
set up an account for the consumer with
overdraft services, only to have to
implement a consumer’s opt-out a short
time later when the consumer opts out
within 30 days after receiving an initial
opt-out notice.
Comment is requested whether the
Board should require institutions to
provide a toll-free telephone number to
ensure that consumers can easily opt
out. Participants in the Board’s
consumer testing indicated that even if
the institution provided a form with a
check-off box for the consumer’s
convenience, participants would still
prefer to call their institution to opt out.
Comment is also requested regarding
whether the Board should add examples
of methods of opting out that would not
satisfy the requirement to provide a
reasonable opportunity to opt out, such
as requiring the consumer to write a
letter to opt out.
Conditioning the opt-out. Proposed
§ 205.17(b)(2) provides that a financial
institution shall not condition a
consumer’s right to opt out of the
institution’s payment of ATM
withdrawals and one-time debit card
transactions pursuant to the institution’s
overdraft service on the consumer also
opting out of the institution’s overdraft
service with respect to checks, ACH
transactions or other types of
transactions (such as preauthorized
EFTs). The Board is concerned that
consumers may be discouraged from
exercising their opt-out rights with

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respect to the institution’s payment of
ATM and debit card overdrafts if the
consumer’s opt-out choice would also
preclude the consumer from having
overdrafts paid for checks, ACH
transactions, and other types of
transactions.28
To prevent circumvention of the optout right, the proposed rule also would
prohibit an institution from declining to
pay checks, ACH transactions, or other
types of transactions that overdraw the
consumer’s account because the
consumer has opted out of the
institution’s overdraft service for ATM
and one-time debit card transactions.
Although the payment of overdrafts is
generally at the discretion of the
institution, the Board is concerned that
some institutions may exercise that
discretion in a manner that effectively
prevents consumers from exercising a
meaningful choice regarding overdraft
services. Thus, the proposed rule
generally would require an institution to
apply the same criteria for deciding
whether to pay overdrafts on checks,
ACH transactions, or other types of
transactions regardless of the
consumer’s opt-out choice with respect
to ATM and one-time debit card
overdrafts. For example, if an
institution’s internal criteria would lead
the institution to pay a check overdraft
if the consumer had not opted out of the
institution’s overdraft service, it must
also apply that same criteria in a
consistent manner in determining to pay
the check overdraft if the consumer has
opted out.
This provision is not intended to
create a contractual requirement for the
institution to pay overdrafts on checks,
ACH transactions, or other types of
transactions. Comment is requested on
whether there are other, more effective
means of ensuring that consumers are
not discouraged from opting out of an
institution’s overdraft service for ATM
withdrawals and one-time debit card
transactions.
Notwithstanding the Board’s concerns
about potential chilling effects, the
Board is also proposing a modified
version of proposed § 205.17(b)(2) that
would expressly permit institutions to
condition the consumer’s ability to opt
out of an institution’s overdraft service
for ATM withdrawals and one-time
28 In the Board’s limited consumer testing,
participants indicated that they would likely not
opt out if checks and preauthorized EFTs would be
returned because they used these methods of
payment to pay important household bills, such as
rent and utilities. In contrast, several participants
stated that they would prefer that their institution
decline their ATM withdrawals and one-time debit
card transactions if they did not have sufficient
funds in their accounts in order to avoid overdraft
fees.

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debit card transactions on the consumer
also opting out of the institution’s
overdraft service for checks and other
transaction types. Under this alternative
approach, an institution could also
decline checks, ACH transactions, and
other types of transactions because the
consumer has opted out of the service
for ATM withdrawals and one-time
debit card transactions. This alternative
would address the potential operational
issues associated with implementing a
partial opt-out rule.
The Board solicits comment on the
merits of both alternatives. The Board
also seeks comment on other
approaches that may sufficiently
balance concerns about the potential
chilling effects from institutions
declining to pay overdrafts for checks
and other transactions if a consumer
opts out of the payment of overdrafts for
ATM withdrawals and one-time debit
card transactions against the operational
difficulties of implementing a partial
opt-out rule.
Implementation of opt-out. Some
institutions may choose to implement a
consumer’s decision to opt out at the
account level and decline to pay
overdrafts for ATM withdrawals and
one-time debit card transactions for
those consumers that have opted out.
Other institutions for operational
reasons may prefer to implement the
consumer’s choice at the product level
and offer two different accounts, one
account that allows the institution to
pay overdrafts for ATM withdrawals
and one-time debit card transactions,
and another that is specifically designed
for consumers who opt out (‘‘opt-out’’
account). Proposed § 205.17(b)(3) is
intended to provide operational
flexibility to financial institutions to
implement an opt-out using either
approach.
This provision would not, however,
permit an institution to discourage, or
chill, a reasonable consumer’s exercise
of the right to opt out. The Board is
concerned that institutions may
circumvent the proposed opt-out
requirement and discourage consumers
from opting out by, for example,
imposing higher fees, paying lower
interest rates, or limiting the features of
the opt-out account. Thus, the proposal
sets forth two alternative approaches to
address this concern.
Under the first alternative, if the
institution is providing an opt-out
account that does not permit the
payment of ATM and one-time debit
card overdrafts, the account must have
the same terms, conditions, and
features, including interest rates paid
and fees assessed, as an account that
permits the payment of such overdrafts,

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except for features that limit the
institution’s payment of such
overdrafts.29
Under the second alternative, an
institution may alter some of the terms,
conditions, or features of an account
that does not permit the payment of
overdrafts on ATM withdrawals and
one-time debit card transactions. For
example, the institution may wish to
price some account services differently
for the opt-out account. In light of the
Board’s concern about possible chilling
effects, however, the second alternative
permits an institution to vary the terms,
conditions, or features of the opt-out
account, provided that the differences in
the terms, conditions, or features are not
so substantial that they would
discourage a reasonable consumer from
exercising his or her right to opt out of
the payment of overdrafts on ATM
withdrawals and one-time debit card
transactions.30 For example, an
institution may not decline to provide
ATM and debit card services altogether
because the consumer has opted out of
the institution’s overdraft service for
ATM withdrawals and one-time debit
card transactions. See proposed
comment 17(b)(3)–1 to this second
alternative.
The Board requests comment on both
approaches. Specifically, the Board
requests comment on whether
institutions that currently offer an optout implement an opt-out at the account
level (i.e., within the same type of
account) or at the product level (i.e., by
placing the consumer in a separate optout account). The Board also requests
comment on whether institutions that
currently offer an opt-out vary any other
terms, conditions, or features of a
separate opt-out account, and if so,
which terms, conditions, or features are
varied and why.
Exceptions to the notice and opt-out
requirements. In response to the May
2008 FTC Act Proposal, several
commenters urged the Agencies to
exclude institutions that require
consumers to opt into the institution’s
overdraft service from the requirement
to provide opt-out notices to consumers.
These commenters stated that the
Agencies’ proposed rule would impose
29 As discussed in proposed comment 17(b)–1, a
consumer’s election to opt out of an institution’s
overdraft service for ATM and one-time debit card
transactions does not prohibit the institution from
paying overdrafts in such cases. However, the
institution generally would not be permitted to
assess a fee or charge for paying the overdraft.
30 An institution that varies a term, condition, or
feature of an account if a consumer opts out of the
institution’s overdraft service would have to
comply with the change-in-terms notice
requirements in § 205.8 and 12 CFR 230.5, as
applicable.

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unnecessary costs on such institutions.
Moreover, these commenters stated that
consumers would likely be confused by
notices informing them of their right to
opt out of a service that they have
affirmatively requested.
In addition, some institutions may
have a policy and practice of declining
any ATM withdrawals or debit card
transactions when the institution has a
reasonable belief that the consumer does
not have sufficient funds available in
his or her account to cover the requested
transaction at the time of authorization.
An opt-out requirement would serve
little purpose in these circumstances,
and could lead to potential consumer
confusion.
The Board is proposing to create
exceptions to the notice and opt-out
requirements in the circumstances
described above. Proposed
§ 205.17(b)(4) contains the two proposed
exceptions. First, institutions that have
a policy and practice of declining to pay
ATM withdrawals or one-time debit
card transactions for which
authorization is requested if the
institution has a reasonable belief that
the consumer does not have sufficient
funds available to cover the transaction
at the time of the authorization request
would not have to provide consumers
with notice and the right to opt out of
overdraft services. Second, institutions
that require the consumer’s affirmative
consent, or opt-in, before assessing any
fees or charges for paying an ATM or
one-time debit card overdraft also
would not be subject to § 205.17.31
Proposed comment 17(b)(4)–1 states
that institutions that qualify for either of
the exceptions in § 205.17(b)(4) would
not be required to provide consumers
notice and a reasonable opportunity to
opt out of the institution’s payment of
overdrafts for ATM withdrawals and
one-time debit card transactions.
Proposed comment 17(b)(4)–2 clarifies
that an institution is not required to
obtain the consumer’s affirmative
consent prior to each transaction that
may overdraw the consumer’s account
to qualify for the opt-in exception in
§ 205.17(b)(4)(ii).
Exceptions allowing assessment of
overdraft fees when a consumer opts
out. In limited circumstances, an
institution may be unable to avoid
paying a transaction that would
overdraw a consumer’s account. The
proposal sets forth two exceptions that
would permit an institution to assess a
fee or charge to a consumer’s account
31 This exception assumes that the Board adopts
a rule requiring consumer opt-out, rather than optin, as is proposed under the second alternative
approach discussed below.

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for paying an overdraft for an ATM
withdrawal or one-time debit card
transaction, even if the consumer has
opted out of the institution’s overdraft
service.
FTC Act Proposal. The May 2008 FTC
Act Proposal would have permitted fees
to be charged for an overdraft in two
circumstances, notwithstanding the
consumer’s decision to opt out. The first
circumstance was where the purchase
amount presented at settlement by a
merchant for a debit card transaction
exceeded the amount originally
requested for pre-authorization. The
second circumstance was where a
merchant or other payee presented a
debit card transaction for payment by
paper-based means, rather than
electronically using a card terminal, and
where the payee did not obtain
authorization from the card-issuing
financial institution at the time of the
transaction.
In the supplementary information
accompanying the May 2008 FTC Act
Proposal, the Agencies stated that they
had considered, but did not propose, an
exception that would allow an
institution to impose an overdraft fee
despite a consumer’s opt-out election as
long as the institution did not
‘‘knowingly’’ authorize a transaction
that resulted in an overdraft. The
Agencies expressed concern that given
the difficulty in determining a
consumer’s real-time account balance,
such an exception could undercut the
protections provided by a consumer’s
election to opt out. Nonetheless, the
Agencies sought comment on other
circumstances in which an exception
may be appropriate to allow an
institution to impose a fee or charge for
paying an overdraft even if the
consumer has opted out of the
institution’s overdraft service.
Industry commenters urged the Board
to consider additional exceptions. Some
industry commenters urged the Board to
adopt a broad principles-based
exception allowing fees to be charged
when overdrafts are paid despite a
consumer’s decision to opt out. These
commenters suggested the following
principles-based exceptions: if an
institution does not ‘‘knowingly’’
authorize the transaction that would
overdraw the consumer’s account; or if
the institution authorizes a transaction
on the ‘‘good faith belief’’ that there are
sufficient funds in the consumer’s
account.
Other industry commenters listed
specific exceptions that the Agencies
should consider. Several commenters
urged the Agencies to allow fees to be
assessed if an overdraft was paid when
the institution used a stand-in processor

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to authorize the transaction because the
card network was temporarily off-line.
Industry commenters also stated that the
rule should permit fees to be assessed
for ‘‘force-post’’ or ‘‘must pay’’ debit
card transactions where an institution
authorizes payment at the time of the
transaction based on a determination
that the consumer had sufficient funds.
Under these circumstances, card
network rules require institutions to
honor or pay the transaction even if
intervening transactions (for example,
checks that are presented for payment or
ATM withdrawals) causes the consumer
to have insufficient funds when the
transaction is presented for settlement.
In addition, industry commenters
supported exceptions permitting fees to
be charged where a consumer
subsequently has a deposited item
returned, and where the transaction is
not submitted for authorization by the
merchant.
Reasonable belief exception. Proposed
§ 205.17(b)(5)(i) would permit a
financial institution to assess an
overdraft fee or charge for paying an
ATM withdrawal or one-time debit card
transaction, notwithstanding the
consumer’s opt-out, if the institution
has a reasonable belief that there are
sufficient funds available in the
consumer’s account at the time the
institution authorizes the transaction.
Thus, an institution could assess an
overdraft fee if the institution has
authorized a transaction on the
reasonable belief that there were
sufficient funds available to cover the
transaction, but sufficient funds were
not, in fact, available at settlement.
This could occur, for instance, where
an authorization balance is not updated
in real-time. For example, some
institutions use a daily batch balance
method for authorizing transactions and
authorization decisions may be based
upon a balance which is not updated
during the day to reflect other account
activity that occurred before the
authorization request. In such cases, the
institution may authorize a debit card
transaction even though prior
transactions that have posted or
otherwise taken place during the day
may cause the consumer’s account to
have insufficient funds for the debit
card transaction. The proposed
exception would permit the institution
to pay the debit card transaction and
assess an overdraft fee on the
consumer’s account because the
institution authorized the transaction on
the reasonable belief that there were
sufficient available funds in the account
to cover the transaction.
An institution could also assess an
overdraft fee if it authorizes a

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transaction on the reasonable belief that
a previously deposited check or other
item was deposited on good funds, and
the item is subsequently returned,
causing the transaction to overdraw the
consumer’s account. For example, an
institution may provide immediate
availability for a $100 check that a
consumer has deposited, and
subsequently authorize a $75 debit card
transaction on the belief that the check
was written on sufficient funds.
However, if the check is later returned
due to insufficient funds in the check
writer’s account, the institution could
permissibly charge the account of the
consumer that had deposited that check
if the debit card transaction overdraws
the account because of the returned
deposit.
The proposed exception would also
apply where the settlement amount
exceeds the amount submitted for preauthorization. For example, a consumer
may use his or her debit card at a payat-the-pump fuel dispenser to purchase
$50 of fuel. At the time of authorization,
the gas station may request a preauthorization hold of $1 to verify the
validity of the card. Assuming the cardissuing financial institution does not
increase the amount of the hold, if the
consumer has less than $50 in his or her
account when the transaction is
presented for settlement, the institution
would be permitted to pay the
transaction and assess a fee, even if the
consumer has opted out of the
institution’s overdraft service.
Finally, an institution could assess an
overdraft fee or charge in connection
with force-post, or must-pay, debit card
transactions that the institution is
required to honor even if, at settlement,
intervening transactions by the
consumer have reduced the consumer’s
available balance below the authorized
amount of the transaction. For example,
a consumer may use his debit card to
make a $50 purchase, which the
institution authorizes based on the
consumer’s available balance at the time
of authorization. However, because
settlement may not occur for some
period of time after completion of the
transaction, intervening transactions
may post to the consumer’s account
before the $50 transaction is presented
for settlement. If there are insufficient
funds in the consumer’s account at the
time of settlement, this exception would
allow the institution to assess a fee to
the consumer’s account for paying the
overdraft even if the consumer has
opted out of the institution’s overdraft
service. Proposed comment 17(b)(5)–1
sets forth examples illustrating this
exception.

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The proposed exception in
§ 205.17(b)(5)(i) is not intended to
permit an institution to assess an
overdraft fee where a merchant has not
submitted the transaction to the
institution for authorization. A
transaction may not be submitted for
authorization, for example, because it is
below the floor limits established by
card network rules requiring
authorization. Similarly, a merchant
may decide not to submit the
transaction for authorization because
the small dollar amount of the
transaction does not pose significant
payment risk to the merchant. In either
case, the consumer’s financial
institution would be unable to decline
the transaction if the consumer did not
have sufficient funds in the consumer’s
account. Nevertheless, the Board
believes that institutions should not be
permitted to assess a fee on the
consumer’s account in these cases when
the consumer has opted out. From the
perspective of a consumer who has
opted out, it is reasonable to expect that
the transaction would be declined if he
or she did not have sufficient funds in
the account. The merchant’s decision
not to seek authorization for small
dollar transactions generally is not
transparent to the consumer. In
addition, because small-dollar
transactions are those most frequently
not submitted for authorization,
prohibiting institutions from assessing
overdraft fees in these circumstances
would reduce the possibility that the
consumer will incur overdraft fees that
exceed the amount of the overdraft. An
institution may, however, debit the
consumer’s account for the amount of
the overdraft if permitted to do so under
applicable law.
Similarly, the proposal would not
permit the institution to assess a fee if
the institution uses a stand-in processor
to authorize the transaction and an
overdraft was paid as a result. A standin processor may be used by an
institution when the debit card network
is temporarily unavailable. In such
cases, the authorization decision may be
made by the processor based on the
institution’s pre-determined amount,
rather than the consumer’s account
balance. The Board is concerned about
the appropriateness of permitting an
institution to assess an overdraft fee on
the consumer’s account in these rare
circumstances because a consumer who
has opted out would reasonably expect
the transaction to be declined if he or
she did not have sufficient funds in the
account. The institution may, however,
debit the consumer’s account for the
amount of the overdraft if permitted to

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do so under applicable law. Proposed
comment 17(b)(5)–2 provides examples
of circumstances where an institution
would not be permitted to assess a fee
for paying an overdraft if the consumer
has opted out because a transaction was
never submitted to the institution for
authorization.
Paper-based debit card transaction
exception. Proposed § 205.17(b)(5)(ii)
would permit an institution to assess an
overdraft fee or charge, notwithstanding
the consumer’s opt-out election, where
a merchant or other payee presents a
debit card transaction for payment by
paper-based means, rather than
electronically using a card terminal, and
the institution has not previously
authorized the transaction. For example,
the merchant may use a card imprinter
to take an imprint of the consumer’s
card and later submit the sales slip to its
acquirer for payment.
The Board believes this circumstance
is analogous to a check transaction that
is later returned for insufficient funds.
In this case, the institution cannot
authorize the transaction because of the
way in which the transaction is
processed. The consumer should be
aware that the merchant is not obtaining
authorization from the financial
institution when the merchant takes an
imprint of the consumer’s card. Thus,
the consumer could reasonably expect
that he or she would be charged a fee
if there are not sufficient available funds
to pay for the transaction. In contrast,
where a merchant swipes a consumer’s
card to capture the card information, but
chooses not to submit the transaction for
authorization, the merchant’s decision
not to seek authorization is not
transparent to the consumer. Therefore,
in the latter circumstance, the consumer
may reasonably expect that if he or she
did not have sufficient funds in his or
her account that the transaction would
be declined. Proposed comment
17(b)(5)–3 illustrates this exception.
C. Timing—§ 205.17(c)
The May 2008 FTC Act and
Regulation DD Proposals would have
required institutions to provide notice
of the opt-out both before the
institution’s assessment of any fees or
charges for paying an overdraft, and
subsequently after the consumer has
incurred any such fees or charges. The
subsequent notice could be given on
each periodic statement reflecting any
fees or charges imposed in connection
with an overdraft service, or at least
once per statement cycle on any notice
sent promptly after the institution’s
payment of an overdraft under an
overdraft service. Proposed § 205.17(c)

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sets forth essentially the same
requirements under Regulation E.
In response to the May 2008 FTC Act
and Regulation DD Proposals, the
majority of industry commenters stated
that the rule should only require notices
to be provided at account opening.
These commenters argued that the
subsequent notice requirement would
impose unnecessary costs on
institutions based on the expense of
producing and mailing the additional
notices. In the alternative, industry
commenters recommended that the
Board permit institutions to provide a
shorter opt-out notice on periodic
statements to limit statement costs.
Consumer groups urged the Board to
require institutions to provide initial
opt-out notices at account opening,
segregated from other account
documents, to ensure that the notice
would be noticeable. In addition,
consumer groups urged the Board to
require institutions to provide
subsequent notice of the opt-out right
both on the periodic statement as well
as on any notices the institution may
send immediately after an overdraft so
that if the consumer failed to read the
opt-out language on the notice sent after
an overdraft, it would also appear on the
periodic statement.
Proposed § 205.17(c)(1) would require
an institution to provide an opt-out
notice before the institution assesses a
fee or charge for paying an ATM
withdrawal or one-time debit card
transaction pursuant to the institution’s
overdraft service for accounts opened
after the effective date of the final rule.
For example, notice may be given at
account opening, either within the
deposit account agreement or in a standalone document. Institutions may also
choose to provide the opt-out notice
closer to the time the overdraft service
is available, so long as the notice is
provided before the institution assesses
any fees or charges for paying an ATM
withdrawal or one-time debit card
transaction that overdraws the
consumer’s account. Proposed
§ 205.17(c)(1) also provides that the
consumer must be given a reasonable
opportunity to exercise the opt-out right
after receiving the notice before such
fees or charges may be assessed to the
consumer’s account. See proposed
comment 17(b)–2 (providing that a
consumer has a reasonable opportunity
to opt out if the consumer is given 30
days after receiving an opt-out notice
before an overdraft fee is assessed).
Comment is requested whether
institutions should be required to
segregate the opt-out notice from other
account disclosures to help ensure that
the notice can be seen by the consumer.

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Under the proposal, initial opt-out
notices would not have to be provided
to accounts that are opened prior to the
effective date of the final rule. In
response to the May 2008 Regulation DD
proposal, consumer groups urged the
Board to require institutions to provide
initial opt-out notices to existing
accountholders. The Board is
concerned, however, that the costs of
mailing initial opt-out notices to the
millions of existing accountholders may
exceed any consumer benefit. As further
discussed below, existing consumers
will still be alerted to their right to opt
out of the overdraft service because they
will receive an opt-out notice if and
when they are assessed a fee or charge
by their financial institution for paying
an ATM or debit card overdraft.
If a consumer has not opted out (in
the case of a joint account, where no
joint account holder has opted out) or
the consumer has revoked a prior optout election, proposed § 205.17(c)(2)
would require institutions to provide an
opt-out notice following the assessment
of any overdraft fees or charges for
paying an ATM withdrawal or one-time
debit card transaction. The subsequent
notice requirement would apply to all
accounts, including existing accounts as
of the effective date of the final rule.
The requirement to provide an opt-out
notice following the assessment of an
overdraft fee or charge is designed to
ensure that consumers are given notice
of their right to opt out at a time that
may be most relevant to them, that is,
after they have been assessed fees or
other charges for the service. Consumers
receiving an opt-out notice only at
account opening may not focus on the
significance of the information at that
time because they may assume that they
will not overdraw the account. Or,
consumers may not notice the opt-out
information provided with other
account-opening documents.
Under the proposal, institutions
would have the option of placing an
opt-out notice on the periodic statement
reflecting an overdraft fee or charge
assessed to the consumer’s account or
on any notice sent promptly after the
ATM or debit card overdraft. If the
subsequent notice is included on the
periodic statement, proposed
§ 205.17(c)(2)(i) would require the
notice to be placed in close proximity to
any aggregate totals for overdraft and
returned item fees required to be
disclosed by 12 CFR 230.11(a), as
adopted under the Board’s final rules
under Regulation DD, published
elsewhere in today’s Federal Register.
During consumer testing, a version of
the opt-out form was placed directly
below the cost totals associated with

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overdrawing the account. This
placement enabled consumers to easily
notice the information about their optout right.
The requirement to provide
subsequent notice of the opt-out
terminates once the consumer has opted
out. That is, once the consumer has
opted out, an institution need not
provide notice of the opt-out right
following the assessment of any
overdraft fees or charges to the
consumer’s account (for example, under
one of the exceptions in § 205.17(b)(5)).
Of course, if the consumer opts out after
having incurred an overdraft fee, the
opt-out applies only to subsequent
transactions and the institution could
permissibly assess an overdraft fee
without violating the general rule in
§ 205.17(b). Similarly, if the consumer
has opted out but incurs an overdraft
before the opt-out has been
implemented, the institution would be
permitted to assess a fee for paying the
overdraft. See also proposed comment
17(g)–1 (stating that a consumer’s
subsequent opt-out does not require the
institution to waive or reverse any
overdraft fees assessed to the
consumer’s account prior to the
institution’s implementation of the optout).
Comment is requested as to whether
the rule should permit institutions to
include the opt-out notice on periodic
statements in any cycle in which the
consumer has been assessed an
overdraft fee or charge, even if that fee
or charge was not incurred in
connection with an ATM withdrawal or
a one-time debit card transaction. For
example, the rule could permit
institutions to provide an opt-out notice
on a periodic statement if the consumer
incurred an overdraft fee in connection
with a check transaction. Comment is
also requested as to whether institutions
should be permitted to include the optout notice on the periodic statement if
the consumer did not incur any
overdraft fees or charges during the
statement cycle. Prohibiting institutions
from including the opt-out notice on
each periodic statement where no fee
has been assessed could impose
additional costs on institutions because
it would require a dynamic statement
process that only permits the opt-out
notice to appear on statements that
reflect an overdraft fee. The Board is
concerned, however, that consumers
may dismiss the opt-out notice as
boilerplate language if the opt-out notice
were included on every periodic
statement.
Proposed comment 17(c)(1)–1
contains guidance regarding the
applicability of the notice requirements

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in § 205.17(c) to existing consumers. As
discussed above, the requirement to
provide notice before overdraft fees are
assessed would apply only to accounts
opened on or after the effective date of
the final rule, that is, on or after the
mandatory compliance date. However,
the requirement to provide subsequent
notice of the opt-out right after the
consumer has overdrawn the account
and assessed a fee or charge on the
account would apply to all accounts on
or after the effective date of the final
rule, including existing accounts.

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D. Content and Format—§ 205.17(d)
Proposed § 205.17(d) specifies the
information that an institution would be
required to include in its opt-out
notices. In general, the proposal
includes information similar to what
would have been required under the
May 2008 Regulation DD proposal, with
certain revisions to reflect industry and
consumer group comments, as well as
the Board’s consumer testing.
Two different notices are set forth in
the proposal. First, the proposal
contains a detailed notice about the
institution’s overdraft service and the
consumer’s opt-out right that would be
provided before an institution can
assess any fees or charges for paying an
ATM or one-time debit card transaction
that overdraws the consumer’s account.
Second, the proposal includes a shorter
notice which could be provided to the
consumer after an overdraft fee has been
assessed (for example, on a periodic
statement) that generally informs the
consumer of his or her opt-out right and
instructs the consumer to contact the
institution for more information.32
Model forms that institutions may use to
comply with the rule are also included
in this proposal. See proposed Model
Forms A–9(A) and A–9(B) in Appendix
A.
Initial notice content. Proposed
§ 205.17(d)(1) sets forth the information
that must be included in the initial optout notice provided to consumers before
an institution may assess any fees or
charges for paying an overdraft.
Proposed § 205.17(d)(1) would also
require that the initial opt-out notice be
in a form substantially similar to Model
Form A–9(A) in Appendix A.
Proposed § 205.17(d)(1)(i) would
require the institution to provide a
general description of the financial
institution’s overdraft services and the
types of EFTs for which an overdraft fee
may be imposed, including ATM
32 Alternatively, after assessing an overdraft fee or
charge to the consumer’s account, the institution
could provide a notice containing the same content
as the initial notice.

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withdrawals and one-time debit card
transactions.
Proposed § 205.17(d)(1)(ii) would
require the initial notice to include
information about the dollar amount of
any fees or charges assessed on the
consumer’s account for paying an ATM
withdrawal or a one-time debit card
transaction pursuant to the institution’s
overdraft service. Some institutions may
vary the fee amount that may be
imposed based upon the number of
times the consumer has overdrawn his
or her account, the amount of the
overdraft, or other factors. Under these
circumstances, the institution must
disclose the maximum fee that may be
imposed or a range of fees. Proposed
comment 17(d)(1)–1 provides that the
institution may indicate that the
consumer may be assessed a fee ‘‘up to’’
the maximum fee or provide the range
of fees. Comment is requested whether
additional guidance is necessary if an
overdraft fee is determined by other
means, such as a percentage of the
overdraft or the transaction that caused
the overdraft.
Proposed § 205.17(d)(1)(iii) would
require institutions to disclose any daily
dollar limits on the amount of overdraft
fees or charges that may be assessed. If
the institution does not limit the
amount of fees that can be imposed, it
must disclose this fact. The May 2008
Regulation DD Proposal contained a
similar disclosure, but also would have
required institutions to state any dollar
limits on the amount of fees that may be
imposed in a statement period. Upon
further analysis, however, a requirement
to state any limits on the amount of fees
that may be imposed in a statement
cycle is not included in this proposal
because the Board believes that this
information is unlikely to be relevant or
helpful to consumers.
Proposed § 205.17(d)(1)(iv) would
require institutions to inform consumers
of the right to opt out of the institution’s
payment of overdrafts for ATM and onetime debit card transactions, including
the method(s) that the consumer may
use to exercise the opt-out right and
how to contact the institution for more
information. See also proposed
§ 205.17(b)(1)(ii); comment 17(b)–2. An
institution may also include an
explanation regarding the type of
transactions that would not be covered
by the opt-out. See proposed comment
17(d)(1)–2, discussed below.
Several industry commenters in
response to the Regulation DD proposed
model forms urged the Board to add
language to the forms stating that the
payment of overdrafts is discretionary
even if the consumer does not opt out.
In addition, industry commenters urged

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the Board to include language stating
that the consumer’s decision to opt out
would not ensure that overdrafts would
not be paid. The proposed model form
does not include specific language
regarding the discretionary nature of
overdraft services. However, institutions
would be permitted to include in their
opt-out notices language indicating that
the payment of overdrafts is at their
discretion. See proposed comment
17(d)(1)–2.
Proposed § 205.17(d)(1)(v) provides
that institutions must state whether they
offer any alternatives for the payment of
overdrafts. Specifically, if an institution
offers an overdraft line of credit or a
service that transfers funds from another
account of the consumer held at the
institution to cover the overdraft
(including an account held jointly with
another consumer), the institution must
state that fact and how to obtain more
information about these alternatives.
Institutions may also, but are not
required to, list any additional
alternatives they may offer to overdraft
services. This provision incorporates a
recommendation from the February
2005 Joint Guidance that institutions
should inform consumers generally of
other overdraft services and credit
products, if any, that are available when
describing an overdraft protection
program.33
In some cases, these alternatives for
paying overdrafts may be less costly
than the overdraft service offered by the
institution.34 Consequently, requiring
disclosures regarding these alternatives
may enable consumers to make an
informed decision about the merits of
the overdraft service or whether other
alternatives would be more appropriate
to their needs. Consumer testing
indicated that participants found
information about alternatives helpful.
Participants also generally understood
that they would have to qualify for an
overdraft line of credit, without a
reference in the notice to any
qualification requirements.
Some institutions may wish to
explain to consumers the consequences
of opting out of overdraft services.
Proposed comment 17(d)(1)–2 provides
that institutions may briefly describe
these consequences. For example, the
institution may state that if a consumer
opts out of the institution’s overdraft
service for ATM withdrawals and onetime debit card transactions, the
33 See

70 FR at 9131.
FDIC Study on Bank Overdraft Programs
indicated that the median per usage fee charged by
banks for automated overdraft programs was $27. In
contrast, the median per usage fee for linkedaccount programs and overdraft lines of credit was
$5. FDIC Study at 15, 20 and 23.
34 The

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institution may decline such
transactions if the consumer’s account
does not have sufficient funds.
Institutions that include an explanation
of the consequences of opting out, the
type of transactions that would not
covered by the opt-out, or that the
payment of overdrafts is at the
institution’s discretion, would not
violate the requirement that opt-out
notices be substantially similar to Model
Forms A–9(A) or A–9(B), as applicable.
But see proposed § 205.17(b)(3)
(prohibiting institutions from declining
to pay checks, ACH transactions, or
other types of transactions that
overdraw a consumer’s account because
the consumer opted out of the
institution’s overdraft service for ATM
withdrawals and one-time debit card
transactions). Comment is requested
regarding whether the rule should
permit or require any other information
to be included in the overdraft notice.
Notice following assessment of
overdraft fee. Proposed § 205.17(d)(2)
sets forth the content requirements for
the short form notice that institutions
may provide to consumers following an
institution’s assessment of a fee or
charge to the consumer’s account for
paying an ATM withdrawal or one-time
debit card transaction pursuant to the
institution’s overdraft service (assuming
that the consumer has not opted out).
The May 2008 Regulation DD
Proposal would have required both the
initial notice and subsequent notice of
the opt-out right to contain the same
content. Industry commenters urged
that the Board to eliminate the
subsequent notice requirement to
reduce compliance burdens and costs.
Alternatively, industry commenters
urged the Board to permit institutions to
provide an abbreviated notice on
periodic statements that would
generally remind consumers of their
opt-out right and instruct them to
contact the institution for additional
information. Consumer group
commenters supported the Board’s
proposal to require the same content on
all notices informing consumers of their
opt-out right to ensure that consumers
can make an informed decision at the
time they review the opt-out notice.
Upon further analysis, the Board
believes that permitting institutions to
provide a short-form opt-out notice may
strike an appropriate balance between
including sufficient information to
inform consumers of their options
regarding overdraft services and keeping
such notices short, simple, and costeffective. The Board recognizes that
requiring institutions to provide the
same amount of detail in the subsequent
notice as provided in the initial notice

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could impose significant statement
production and mailing costs. In
addition, participants during consumer
testing indicated that it was sufficient
for them to receive all of the required
information about the institution’s
overdraft service at account opening.
Nevertheless, test participants indicated
that it would be helpful to receive a
concise reminder of their right to opt
out after they were assessed an overdraft
fee or charge.
Thus, proposed § 205.17(d)(2)
provides institutions with the flexibility
to provide either a notice containing the
same content as the initial opt-out
notice or an abbreviated notice that is
substantially similar to Model Form A–
9(B) in Appendix A. The proposed
abbreviated model notice generally
states the consumer’s right to opt out,
the availability of alternatives to the
institution’s overdraft service, and how
to contact the institution for more
information.
Model forms. As noted above,
proposed § 205.17(d)(1) would require
the initial opt-out notice to be
substantially similar to Model Form A–
9(A) in Appendix A. The model form
has been revised from the model form
in the May 2008 Regulation DD proposal
to reflect the more limited opt-out right
and to highlight near the top of the
notice key information about the
consumer’s opt-out right, including the
information about alternatives to the
institution’s overdraft service. To
comply with the subsequent notice
requirement, proposed § 205.17(d)(2)
permits institutions to use a notice
substantially similar to proposed Model
Form A–9(A) or an abbreviated notice
substantially similar to proposed Model
Form A–9(B). The Board expects to
conduct additional consumer testing of
both proposed model forms following
issuance of this proposal.
E. Additional provisions addressing
consumer opt-out right—§ 205.17(e)–(h)
Joint accounts. Proposed § 205.17(e)
would require a financial institution to
treat an opt-out direction by any joint
holder of an account as an opt-out for
the account from all of the joint
consumers. This provision takes into
account recognizes the operational
difficulties that would otherwise arise if
an institution had to determine which
account holder was responsible for a
particular transaction and then decide
whether to authorize that transaction
based on that account holder’s opt-out
choice. Thus, if one joint consumer
notifies the institution that he or she
wishes to opt out of the institution’s
overdraft service, the institution must
treat the choice as applying to all

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overdrafts triggered by an ATM
withdrawal or debit card transaction for
that account.
Continuing right to opt-out and time
to implement opt-out. Proposed
§ 205.17(f) provides that a consumer
may opt out of an institution’s overdraft
service at any time in the manner
described in the institution’s opt-out
notice. Proposed § 205.17(g) provides
that institutions must comply with a
consumer’s opt-out request as soon as
reasonably practicable after the
institution receives it. Comment is
requested regarding the need for
additional guidance on the ‘‘as soon as
reasonably practicable’’ standard.
Proposed comment 17(g)–1 would
clarify that an institution is not required
to waive or reverse any overdraft fees or
charges assessed to the consumer’s
account prior to the institution’s
implementation of the consumer’s optout request.
Duration of opt-out. Proposed
§ 205.17(h) provides that once a
consumer opts out, the opt-out remains
in effect until revoked by the consumer
in writing or electronically. Comment is
requested on whether consumers should
also be permitted to revoke prior opt-out
elections orally, whether by telephone
or in-person.
F. Request for Comment
The Board requests comment on all
aspects of the opt-out proposal,
including the various alternatives set
forth in the proposal. Comment is also
requested on the costs and benefits of
the proposed opt-out rule to consumers
and financial institutions.
2. Second Alternative Approach—OptIn Requirement
The Board is also soliciting comment
on an alternative—an opt-in approach.
An opt-in requirement may be
appropriate where the rule is limited to
the payment of overdrafts for ATM
withdrawals and one-time debit card
transactions, and would not apply to the
payment of overdrafts for other types of
transactions, including checks and ACH
transactions. While a check or ACH
transaction that is returned for
insufficient funds may cause the
consumer to incur possible merchant
fee(s) for the returned item or late
payment penalties, as well as an
insufficient funds fee assessed by the
consumer’s financial institution, a
declined ATM or debit card transaction
does not result in the same adverse
consequences.
Under an opt-out approach,
consumers who may prefer to have
ATM and debit card transactions
declined if they would result in an

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overdraft may nonetheless incur
overdraft fees simply because they fail
to act on the notice.35 For such
consumers, establishing an opt-in rule
that generally does not allow
institutions to impose fees for paying
these overdrafts unless a consumer
affirmatively consents to the overdraft
service would enable consumers to
avoid fees for a service that they did not
request or were unaware they had. An
opt-in rule would also provide an
incentive for institutions to persuade
consumers of the benefits of the
overdraft service and enable the
consumer to make an informed choice
about the merits of the service before he
or she incurs any overdraft fees.
However, for consumers who rarely, if
ever, overdraw their accounts, the
occasional coverage of overdrafts by
their institutions may be a positive
benefit.36 For such consumers, an opt-in
regime may result in more declined
transactions even though the consumer
may have preferred to have the overdraft
paid, despite the overdraft fee that may
be charged by the consumer’s financial
institution. Such a consumer could be
precluded from completing an
important transaction when there are
insufficient funds in the consumer’s
account and the consumer does not
have another means of payment. For
example, a consumer may need
emergency funds and attempt to
withdraw such funds from an ATM
using a debit card. Or, the consumer
may use a debit card to purchase
essential groceries or medicine and have
no other means of payment. In such
cases, if the consumer has not opted in,
the consumer would not be able to
complete the transaction if the
35 Various studies suggest that consumers are
likely to adhere to the established default rule, that
is, theoutcome that would apply if the consumer
takes no action, even if the default rule may not
always be in their best interest. For example,
studies of automatic enrollment in 401(k) savings
plans indicate a significant increase in employee
participation if the default rule provides that a
consumer is automatically enrolled in the plan
unless they opt out, instead of requiring employees
to affirmatively agree to participate in the plan. See,
e.g., Brigette Madrian and Dennis Shea, The Power
of Suggestion: Inertia in 401(k) Participation and
Savings Behavior, 116 Quarterly Journal of
Economics 1149 (2001).
36 Available data indicates that the majority of
account holders do not overdraw their accounts in
a given year. In its Study of bank Overdraft
Programs, the FDIC reported that almost 75 percent
of consumer accounts for banks that had an
automated doverdraft program had no overdrafts
during the 12-month period examined. See FDIC
Study at 76. See also 80 Percent of Consumers Have
Not Paid Overdraft Fees in Past year, Says ABA
Survey, Press release, american Bankers Association
(August 30, 2007) (available at http://www.aba.com/
Press+Room/083007ABASurvey.htm).

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consumer does not have another form of
payment.
Thus, while an opt-in approach may
benefit some consumers, it may not be
the optimal outcome for others. In
addition, an opt-in rule could result in
greater inefficiency for processing
systems due to the potential increase in
transactions that are declined.
Accordingly, because there are both
benefits and costs associated with the
opt-in and opt-out approaches, the
Board is soliciting comment on both
approaches.
A. Definition—§ 205.17(a)
The proposed definition of ‘‘overdraft
service’’ is the same under both the optout and the opt-in approaches, and
means a service under which a financial
institution assesses a fee or charge on a
consumer’s account held by the
institution for paying a transaction
(including a check or other item) when
the consumer has insufficient or
unavailable funds in the account. See
§ 205.17(a). The term would cover
circumstances when an institution
assesses a fee for paying an overdraft
pursuant to any automated program or
service, whether promoted or not, or as
a non-automated, ad hoc
accommodation. The term does not
include an institution’s payment of
overdrafts pursuant to a line of credit
subject to the Board’s Regulation Z,
including transfers from a credit card
account, a home equity line of credit, or
an overdraft line of credit. The term also
does not include any overdrafts paid
pursuant to a service that transfers
funds from another account of the
consumer (including any account that
may be jointly held by the consumer
and another person) held at the
institution. The Board is not proposing
to include these methods of covering
overdrafts in this proposal because they
require the express agreement of the
consumer.
B. Opt-In Requirement—§ 205.17(b)
General rule and scope of opt-in.
Proposed § 205.17(b)(1) sets forth the
general rule prohibiting an accountholding institution from assessing a fee
or charge on a consumer’s account held
at the institution for paying an ATM
withdrawal or a one-time debit card
transaction pursuant to the institution’s
overdraft service, unless the consumer
is provided with notice explaining the
institution’s overdraft service for such
transactions and a reasonable
opportunity to affirmatively consent, or
opt in, to the service, and the consumer
affirmatively consents, or opts in, to the
service. If the consumer opts in, the

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institution must provide written
confirmation of the consumer’s consent.
The proposed opt-in would apply to
any ATM withdrawal, including
withdrawals made at proprietary or
foreign ATMs. The proposed opt-in
would also apply to any one-time debit
card transaction, regardless of whether
the consumer uses a debit card at a
point-of-sale (for example, at a merchant
or a store), in an online transaction, or
in a telephone transaction.
Proposed comment 17(b)–1 clarifies
that a financial institution may pay
overdrafts for ATM withdrawals and
one-time debit card transactions even if
a consumer has not affirmatively
consented or opted in to the
institution’s overdraft service. If an
institution pays an overdraft for these
transactions and the consumer has not
opted in to the service, however, the
financial institution would generally be
prohibited from assessing a fee or charge
for doing so, except as permitted under
the exceptions set forth in proposed
§ 205.17(b)(5). The rule would not,
however, limit the institution’s ability to
debit the consumer’s account for the
amount of the overdraft, provided that
the institution is permitted to do so by
applicable law.
Proposed comment 17(b)–2 clarifies
that § 205.17 does not require an
institution to pay or honor any
overdrafts on an ATM withdrawal or a
one-time debit card transaction even if
a consumer affirmatively consents to the
institution’s overdraft service for such
transactions.
Similar to the opt-out approach, the
proposed rule requiring consumer optin would not apply to other types of
transactions, such as checks, ACH
transactions or preauthorized EFTs. In
many of these cases, the institution
would assess the same fee amount
whether the item is paid or returned,
but payment pursuant to the overdraft
service would enable the consumer to
avoid other adverse consequences, such
as merchant returned item fees. In
contrast, if a consumer does not opt in
to the payment of overdrafts for ATM
withdrawals or one-time debit card
transactions, the transaction would
generally be declined and the consumer
would not be assessed any fees either by
the financial institution or the
merchant.
To enable consumers to make an
informed choice about an institution’s
overdraft service, proposed
§ 205.17(b)(1)(i) would require the
institution to provide a consumer a
notice explaining the institution’s
overdraft service for ATM withdrawals
and one-time debit card transactions
that is segregated from everything else,

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including other account disclosures. In
addition, the proposal would provide
that the notice may not contain any
information that is not specified or
otherwise permitted by this section (see
proposed § 205.17(d) and comment
17(d)–2, discussed below). The separate
notice requirement is designed to ensure
that this information is not buried
within other account documents and
overlooked by the consumer. Otherwise,
institutions could include information
about the overdraft service in preprinted
language in an account-opening
disclosure, and a consumer might
inadvertently consent to the
institution’s overdraft service merely by
signing a signature card or other
account-opening document
acknowledging acceptance of the
account terms.
Reasonable opportunity to opt in.
Proposed § 205.17(b)(1)(ii) requires an
institution to provide a reasonable
opportunity for the consumer to
affirmatively consent to the institution’s
overdraft service for ATM withdrawals
and one-time debit card transactions.
Proposed comment 17(b)–3 contains
examples to illustrate what would
constitute a reasonable opportunity to
affirmatively consent, including the
provision of reasonable method(s) to
provide affirmative consent.
Proposed comment 17(b)–3.i contains
an example of a reasonable method of
opting in when the institution provides
a written form that the consumer can fill
out and mail to opt in. See proposed
§ 205.17(b)(1)(i) and proposed Model
Form A–9 in Appendix A, discussed
below. The institution may not,
however, obtain a consumer’s
affirmative consent in writing by
including preprinted language about the
overdraft service in an account
disclosure provided with a signature
card or contract that the consumer must
sign to open the account and that
acknowledges the consumer’s
acceptance of the account terms. Nor
may an institution obtain a consumer’s
affirmative consent by providing a
signature card that contains a preselected check box indicating that the
consumer is requesting the service.
Proposed comment 17(b)–3.ii
illustrates that an institution could also
provide a toll-free telephone number
that the consumer may call to provide
affirmative consent. Proposed 17(b)–3.iii
illustrates that an institution may
provide an electronic means for the
consumer to affirmatively consent, such
as a form that can be accessed and
processed at an Internet Web site,
provided that the institution directs the
consumer to the specific Web site
address where the form is located,

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rather than solely referring to the
institution’s home page.
Proposed comment 205.17(b)–4 states
that an institution may provide an optin notice prior to or at account opening
and require the consumer to decide
whether to opt in to the payment of
ATM withdrawals or one-time debit
card transactions pursuant to the
institution’s overdraft service as a
necessary step to opening an account.
For example, the institution could
require the consumer prior to or at
account opening to choose between an
account that does not permit the
payment of ATM withdrawals or onetime debit card transactions pursuant to
the institution’s overdraft service or an
account that permits the payment of
such overdrafts.
Written confirmation. Proposed
§ 205.17(b)(1)(iii) requires that upon
obtaining the consumer’s affirmative
consent to the institution’s overdraft
service, the institution must provide the
consumer with written confirmation
documenting the consumer’s choice, to
help ensure that the consumer intended
to opt in to the service. An institution
could comply with the proposed written
confirmation requirement, for example,
by providing a copy of a consumer’s
completed opt-in form or sending a
letter to the consumer acknowledging
that the consumer has elected to opt in
to the institution’s service if the
consumer has opted out by telephone or
in person.
Conditioning payment of overdrafts
on consumer’s affirmative consent.
Proposed § 205.17(b)(2) of the opt-in
approach provides that an institution
shall not condition the payment of any
overdrafts for checks, ACH transactions,
or other types of transactions on the
consumer also affirmatively consenting
to the institution’s payment of
overdrafts for ATM withdrawals and
one-time debit card transactions. The
Board is concerned that some
institutions may seek to tie the ability of
a consumer to have overdrafts paid for
checks, ACH transactions, and other
types of transactions to the consumer
affirmatively consenting to the
institution’s payment of ATM and debit
card overdrafts. As discussed above,
many consumers may prefer that their
account-holding financial institution
cover overdrafts by check. These
consumers may elect to opt in to an
institution’s overdraft service if not
doing so would mean that checks would
be returned unpaid.
To prevent circumvention of the optout right, the proposed rule also would
prohibit an institution from declining to
pay checks, ACH transactions, or other
types of transactions because the

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consumer has not also affirmatively
consented to the institution’s overdraft
service for ATM and one-time debit card
transactions. The proposed provision is
designed to ensure that institutions do
not exercise their discretion regarding
the payment of overdrafts in such a
manner as to prevent consumers from
exercising a meaningful choice
regarding overdraft services. Thus, the
proposed rule generally would require
an institution to apply the same criteria
for deciding when to pay overdrafts for
checks, ACH transactions, and other
types of transactions, whether or not the
consumer has affirmatively consented to
the institution’s overdraft service with
respect to ATM and one-time debit card
overdrafts. For example, if an
institution’s internal criteria would lead
the institution to pay a check overdraft
if the consumer had affirmatively
consented to the institution’s overdraft
service, it must also apply that same
criteria in a consistent manner in
determining to pay the check overdraft
if the consumer has not opted in. This
provision is not intended to create a
contractual requirement for the
institution to pay overdrafts on checks,
ACH transactions, or other types of
transactions in any circumstances. See
also proposed comment 17(b)–2.
Comment is requested on whether there
are other, more effective means of
ensuring that consumers are not
effectively compelled to opt in to an
institution’s overdraft service for ATM
withdrawals and one-time debit card
transactions.
Notwithstanding the Board’s concerns
about potential consumer compulsion to
opt in, the Board is proposing a
modified version of proposed
§ 205.17(b)(2) that would expressly
permit institutions to condition the
payment of any overdrafts for checks,
ACH transactions, and other types of
transactions on the consumer also
affirmatively consenting to the
institution’s payment of ATM
withdrawals and one-time debit card
transactions pursuant to the institution’s
overdraft service. Under the alternative
approach, an institution could also
decline checks, ACH transactions, and
other types of transactions because the
consumer has not affirmatively
consented to the institution’s overdraft
service for ATM withdrawals and onetime debit card transactions. See
proposed § 205.17(b)(2). This alternative
would address the potential operational
issues associated with implementing an
opt-in that would apply to ATM
withdrawals and one-time debit card
transactions, but not to other types of
transactions.

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The Board solicits comment on the
merits of both alternatives. The Board
also seeks comment on other
approaches that may sufficiently
balance concerns about consumers
being effectively compelled to opt in to
an institution’s overdraft service for
ATM withdrawals and one-time debit
card transactions in order to have
overdrafts paid for checks and other
transactions against the operational
difficulties of implementing a rule that
enables consumers to decide whether to
have overdrafts paid for some but not all
types of transactions.
Implementation of opt-in. Some
institutions may choose to implement a
consumer’s affirmative consent at the
account level and pay overdrafts for
ATM withdrawals and one-time debit
card transactions for those consumers
that have opted in. Other institutions for
operational reasons may prefer to
implement the consumer’s choice at the
product level and open different
accounts for consumers depending on
whether the consumer has provided
affirmative consent to the institution’s
overdraft service for ATM withdrawals
and one-time debit card transactions
(‘‘opt-in’’ account) or not (‘‘no opt-in’’
account). Proposed § 205.17(b)(3) is
intended to provide operational
flexibility to institutions to implement a
consumer’s affirmative consent using
either approach.
The Board is concerned, however,
that institutions could circumvent the
proposed opt-in right and effectively
compel the consumer to affirmatively
consent to the institution’s payment of
overdrafts for ATM withdrawals and
one-time debit card transactions by
providing a ‘‘no opt-in’’ account with
significantly less favorable terms,
conditions, or features compared to the
opt-in account. Thus, the proposal sets
forth two alternative approaches to
address this concern.
Under the first alternative, an
institution must provide to consumers
who do not affirmatively consent to the
institution’s overdraft service for ATM
withdrawals and one-time debit card
transactions an account with the same
terms, conditions, and features,
including interest rates paid and fees
assessed, as it provides to consumers
who do affirmatively consent, except for
the features that limit the institution’s
payment of such overdrafts.
Under the second alternative, an
institution may wish to alter some of the
terms, conditions, or features of the
account that does not permit the
payment of overdrafts on ATM
withdrawals and one-time debit card
transactions. For example, the
institution may wish to price some

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account services differently for the ‘‘no
opt-in’’ account. In light of the Board’s
concern about possible chilling effects,
however, the second alternative permits
an institution to vary the terms,
conditions, or features of the ‘‘no optin’’ account only if the differences in the
terms, conditions, or features are not so
substantial as to effectively compel a
reasonable consumer to affirmatively
consent to the institution’s payment of
overdrafts on ATM withdrawals and
one-time debit card transactions. For
example, an institution may not decline
to provide ATM and debit card services
altogether if the consumer has not
affirmatively consented to the
institution’s overdraft service for ATM
withdrawals and one-time debit card
transactions. See proposed comment
17(b)(3)–1 of this second alternative.
The Board requests comment on both
approaches. For institutions that require
consumers to opt in to the institution’s
overdraft service, the Board requests
comment on whether the consumer’s
choice is implemented at the account
level (i.e., within the same type of
account) or at the product level (i.e., by
placing the consumer in a different type
of account). The Board also requests
comment on whether institutions that
currently require an opt-in for overdraft
services, or that offer accounts to certain
subsets of consumers (such as high-risk
consumers) that limit the consumer’s
ability to overdraw the account, vary
any other terms, conditions, or features
of the account depending upon whether
the consumer opts in or not. If so,
comment is solicited on which terms,
conditions or features are varied and
why.
Exception to the notice and opt-in
requirements. Proposed § 205.17(b)(4)
creates an exception to the proposed
notice and opt-in requirement.
Specifically, no notice would be
required (nor affirmative consent
obtained) when the institution has a
policy and practice of declining to pay
any ATM withdrawals or one-time debit
card transactions for which
authorization is requested if the
institution has a reasonable belief that if
the consumer’s account does not have
sufficient funds available to cover the
transaction at the time of the
authorization request.
Exceptions to the fee prohibition.
Proposed § 205.17(b)(5) contains two
exceptions to the fee prohibition that are
identical to the exceptions proposed
under the opt-out approach. These
exceptions would allow institutions to
assess a fee or charge for paying an ATM
or debit card overdraft in certain
circumstances even if the consumer has

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not affirmatively consented to the
overdraft service.
Under the first exception, an
institution would be permitted to assess
an overdraft fee or charge for paying an
ATM withdrawal or one-time debit card
transaction, notwithstanding the
absence of the consumer’s affirmative
consent, if the institution has a
reasonable belief that there are sufficient
funds available in the consumer’s
account at the time it authorizes a
transaction. See proposed
§ 205.17(b)(5)(i). Under the second
exception, an institution would be
permitted to assess an overdraft fee or
charge, notwithstanding the absence of
the consumer’s affirmative consent,
where a merchant or payee presents a
debit card transaction for payment by
paper-based means, rather than
electronically using a card terminal, and
the institution has not previously
authorized the transaction. See
proposed § 205.17(b)(5)(ii). These
exceptions, and the reasons for
proposing them, are discussed in greater
detail in the section regarding the
proposed opt-out approach. Proposed
comments 17(b)(5)–1 through –3 contain
examples illustrating the proposed
exceptions for the opt-in approach.
C. Timing—§ 205.17(c)
Proposed § 205.17(c) would generally
require that a financial institution
provide an opt-in notice to the
consumer about the institution’s
overdraft service before the institution
assesses any fee or charge on the
consumer’s account for paying an ATM
withdrawal or one-time debit card
transaction pursuant to the institution’s
overdraft service. However, once a
consumer has opted in, financial
institutions would not be required to
provide a notice regarding the
institution’s overdraft service following
the assessment of any overdraft fees or
charges to the consumer’s account. The
Board believes such a requirement is not
necessary when the consumer has
affirmatively elected to enroll in the
overdraft service.
The proposed provision would apply
differently depending on when the
account is opened. For new accounts
opened on or after the effective date of
the final rule, the opt-in notice must be
provided prior to the assessment of any
fee or charge on the consumer’s account
for paying an ATM withdrawal or onetime debit card transaction pursuant to
the institution’s overdraft service.
In contrast to the opt-out approach,
the opt-in rule would not require
institutions to provide a notice after a
consumer has been assessed an
overdraft fee or charge. Thus, existing

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consumers may be unaware of their
right to determine whether to enroll in
their institution’s overdraft service for
ATM withdrawals and one-time debit
card transactions, absent being given an
‘‘initial’’ opt-in notice. Accordingly, the
proposed opt-in approach would require
institutions to provide notices regarding
their opt-in right to existing customers.
For existing accounts, that is,
accounts opened prior to the effective
date of the final rule, an institution may
elect to provide an opt-in notice to all
of its account holders on or with the
first periodic statement sent after the
effective date of the final rule.
Alternatively, the institution may
provide an opt-out notice to existing
consumers following the first
assessment of an overdraft fee or charge
to the consumer’s account on or after
the effective date of the final rule.
The notice requirements for existing
accounts would apply only for accounts
for which overdraft services are
provided as of the effective date of the
final rule. Thus, institutions would not
be required to provide notices to
consumers that have previously opted
out of, or, for those institutions that
require an opt-in, to consumers that
have not affirmatively consented to, the
service. Institutions that elect to provide
notices to consumers prior to the
effective date of the final rule also
would not be required to provide new
notices once the rule becomes effective
for consumers that have not
affirmatively consented to the service
(provided that the consumer was given
a reasonable amount of time to opt in).
As discussed below under proposed
§ 205.17(g), if an existing consumer has
not opted in within 60 days of receiving
the opt-in notice, the institution must
cease assessing any fees or charges to
existing consumer accounts for paying
an ATM withdrawal or one-time debit
card transaction pursuant to the
institution’s overdraft service, except for
fees that are permitted by the exceptions
in § 205.17(b)(5).
The Board solicits comment on
whether another approach may be more
appropriate for existing customers.
Specifically, the Board requests
comment on whether it should adopt a
hybrid approach consisting of an optout rule for existing accounts and an
opt-in rule for new accounts. Under this
approach, an institution could continue
to pay overdrafts (and assess fees) for
ATM withdrawals and one-time debit
card transactions for existing consumers
who have not opted out, but would be
prohibited from paying such overdrafts
and assessing an overdraft fee or charge
on new consumers who have not

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affirmatively consented to the
institution’s overdraft service.
D. Content and Format—§ 205.17(d)
Proposed § 205.17(d) sets forth
content requirements for the notice that
must be provided to the consumer
before the consumer may affirmatively
consent to the institution’s overdraft
service. In addition, proposed
§ 205.17(d) requires that the opt-in
notice be in a form substantially similar
to Model Form A–9 in Appendix A. The
content requirements are discussed in
greater detail in the section regarding
the proposed opt-out approach.
However, the Board has modified these
content requirements (and the
accompanying proposed commentary)
from the proposed opt-out approach to
reflect the requirement to obtain the
consumer’s affirmative consent. See
proposed § 205.17(d) and proposed
comments 17(d)–1 and –2.
The Board expects to conduct
consumer testing of this proposed
model form (and the proposed model
forms for the opt-out) following
issuance of this proposal.
E. Additional Provisions Addressing
Consumer Opt-in Right—§ 205.17(e)–(g)
Joint accounts. Proposed § 205.17(e)
requires a financial institution to treat
affirmative consent provided by any
joint consumer of an account as
affirmative consent for the account from
all of the joint consumers. As also
discussed above with regard to the optout approach, this provision takes into
account the operational difficulties that
would otherwise arise if an institution
had to determine which account holder
was responsible for a particular
transaction and then make an
authorization decision based on
whether the consumer had affirmatively
consented to the institution’s overdraft
service. Thus, if one joint consumer opts
in to the institution’s overdraft service,
the institution must treat the consent as
applying to all overdrafts triggered by an
ATM withdrawal or debit card
transaction for that account.
Continuing right to opt-in. Proposed
§ 205.17(f) provides that a consumer
may affirmatively consent to a financial
institution’s overdraft service at any
time in the manner described in the optin notice. This provision allows
consumers to decide later in the account
relationship that they wish to have
overdrafts paid for ATM withdrawals
and one-time debit card transactions.
Time to comply for existing
customers. As discussed above under
§ 205.17(c), institutions would have the
option of implementing the opt-in
requirement for existing accounts either

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by providing a notice to all existing
accounts on or with the first periodic
statement sent on or after the effective
date of the final rule. Alternatively, an
institution could provide an opt-in
notice to existing accounts after the first
assessment of an overdraft fee or charge
for an ATM or one-time debit card
overdraft on or after the effective date of
the final rule. In either case, under
proposed § 205.17(g), if a consumer has
not affirmatively consented to the
service within 60 days after the
institution sends the opt-in notice, the
institution shall cease assessing any fees
or charges on the consumer’s account
for paying such overdrafts, except if
permitted by the exceptions in
§ 205.17(b)(5).
The 60-day period is intended to
provide sufficient time for the consumer
to respond to the opt-in notice, and for
the institution to implement the
consumer’s decision. During this time,
an institution may continue to assess
overdraft fees for paying ATM
withdrawals and one-time debit card
transactions. Comment is requested on
the 60-day period, and whether the
period should be longer or shorter.
Duration of opt-in. Proposed
§ 205.17(h) provides that a consumer’s
affirmative consent to the institution’s
overdraft service is generally effective
until revoked by the consumer. An
institution may also terminate the
consumer’s access to the overdraft
service at its discretion, for example, if
the institution determines that there is
excessive usage of the service by the
consumer.
F. Request for Comment
The Board requests comment on all
aspects of the opt-in proposal, including
the various alternatives set forth in the
proposal. Comment is requested on the
costs and benefits of the proposed optin rule to consumers and financial
institutions. Comment is also solicited
on which approach (opt-out or opt-in)
may be optimal for both consumers, and
whether one approach may present
unique operational or cost issues that
would not be associated with the other
approach.
Section 205.19 Debit Holds
Background
When a consumer uses a debit card to
make a purchase, a block, or hold, may
be placed on funds in the consumer’s
account to ensure that the consumer has
sufficient funds in his or her account
when the transaction is presented for
settlement. This type of block or hold is
commonly referred to as a ‘‘debit hold.’’
During the time the debit hold remains

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in place, which may be up to three days
after authorization, those funds may be
unavailable for the consumer’s use in
other transactions.
In some cases, the actual purchase
amount is not known at the time the
transaction is authorized, such as when
a consumer uses a debit card to pay for
gas at the pump, check into a hotel
room, or pay for a meal at a restaurant.
Consequently, the debit hold may be
placed for an estimated amount that
exceeds the actual transaction amount.
The consumer may engage in
subsequent transactions reasonably
assuming that his or her account has
only been debited for the actual
transaction amount. Or, prior
transactions may be presented for
settlement after the hold is placed.
Because of the excess hold, however,
the consumer may incur overdraft fees
for those transactions.
For example, a consumer with $100 in
a deposit account may swipe his or her
debit card at a pay-at-the-pump
dispenser to purchase $20 worth of fuel.
When this transaction is authorized, the
consumer’s financial institution may
increase the merchant’s $1 preauthorization hold 37 to $75 to cover the
maximum amount the institution
guarantees to pay the gas station under
card network rules.38 Because the final
$20 transaction amount is not settled
immediately, the $75 debit hold amount
may remain in place for some period of
time, up to three days for signaturebased debit card transactions.39
However, the consumer would be
unaware that $55 more than the
purchase amount has been temporarily
made unavailable for use until the
merchant presents the transaction for
settlement. Thus, prior to settlement of
the transaction, the consumer may make
subsequent purchases assuming that his
or her account has been debited by only
$20, and inadvertently spend more than
the available amount in his or her
37 Pre-authorization describes the dollar amount
of funds that are held on a consumer’s account
when a card is swiped to initiate a transaction.
38 In a signature-based debit card transaction at a
pay-at-the-pump dispenser, the merchant typically
obtains a $1 pre-authorization to activate the pump.
The card issuer may increase this amount to the
maximum amount guaranteed to the merchant
(currently $75 in most cases under card network
rules) to protect itself against risk of loss. In
contrast, in a PIN-based debit card transaction
where the cardholder enters his or her personal
identification number (PIN) to complete the
transaction, the merchant obtains pre-authorization
for an estimated transaction amount, which under
current card network rules generally may not
exceed $75.
39 Unlike signature-based debit card transactions,
PIN-based debit card transactions that take place
before the processing cut-off time for that day will
typically settle soon after completion of the
transaction.

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account. As a result, the consumer
could be charged an overdraft fee even
though the account contained sufficient
funds to pay for all of the consumer’s
purchases.
May 2008 FTC Act Proposal. The
Agencies proposed in the May 2008 FTC
Act Proposal to prohibit institutions
from assessing an overdraft fee where
the overdraft would not have occurred
but for the placement of an excess debit
hold. While consumer groups endorsed
the Agencies’ proposal, industry
commenters expressed strong
opposition, stating that it would present
significant operational difficulties.
Several industry commenters asserted
the rule would require banks to monitor
retroactively, and manually adjust,
transactions and fees that have posted to
the account. A few of these commenters
believed that the proposal would have
a disproportionate cost impact on
smaller institutions that do not have the
systems or staff to handle the research
and manual adjustments necessary to
correct the consumer’s account.
Alternatively, institutions would have
to stop placing debit holds altogether
which, industry commenters argued,
would raise potential safety and
soundness concerns. Nonetheless, a few
financial institution commenters stated
that they either do not currently place
holds on authorizations from gas
stations, hotels, or rental car companies,
or do not increase the $1 merchant preauthorization amount in connection
with fuel purchases.
Rather than adopting a substantive
FTC Act rule, industry commenters
urged the Agencies to use other existing
regulatory authority. For example,
industry commenters recommended that
the Board exercise its authority under
Regulation E to require merchants to
disclose at the point-of-sale when holds
may be placed on debit card
transactions. Many industry
commenters also stated that the
Agencies’ concerns were already largely
addressed by recent card network
initiatives intended to reduce the length
of the hold time for debit holds. For
example, one payment card network has
recently implemented changes intended
to reduce the hold times for pay-at-thepump fuel dispensers. Under these new
rules, fuel merchants would be
encouraged to transmit a transaction for
settlement within two hours of
authorization. If the merchant does so,
the card-issuing institution will be
required to drop the hold within the
two-hour time frame, thus reducing the
hold times to a matter of hours, instead
of days.

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Discussion
A. General Rule—§ 205.19(a)
After reviewing the comments
received on the May 2008 FTC Act
Proposal and based on its own analysis,
the Board is proposing to address debit
holds under the EFTA and Regulation E.
Proposed § 205.19(a) generally would
prohibit financial institutions from
assessing a fee or charge for paying an
overdraft pursuant to the institution’s
overdraft service if the overdraft would
not have occurred but for a debit hold
placed in a consumer’s account if the
amount of the hold exceeds the actual
transaction amount. The proposed rule
would not apply to transactions in
which the amount of the hold equals or
is less than the actual amount of the
transaction. Similarly, the proposed rule
would not apply if the actual amount of
the transaction would also have caused
the overdraft to occur.
Under the proposal, the scope of the
debit hold provision would be limited
to debit card transactions in which the
actual transaction amount generally can
be determined by the merchant or other
payee within a short period of time after
the institution authorizes the
transaction. For example, in pay-at-thepump fuel purchases, the actual
transaction amount can be calculated
once the consumer has finished
pumping fuel. Similarly, when a
consumer uses a debit card to pay a
restaurant bill, the actual transaction
amount can be determined once the
consumer has signed the receipt and
added a service tip. According to data
submitted by one card network on the
Board’s May 2008 FTC Act Proposal,
restaurant and fuel purchases comprise
over 95 percent of all transactions in
which the settlement amount typically
does not match the authorization
amount.40
The proposed rule would not apply,
however, to debit holds in other retail
environments where the actual
transaction amount generally cannot be
determined for a considerable period of
time after the merchant has submitted a
transaction for authorization. For
example, when a consumer provides his
or her debit card at check-in for a multinight hotel stay, the transaction will not
be submitted for settlement until the
end of the consumer’s stay. In this case,
a hold may be placed on funds in the
consumer’s account at check-in, but will
not be released until the consumer
completes his or her stay (or when the
hold is required to be released under
card network rules, whichever comes
first). Similarly, if a consumer uses his
40 See

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or her debit card to reserve or pick up
a rental car, the actual amount of the
transaction will not be known until the
car is returned. In these circumstances,
the general rule would not apply
because the actual amount of the
transaction generally cannot be
determined within a short period of
time after. It seems impracticable to
craft a rule in such cases because it
would be impossible to determine a
reasonable hold period in all such
circumstances.
Moreover, the Board believes that
overdraft fees are less likely to occur for
hotel and car rental transactions because
consumers tend to use credit cards for
these transactions. In addition, data
provided by one commenter indicates
that even where debit cards are used in
hotel and car rental transactions, they
comprise a very small proportion of
transactions overall involving a debit
hold. The Board has received few
complaints regarding overdraft fees
incurred as a result of debit holds
placed in connection with hotel and car
rental transactions.
For these reasons, the Board is
proposing a targeted rule for debit holds
that would apply only in circumstances
when the actual transaction amount can
be determined within a short period of
time after the institution authorizes the
transaction. As stated above, the
proposed rule would appear to cover
approximately 95 percent of all
transactions (pay-at-the-pump and
restaurants) in which the actual
transaction amount and the
authorization amount do not match.
Thus, the proposed rule would cover
the areas of greatest concern regarding
overdraft fees incurred because of a
debit hold. Proposed comment 19(a)–1
provides examples of transactions
covered by the proposed rule.
The prohibition against assessing an
overdraft fee in connection with a debit
hold applies only if the overdraft is
caused solely by the existence of the
hold. Proposed comment 19(a)–2
provides that an institution may assess
an overdraft fee or charge if the
consumer’s account is overdrawn for
other reasons. These reasons may
include prior debit card transactions
that may have been authorized but not
yet presented for settlement, or when a
deposited check in the consumer’s
account is returned.
Proposed comment 19(a)–3 clarifies
that a financial institution does not
violate the prohibition in § 205.19 if it
promptly waives or refunds any
overdraft fees assessed on a consumer’s
account caused by a debit hold placed
on funds in the consumer’s account that
is in excess of the actual amount of the

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transaction. However, the institution
may not require the consumer to
provide notice or other information that
an overdraft fee was caused by a debit
hold on funds in the consumer’s
account before waiving or refunding the
fee. Proposed comment 19(a)–3 includes
an example illustrating this provision.
Proposed comments 19(a)–4 through
–7 set forth examples to illustrate
application of the rule.
B. Safe Harbor—§ 205.19(b)
The proposed rule provides a safe
harbor that would allow a financial
institution to assess a fee or charge for
paying an overdraft that is caused solely
by a debit hold in certain cases.
Specifically, proposed § 205.19(b)
permits an institution to assess an
overdraft fee or charge to the consumer’s
account in connection with a debit hold
if the institution has adopted
procedures and practices designed to
remove the hold within a reasonable
period of time. This safe harbor is
intended to mitigate the potential
compliance burden on institutions.
Thus, an institution would not be
required to recalculate each transaction
which may appear to be overdrawn due
to an excess hold to determine whether
an overdraft fee was properly assessed
if the hold is removed within a
reasonable period of time following
authorization. Proposed § 205.19(b)
provides that an institution has
procedures and practices designed to
release the hold within a reasonable
period of time if the institution releases
debit holds for the transactions covered
by the proposed rule within two hours
of authorization.41 Proposed comment
19(b)–1 illustrates the safe harbor.
The two-hour time period for
removing a hold is consistent with
industry efforts to minimize current
hold times in certain retail
environments. As discussed above, one
payment card network has recently
implemented changes designed to
significantly reduce the hold times at
pay-at-the-pump fuel dispensers. This
industry initiative, however, is
voluntary and, by itself, may not be
sufficient to protect consumers from
being assessed overdraft fees caused by
an excess hold. In addition, this
initiative is currently limited to pay-atthe-pump debit card transactions, and
would not apply in other circumstances
in which the actual transaction amount
can be determined within a short period
41 Where an institution has released a debit hold
before the transaction is presented for payment in
order to take advantage of the safe harbor, it would
be permitted to assess an overdraft fee if the actual
transaction amount presented for settlement causes
the consumer to overdraw his or her account.

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of time after authorization was obtained,
such as at restaurants. Nonetheless, the
introduction of a two-hour hold period,
even on a voluntary basis, suggests that
such a standard is feasible.
The Board recognizes that the
proposed safe harbor in § 205.19(b)
would not prevent in all cases the
assessment of overdraft fees caused by
a debit hold even though the consumer
had sufficient funds in the account. For
example, a consumer may use his or her
debit card to purchase groceries an hour
after completing a fuel purchase. The
proposed safe harbor would not
preclude the consumer’s financial
institution from assessing an overdraft
fee or charge for the grocery purchase
where an excess hold placed in
connection with the fuel purchase
causes the consumer to have insufficient
funds at the time of authorization for the
grocery purchase. (However, if the
consumer has opted out under § 205.17
(or not opted in), the institution would
not be permitted to assess a fee or
charge for paying the debit card
overdraft. See proposed comment 19(b)–
2, discussed below.) The Board
nonetheless believes that in the vast
majority of cases, consumers would not
be assessed a fee for an overdraft that
was caused by an excess debit hold in
light of the short time period (2 hours)
that the hold would be in place before
it would be released by institutions that
follow the safe harbor. However, the
Board solicits comment on this
approach.
Proposed comment 19(b)–2 illustrates
the interaction between the debit hold
provision in § 205.19 and the opt-out (or
opt-in) requirements in § 205.17.
Specifically, if a consumer is not
enrolled in the institution’s overdraft
service for ATM withdrawals and onetime debit card transactions (because
the consumer has opted out or not opted
in), the institution may not assess any
overdraft fees incurred in connection
with a debit hold even if the institution
otherwise is not prohibited from doing
so by the debit hold provision. For
example, assume a consumer has $100
in his or her deposit account and has
opted out of the institution’s overdraft
service. The consumer uses his or her
debit card to purchase $30 of fuel at a
pay-at-the-pump fuel dispenser. At the
time of authorization, the financial
institution increased the gas station’s $1
preauthorization hold to $75. One hour
after completing the fuel purchase, the
consumer makes a $60 debit card
purchase at a grocery store.
Notwithstanding the fact that the
consumer made the purchase within the
two-hour safe harbor, the institution
would not be permitted to assess an

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overdraft fee because the consumer had
opted out of (or not opted in to) the
institution’s overdraft service.
C. Other Potential Approaches
The proposal does not require
merchants to disclose debit holds as a
substitute for a substantive rule, as some
industry commenters had suggested.
The Board does not believe that a
disclosure-based approach would be
effective in pay-at-the-pump and
restaurant transactions. For example, a
notice posted at a gas pump or in a
restaurant is unlikely to be noticed by
the consumer. Even if the consumer
were to notice a point-of-sale disclosure
about debit holds, the consumer would
not know how long the hold will remain
in place. Moreover, for signature-based
pay-at-the-pump debit card purchases,
the merchant does not know whether
the financial institution will increase
the $1 pre-authorization hold.
Therefore, merchant disclosures at
point-of-sale regarding debit holds do
not appear to provide a workable
solution in most circumstances.

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D. Request for Comment
The Board requests comment on all
aspects of the debit hold proposal,
including whether additional guidance
is necessary regarding transactions in
which the actual purchase amount is
determined within ‘‘a short period of
time.’’ Comment is also requested on the
costs and benefits of the proposed rule
to consumers and financial institutions.
Comment is requested on the
appropriateness of the proposed safe
harbor, including whether other time
periods may be more appropriate in
light of operational constraints at
smaller institutions which may only
receive authorization and settlement
information periodically during the day.
In addition, comment is requested
whether the Board should exercise its
authority under Section 904 of the
EFTA to also require merchants (or their
acquirers or processors) to promptly
submit transactions covered by this rule
for settlement. Specifically, the Board
seeks comment on whether the final
rule should also require merchants (or
their acquirers or processors) to submit
such transactions for settlement within
the safe harbor period.
VI. Initial Regulatory Flexibility
Analysis
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) generally
requires an agency to perform an
assessment of the impact a rule is
expected to have on small entities.
However, under section 605(b) of the
RFA, 5 U.S.C. 605(b), the regulatory

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flexibility analysis otherwise required
under section 604 of the RFA is not
required if an agency certifies, along
with a statement providing the factual
basis for such certification, that the rule
will not have a significant economic
impact on a substantial number of small
entities. Based on its analysis and for
the reasons stated below, the Board
believes that this proposed rule is likely
to have a significant economic impact
on a substantial number of small
entities. A final regulatory flexibility
analysis will be conducted after
consideration of comments received
during the public comment period.
1. Statement of the need for, and
objectives of, the proposed rule. The
Board is proposing revisions to
Regulation E to prohibit financial
institutions that hold a consumer’s
account from assessing a fee or charge
for paying ATM withdrawals and onetime debit card transactions pursuant to
the institution’s overdraft service,
unless the consumer is given the right
to opt out of the service, and the
consumer does not opt out. The
proposal also sets forth an alternative
approach that would require that a
consumer affirmatively consent to the
institution’s overdraft service before
overdraft fees could be assessed for
these transactions. Under the proposal,
financial institutions would be
prohibited from assessing a fee or charge
for certain debit card transactions that
overdraw the consumer’s account if the
overdraft would not have occurred but
for a hold placed on funds in the
consumer’s account in excess of the
actual transaction, unless the institution
has adopted procedures and practices
designed to release the hold within a
reasonable period of time. A safe harbor
is provided if an institution has adopted
procedures to release the hold within
two hours after the institution
authorized the transaction.
The EFTA was enacted to provide a
basic framework establishing the rights,
liabilities, and responsibilities of
participants in electronic fund transfer
systems. The primary objective of the
EFTA is the provision of individual
consumer rights. 15 U.S.C. 1693. The
EFTA authorizes the Board to prescribe
regulations to carry out the purpose and
provisions of the statute. 15 U.S.C.
1693b(a). 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 effectuate the purposes of [the
Act], to prevent circumvention or
evasion [of the Act], or to facilitate
compliance [with the Act].’’ 15 U.S.C.
1693b(c). The Board believes that the

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revisions to Regulation E discussed
above are within Congress’s broad grant
of authority to the Board to adopt
provisions that carry out the purposes of
the statute. These revisions facilitate a
consumer’s ability to avoid overdrawing
his or her account in connection with an
electronic fund transfer the consumer
has requested.
2. Small entities affected by the
proposed rule. The number of small
entities affected by this proposal is
unknown. Account-holding institutions
would be required to provide consumers
with a notice of their right to opt out of
the payment of overdrafts at ATMs and
for one-time debit transactions, and a
reasonable opportunity to opt out,
before assessing any overdraft fee. These
institutions would also be required to
provide notice of the opt-out right
subsequent to any overdraft fee
assessment, whether on the consumer’s
periodic statement or on a notice
provided promptly after the occurrence
of the overdraft. Under the alternative
proposed approach, account-holding
institutions would be required to obtain
affirmative consent to the institution’s
overdraft service before assessing
overdraft fees for ATM withdrawals and
one-time debit card transactions.
According to the FDIC’s Study of Bank
Overdraft Programs, 75.1 percent of
banks with an automated overdraft
program currently provide some form of
an opt-out right to consumers, and 11.1
percent provide an opt-in right.42 Thus,
institutions that already have an opt-out
or an opt-in process in place would
have to reprogram their systems to
provide the notices required by the
proposal. Institutions would also have
to reprogram their systems to
differentiate between overdrafts for
different transaction types. As some
industry commenters noted, some
systems are not currently set up to pay
overdrafts for certain transaction types
(e.g., checks and ACH), but not others
(e.g., ATM and one-time debit card
transactions).
The Board is aware that some small
institutions do not pay overdrafts at
ATMs or for one-time debit card
transactions.43 These institutions would
not be subject to the proposed opt-out
(or opt-in) requirements. With respect to
the opt-out approach, the Board believes
that many institutions are already
providing customers a method to opt
out of their overdraft service, or an
affirmative opt-in. These institutions
would need to conform their opt-out (or
42 See

FDIC Study at 27.
FDIC Study at 10 (reporting that 81 percent
of institutions surveyed provide overdraft services
for ATM and POS/debit card transactions).
43 See

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opt-in) procedures to the proposal. Also,
those institutions that currently provide
a form of opt-out or opt-in notice would
need to review and revise this
disclosure. Further, the Board believes
that many institutions currently notify
consumers who have incurred
overdrafts promptly following an
overdraft. Under the proposed opt-out
approach, these institutions may need to
review and perhaps revise this
notification to add the opt-out notice.
In addition, financial institutions
would be prohibited from assessing a
fee or charge for certain debit card
transactions that overdraw the
consumer’s account if the overdraft
would not have occurred but for a hold
placed on funds in the consumer’s
account in excess of the actual
transaction, unless they have adopted
procedures designed to release the hold
within a reasonable period of time. A
safe harbor is provided if an institution
has adopted procedures to release the
hold within two hours after the
institution authorized the transaction.
The Board believes the proposed safe
harbor will significantly decrease the
burden of compliance with the rule.
3. Other federal rules. The Board has
not identified any federal rules that
duplicate, overlap, or conflict with the
proposed revisions to Regulation E.
4. Significant alternatives to the
proposed revisions. The Board solicits
comment on any significant alternatives
that would reduce regulatory burden
associated with this proposed rule on
small entities.

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VII. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act (PRA) of 1995 (44 U.S.C.
3506; 5 CFR Part 1320 Appendix A.1),
the Board reviewed the rule under the
authority delegated to the Board by the
Office of Management and Budget
(OMB). The collection of information
that is subject to the PRA by this
proposed rule is found in 12 CFR part
205. The Federal Reserve may not
conduct or sponsor, and an organization
is not required to respond to, this
information collection unless the
information collection displays a
currently valid OMB control number.
The OMB control number is 7100–0200.
This information collection is
required to provide benefits for
consumers and is mandatory (15 U.S.C.
1693 et seq.). Since the Board does not
collect any information, no issue of
confidentiality arises. The respondents/
recordkeepers are for-profit financial
institutions, including small businesses.
Institutions are required to retain
records for 24 months, but this

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regulation does not specify types of
records that must be retained.
The EFTA and Regulation E are
designed to ensure adequate disclosure
of basic terms, costs, and rights relating
to electronic fund transfer (EFT)
services debiting or crediting a
consumer’s account. The disclosures
required by the EFTA and Regulation E
are triggered by certain specified events.
The disclosures inform consumers about
the terms of the electronic fund transfer
service, activity on the account,
potential liability for unauthorized
transfers, and the process for resolving
errors. To ease institutions’ burden and
cost of complying with the disclosure
requirements of Regulation E
(particularly for small entities), the
Board publishes model forms and
disclosure clauses.
Regulation E applies to all financial
institutions, not just state member banks
(SMBs). In addition, certain provisions
in Regulation E apply to entities that are
not financial institutions, including
those that act as service providers or
ATM operators, as well as merchants
and other payees that engage in
electronic check conversion
transactions, the electronic collection of
returned item fees, or preauthorized
transfers. The Federal Reserve accounts
for the paperwork burden associated
with Regulation E only for the financial
institutions it supervises 44 and that
meet the criteria set forth in the
regulation. Other federal agencies
account for the paperwork burden
imposed on the entities for which they
have regulatory enforcement authority.
As mentioned in the SUPPLEMENTARY
INFORMATION above, under Alternative 1,
the proposed rule (§ 205.17) would
prohibit account-holding financial
institutions from assessing a fee or
charge for paying ATM withdrawals and
one-time debit card transactions
pursuant to the institution’s overdraft
service, unless the consumer is given
the right to opt out of the service, and
the consumer does not opt out.
Alternative 1 would also require these
institutions to provide notice of the optout right subsequent to any overdraft fee
assessment, whether on the consumer’s
periodic statement or on a notice
provided promptly after the occurrence
of the overdraft. The proposal also sets
forth an alternative approach,
Alternative 2, that would require that a
44 State member banks, branches and agencies of
foreign banks (other than Federal branches, Federal
agencies, and insured state branches of foreign
banks), commercial lending companies owned or
controlled by foreign banks, and Edge and
agreement corporations, organizations operating
under section 25 or 25(a) of the Federal Reserve
Act.

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consumer affirmatively consent, or optin, to the institution’s overdraft service
before overdraft fees could be assessed
for these transactions.
Under alternative 1 the Federal
Reserve estimates that, to comply with
the proposed opt-out notice
requirement, 1,205 respondents
regulated by the Federal Reserve would
take, on average, 16 hours (two business
days) to revise and update initial
disclosures (§ 205.7(b)) for new
customers and that 327 respondents 45
regulated by the Federal Reserve would
take, on average, 16 hours (two business
days) to revise and update periodic
statements (§ 205.9(b)) for existing
customers.
The Federal Reserve estimates the
total annual one-time burden for
respondents to be 24,512 hours and
believes that, on a continuing basis,
there would be no additional increase in
burden as the disclosures would be
sufficiently accounted for once
incorporated into the current initial
account disclosure (§ 205.7(b)) and
periodic statements (§ 205.9(b)). This
would increase the total annual burden
to 84,414 hours for Federal Reserveregulated financial institutions that are
required to comply with Regulation E.
To ease the burden of compliance model
forms that institutions may use are
available in Appendix A (See proposed
Model Forms A–9(A) and A–9(B)).
Under alternative 2 the Federal
Reserve estimates that, to comply with
the proposed opt-in notice requirement,
1,205 respondents regulated by the
Federal Reserve would again take, on
average, 16 hours (two business days) to
revise and update initial disclosures
(§ 205.7(b)) for new customers. The
Federal Reserve estimates that 1,205
respondents regulated by the Federal
Reserve would take, on average, 16
hours (two business days) to prepare
and send new opt-in notices for existing
customers.
The Federal Reserve estimates the
total annual one-time burden for
respondents to be 38,560 hours and
believes that, on a continuing basis,
there would be no additional increase in
burden as the disclosure would be
sufficiently accounted for once
incorporated into the current initial
account disclosure (§ 205.7(b)). This
would increase the total annual burden
to 98,462 hours for Federal Reserveregulated financial institutions that are
required to comply with Regulation E.
To ease the burden of compliance a
45 To avoid double counting and to be consistent
with the current burden associated with periodic
statements, burden for the 878 state member banks
will be taken under Regulation DD.

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Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 / Proposed Rules
model form that institutions may use is
available in Appendix A (See proposed
Model Forms A–9).
The Federal Reserve estimates that on
average 5,136,693 consumers would
spend as much as 5 minutes reviewing
and responding to an opt-in or opt-out
notice. This would increase the total
annual burden for this information
collection by 428,058 hours.
Overall, the burden could increase,
depending on the alternative
implemented, between 452,570 hours
for alternative 1 and 466,618 hours for
alternative 2 (for 512,472 hours or
526,520 hours total, respectively).
The other federal financial agencies
are responsible for estimating and
reporting to OMB the total paperwork
burden for the institutions for which
they have administrative enforcement
authority. They may, but are not
required to, use the Federal Reserve’s
burden estimation methodology. Using
the Federal Reserve’s method, the total
estimated annual burden for all
financial institutions subject to
Regulation E, including Federal
Reserve-supervised institutions, would
be approximately 1,041,011 hours.46
The above estimates represent an
average across all respondents and
reflect variations between institutions
based on their size, complexity, and
practices. All covered institutions,
including depository institutions (of
which there are approximately 17,200),
potentially are affected by this
collection of information, and thus are
respondents for purposes of the PRA.
Comments are invited on: a. whether
the proposed collection of information
is necessary for the proper performance
of the Federal Reserve’s functions
including (a) Whether the information
has practical utility; (b) the accuracy of
the Federal Reserve’s estimate of the
burden of the proposed information
collection, including the cost of
compliance; (c) ways to enhance the
quality, utility, and clarity of the
information to be collected; and (d)
ways to minimize the burden of
information collection on respondents,
including through the use of automated
collection techniques or other forms of
information technology. Comments on
the collection of information should be
sent to Michelle Shore, Federal Reserve
Board Clearance Officer, Division of
Research and Statistics, Mail Stop 151–
A, Board of Governors of the Federal
Reserve System, Washington, DC 20551,
with copies of such comments sent to
the Office of Management and Budget,
46 This estimate does not include consumer
burden.

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Paperwork Reduction Project (7100–
0200), Washington, DC 20503.
Text of Proposed Revisions
Certain conventions have been used
to highlight the proposed changes to the
text of the regulation and staff
commentary. New language is shown
inside bold-faced arrows, while
language that would be deleted is set off
with bold-faced brackets.
List of Subjects in 12 CFR Part 205
Consumer protection, Electronic fund
transfers, Federal Reserve System,
Reporting and recordkeeping
requirements.
For the reasons set forth in the
preamble, the Board proposes to amend
12 CFR part 205 and the Official Staff
Commentary, as follows:
PART 205—ELECTRONIC FUND
TRANSFERS (REGULATION E)
1. The authority citation for part 205
continues to read as follows:
Authority: 15 U.S.C. 1693b.

2. Section 205.12 is amended by
revising paragraph (a) to read as follows:
§ 205.12

Relation to other laws.

(a) Relation to truth in lending. (1)
The Electronic Fund Transfer Act and
this part govern—
(i) The addition to an accepted credit
card as defined in Regulation Z (12 CFR
226.12ø(a)(2), footnote 21¿fl, comment
12–2fi), of the capability to initiate
electronic fund transfers;
(ii) The issuance of an access device
that permits credit extensions (under a
preexisting agreement between a
consumer and a financial institution fl
or an overdraft service, as defined in
§ 205.17(a)fi) only when the
consumer’s account is overdrawn or to
maintain a specified minimum balance
in the consumer’s account; [and]
fl(iii) The addition of an overdraft
service, as defined in § 205.17(a), to an
accepted access device; andfi
ø(iii)¿fl(iv)fi A consumer’s liability
for an unauthorized electronic fund
transfer and the investigation of errors
involving an extension of credit that
occurs under an agreement between the
consumer and a financial institution to
extend credit flor an overdraft service,
as defined in § 205.17(a),fi when the
consumer’s account is overdrawn or to
maintain a specified minimum balance
in the consumer’s account.
(2) The Truth in Lending Act and
Regulation Z (12 CFR flpartfi 226),
which prohibit the unsolicited issuance
of credit cards, govern—
(i) The addition of a credit feature to
an accepted access device; and

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(ii) Except as provided in paragraph
(a)(1)(ii) of this section, the issuance of
a credit card that is also an access
device.
*
*
*
*
*
3. Section 205.17 is added to read as
follows:
Alternative 1
ߤ 205.17
services.

Requirements for overdraft

(a) Definition. For purposes of this
section, the term ‘‘overdraft service’’
means a service under which a financial
institution assesses a fee or charge on a
consumer’s account held by the
institution for paying a transaction
(including a check or other item) when
the consumer has insufficient or
unavailable funds in the account. The
term ‘‘overdraft service’’ does not
include any payment of overdrafts
pursuant to—
(1) A line of credit subject to the
Federal Reserve Board’s Regulation Z
(12 CFR part 226), including transfers
from a credit card account, home equity
line of credit, or overdraft line of credit;
or
(2) A service that transfers funds from
another account held individually or
jointly by a consumer.
(b) Opt-out requirement. (1) General.
Except as provided under paragraphs
(b)(4) and (b)(5) of this section, a
financial institution holding a
consumer’s account shall not assess a
fee or charge on a consumer’s account
for paying an ATM withdrawal or a onetime debit card transaction pursuant to
the institution’s overdraft service,
unless:
(i) The institution provides notice to
the consumer explaining that it may pay
overdrafts on such transactions
pursuant to the institution’s overdraft
service and assess a fee or charge on the
consumer’s account for doing so;
(ii) The consumer is given a
reasonable opportunity to opt out of the
institution’s overdraft service for such
transactions; and
(iii) The consumer has not opted out.
(2) Conditioning the opt-out. If a
consumer opts out of a financial
institution’s overdraft service for ATM
withdrawals and one-time debit card
transactions, the institution [shall not/
may]:
(i) Condition the consumer’s right to
opt out of the institution’s overdraft
service for ATM withdrawals and onetime debit card transactions on the
consumer also opting out of the
institution’s overdraft service with
respect to the payment of checks, ACH
transactions, and other types of
transactions; or

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(ii) Decline to pay checks, ACH
transactions, or other types of
transactions that overdraw the
consumer’s account because the
consumer has opted out of the
institution’s overdraft service for ATM
withdrawals and one-time debit card
transactions.

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Alternative A—Paragraph (b)(3)
(3) Implementation of opt-out. A
financial institution shall implement the
consumer’s election to opt out of the
institution’s overdraft service for ATM
withdrawals and one-time debit card
transactions by providing to the
consumer an account that has the same
terms, conditions, and features,
including interest rates paid and fees
assessed, as are provided to consumers
who do not opt out, except for features
that limit the institution’s payment of
such overdrafts as provided in this
section.
Alternative B—Paragraph (b)(3)
(3) Implementation of opt-out. A
financial institution shall implement the
consumer’s election to opt out of the
institution’s overdraft service for ATM
withdrawals and one-time debit card
transactions by providing an account on
the same or reasonably comparable
terms. The institution may vary the
terms, conditions, and features for the
account that does not permit the
payment of overdrafts on ATM
withdrawals and one-time debit card
transactions, provided that the
differences in the terms, conditions, or
features are not so substantial that they
would discourage a reasonable
consumer from exercising his or her
right to opt out of the payment of such
overdrafts.
(4) Exceptions to the notice and optout requirement. The requirements of
this section do not apply to any
financial institution that:
(i) Has a policy and practice of
declining to pay any ATM withdrawals
or one-time debit card transactions for
which authorization is requested if the
institution has a reasonable belief that
the consumer’s account does not have
sufficient funds available to cover the
transaction at the time of the
authorization request; or
(ii) Requires consumers to
affirmatively consent to the institution’s
overdraft service for the payment of any
ATM withdrawals or one-time debit
card transactions before the institution
assesses any fees or charges to the
consumer’s account for paying such
overdrafts.
(5) Exceptions to the fee prohibition.
Notwithstanding a consumer’s election
to opt out, a financial institution may

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assess a fee or charge on a consumer’s
account for paying an ATM withdrawal
or a one-time debit card transaction
pursuant to the institution’s overdraft
service if:
(i) The institution has a reasonable
belief that there are sufficient funds
available in the consumer’s account at
the time the institution authorizes the
transaction; or
(ii) In the case of a debit card
transaction, the transaction is presented
for payment by the merchant through
paper-based means, rather than
electronically through a card terminal,
and the institution has not previously
authorized the transaction.
(c) Timing. The notice described in
paragraph (b)(1)(i) of this section shall
be provided:
(1) For accounts opened on or after
[the effective date of the final rule],
prior to the financial institution’s
assessment of any fee or charge on the
consumer’s account for paying an ATM
withdrawal or a one-time debit card
transaction pursuant to the institution’s
overdraft service, so long as the
consumer has a reasonable opportunity
to exercise the opt-out right before the
assessment of any such fee or charge;
and
(2) For any account for which an optout has not been exercised or for which
a prior opt-out has been revoked,
following the assessment of any fee or
charge assessed on the consumer’s
account for paying an ATM withdrawal
or a one-time debit card transaction
pursuant to the institution’s overdraft
service:
(i) On each periodic statement that
reflects any such fee or charge, in close
proximity to the disclosures required to
be disclosed by 12 CFR 230.11(a); or
(ii) At least once per statement cycle
on any notice sent promptly after the
institution’s payment of an overdraft for
an ATM withdrawal or a one-time debit
card transaction during that statement
cycle.
(d) Content and format. (1) Initial
notice. The notice required by
paragraph (c)(1) of this section shall be
substantially similar to Model Form A–
9(A) set forth in Appendix A of this
part, and include all applicable items in
this paragraph.
(i) Overdraft policy. A general
description of the financial institution’s
overdraft service, and the types of
electronic fund transfers for which a fee
or charge for paying an overdraft may be
imposed, including ATM withdrawals
and one-time debit card transactions.
(ii) Fees imposed. The dollar amount
of any fees or charges assessed on the
consumer’s account by the financial
institution for paying an ATM

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withdrawal or a one-time debit card
transaction, as applicable, pursuant to
the institution’s overdraft service. If the
amount of the fee is determined on the
basis of the number of times the
consumer has overdrawn the account,
the amount of the overdraft, or other
factors, the institution must disclose the
maximum fee that may be imposed or
provide a range of fees that may be
imposed.
(iii) Limits on fees charged. The
maximum amount of overdraft fees or
charges that may be assessed for
transactions per day, or, if applicable,
that there is no limit to the fees that can
be imposed.
(iv) Disclosure of opt-out right. An
explanation of the consumer’s right to
opt out of the financial institution’s
payment of overdrafts for ATM
withdrawals and one-time debit card
transactions pursuant to the institution’s
overdraft service, including the
method(s) by which the consumer may
exercise that right and how to contact
the institution for more information.
(v) Alternative payment options. A
statement that the financial institution
offers other alternatives for the payment
of overdrafts, if applicable. If the
institution offers a line of credit subject
to the Board’s Regulation Z (12 CFR part
226) or a service that transfers funds
from another account of the consumer
(including joint accounts) held at the
institution to cover the overdraft, the
institution shall also state that fact and
how to obtain more information about
these alternatives. An institution may,
but is not required to, list additional
alternatives for the payment of
overdrafts.
(2) Subsequent notice. The notice
required by paragraph (c)(2) of this
section shall be substantially similar to
either Model Form A–9(A) in Appendix
A of this part, or Model Form A–9(B) in
Appendix A of this part.
(e) Joint relationships. If two or more
consumers jointly hold an account, the
financial institution shall treat an optout direction by any of the joint
consumers as an opt-out for that
account.
(f) Continuing right to opt-out. A
consumer may opt out of the
institution’s future payment of
overdrafts at any time in the manner
described in the notice required by
paragraph (b)(1)(i) of this section.
(g) Time to comply with opt-out. A
financial institution shall comply with a
consumer’s opt-out request as soon as
reasonably practicable after the
institution receives it.
(h) Duration of opt-out. A consumer’s
opt-out is effective until revoked by the
consumer in writing or electronically.

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Alternative 2

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ߤ 205.17
services.

Requirements for overdraft

(a) Definition. For purposes of this
section, the term ‘‘overdraft service’’
means a service under which a financial
institution assesses a fee or charge on a
consumer’s account held by the
institution for paying a transaction
(including a check or other item) when
the consumer has insufficient or
unavailable funds in the account. The
term ‘‘overdraft service’’ does not
include any payment of overdrafts
pursuant to—
(1) A line of credit subject to the
Federal Reserve Board’s Regulation Z
(12 CFR part 226), including transfers
from a credit card account, home equity
line of credit, or overdraft line of credit;
or
(2) A service that transfers funds from
another account held individually or
jointly by a consumer.
(b) Opt-in requirement. (1) General.
Except as provided under paragraphs
(b)(4) and (b)(5) of this section, a
financial institution holding a
consumer’s account shall not assess a
fee or charge on a consumer’s account
for paying an ATM withdrawal or a onetime debit card transaction pursuant to
the institution’s overdraft service,
unless the institution:
(i) Provides the consumer with a
notice explaining the institution’s
overdraft service for such transactions
that is segregated from everything else,
and does not contain any information
not specified in or otherwise permitted
by paragraph (d) of this section;
(ii) Provides a reasonable opportunity
for the consumer to affirmatively
consent, or opt in, to the service for
such transactions; and
(iii) Obtains the consumer’s
affirmative consent, or opt-in, to the
institution’s payment of ATM
withdrawals or one-time debit card
transactions pursuant to the institution’s
overdraft service, and provides the
consumer with written confirmation of
the consumer’s consent.
(2) Conditioning payment of other
overdrafts on consumer’s affirmative
consent. A financial institution [shall
not/ may]:
(i) Condition the payment of any
overdrafts for checks, ACH transactions,
and other types of transactions on the
consumer also affirmatively consenting
to the institution’s payment of ATM
withdrawals and one-time debit card
transactions pursuant to the institution’s
overdraft service; or
(ii) Decline to pay checks, ACH
transactions, and other types of
transactions that overdraw the

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consumer’s account because the
consumer has not affirmatively
consented to the institution’s overdraft
service for ATM withdrawals and onetime debit card transactions.
Alternative A—Paragraph (b)(3)
(3) Implementation of opt-in. A
financial institution shall provide to
consumers who do not affirmatively
consent to the institution’s overdraft
service for ATM withdrawals and onetime debit card transactions an account
with the same terms, conditions, and
features, including interest rates paid
and fees assessed, as it provides to
consumers who affirmatively consent,
except for features that limit the
institution’s payment of such overdrafts
as provided in this section.
Alternative B—Paragraph (b)(3)
(3) Implementation of opt-in. A
financial institution shall implement the
consumer’s affirmative consent to the
institution’s overdraft service for ATM
withdrawals and one-time debit card
transactions by providing an account on
the same or reasonably comparable
terms. The institution may vary the
terms, conditions, and features for the
account that does not permit the
payment of overdrafts on ATM
withdrawals and one-time debit card
transactions, provided that the
differences in the terms, conditions, or
features are not so substantial that they
would compel a reasonable consumer to
affirmatively consent to the payment of
such overdrafts.
(4) Exception to the notice and opt-in
requirements. The requirements of this
section do not apply to any financial
institution that has a policy and practice
of declining to pay any ATM
withdrawals or a one-time debit card
transactions for which authorization is
requested when the institution has a
reasonable belief that the consumer’s
account does not have sufficient funds
available to cover the transaction at the
time of the authorization request.
(5) Exceptions to the fee prohibition.
Notwithstanding the absence of a
consumer’s affirmative consent, a
financial institution may assess a fee or
charge on the consumer’s account for
paying an ATM withdrawal or a onetime debit card transaction pursuant to
the institution’s overdraft service if:
(i) The institution has a reasonable
belief that there are sufficient funds
available in the consumer’s account at
the time the institution authorizes the
transaction; or
(ii) In the case of a debit card
transaction, the transaction is presented
for payment by the merchant through
paper-based means, rather than

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electronically through a card terminal,
and the institution has not previously
authorized the transaction.
(c) Timing. The notice required by
paragraph (b)(1)(i) of this section shall
be provided:
(1) For accounts opened and for
which an overdraft service is provided
prior to [the effective date of the final
rule], at the institution’s option—
(i) On or with the first periodic
statement sent on or after [the effective
date of the final rule]; or
(ii) Following the first assessment on
or after [the effective date of the final
rule] of any fee or charge on the
consumer’s account for paying an ATM
withdrawal or a one-time debit card
transaction pursuant to the institution’s
overdraft service; or
(2) For accounts opened on or after
[the effective date of the final rule],
before the financial institution assesses
any fee or charge on the consumer’s
account for paying an ATM withdrawal
or a one-time debit card transaction
pursuant to the institution’s overdraft
service.
(d) Content and format. The notice
required by paragraph (b)(1)(i) of this
section shall be substantially similar to
Model Form A–9 set forth in Appendix
A of this part, and include all applicable
items in this paragraph.
(1) Overdraft policy. A general
description of the financial institution’s
overdraft services and the types of
electronic fund transfers for which a fee
or charge for paying an overdraft may be
imposed, including ATM withdrawals
and one-time debit card transactions.
(2) Fees imposed. The dollar amount
of any fees or charges assessed on the
consumer’s account by the financial
institution for paying an ATM
withdrawal or a one-time debit card
transaction pursuant to the institution’s
overdraft service. If the amount of the
fee is determined on the basis of the
number of times the consumer has
overdrawn the account, the amount of
the overdraft, or other factors, the
institution must disclose the maximum
fee that may be imposed or provide a
range of fees that may be imposed.
(3) Limits on fees charged. The
maximum amount of overdraft fees or
charges that may be assessed per day,
or, if applicable, that there is no limit to
the fees that can be imposed.
(4) Disclosure of opt-in right. An
explanation of the consumer’s right to
affirmatively consent to the financial
institution’s payment of overdrafts for
ATM withdrawals and one-time debit
card transactions pursuant to the
institution’s overdraft service, including
the method(s) by which the consumer

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may consent to the service and how to
get more information; and
(5) Alternative payment options. A
statement that the financial institution
offers other alternatives for the payment
of overdrafts, if applicable. If the
institution offers a line of credit subject
to the Board’s Regulation Z (12 CFR part
226) or a service that transfers funds
from another account of the consumer
(individual or joint) held at the
institution to cover the overdraft, the
institution must also state that fact and
how to obtain more information about
these alternatives. An institution may,
but is not required to, list additional
alternatives for the payment of
overdrafts.
(e) Joint relationships. If two or more
consumers jointly hold an account, the
financial institution shall treat the
affirmative consent of any of the joint
consumers as affirmative consent for
that account.
(f) Continuing right to opt-in. A
consumer may affirmatively consent to
the financial institution’s overdraft
service at any time in the manner
described in the notice required by
paragraph (b)(1)(i) of this section.
(g) Time to comply for existing
customers. For accounts opened prior to
øthe effective date of the final rule¿, if

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a consumer has not affirmatively
consented to a financial institution’s
overdraft service within 60 days after
the institution sends the notice required
under paragraph (c)(1) of this section,
the institution shall cease assessing any
fees or charges on a consumer’s account
for paying an ATM withdrawal or a onetime debit card transaction pursuant to
the service.
(h) Duration of opt-in. A consumer’s
affirmative consent to the institution’s
overdraft service is effective until
revoked by the consumer, or until the
financial institution decides for any
reason to terminate the service for the
consumer, such as due to the
consumer’s excessive usage of the
service.fi
4. Section 205.19 is added to read as
follows:
ߤ 205.19

Debit holds.

(a) General rule. A financial
institution shall not assess a fee or
charge for paying an overdraft pursuant
to the institution’s overdraft service, as
defined in § 205.17(a), if the overdraft
would not have occurred but for a hold
placed on funds in the consumer’s
account in connection with a debit card
transaction if the actual amount of the
transaction can be determined by the
merchant or other payee within a short

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period of time after the financial
institution authorizes the transaction. A
financial institution may, however,
assess a fee or charge for paying an
overdraft for a debit card transaction
incurred in connection with a hold
placed on funds for that transaction if
the amount of the hold is less than or
equal to the actual amount of the
transaction.
(b) Safe harbor. Notwithstanding
paragraph (a) of this section, a financial
institution may assess an overdraft fee if
the institution has procedures and
practices in place designed to release a
debit hold subject to this section within
a reasonable period of time. An
institution is deemed to have
procedures and practices designed to
release the hold within a reasonable
period of time if the institution releases
the hold within two hours of the
institution’s authorization of the
transaction.fi
5. In Appendix A to Part 205,
Appendix A–9 Model Forms for
Overdraft Services (§ 205.17) is added to
read as follows:
Appendix a to Part 205—Model
Disclosure Clauses and Forms
*

*

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BILLING CODE 6210–01–P

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6. In Supplement I to part 205,
a. Under Section 205.12 Relation to
other laws, under 12(a) Relation to truth
in lending, paragraph 2. is revised, and
paragraph 3. is added.
b. Section 205.17—Requirements for
Overdraft Services is added.
c. Section 205.19—Debit Holds is
added.
Supplement I to Part 205—Official Staff
Interpretations
*

*

*

*

*

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Section 205.12—Relation to Other Laws
12(a) Relation to Truth in Lending
*

*
*
*
*
2. Issuance rules. For access devices
that also constitute credit cards, the
issuance rules of Regulation E apply if
the only credit feature is a preexisting

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credit line attached to the asset account
to cover overdrafts (or to maintain a
specified minimum balance) flor an
overdraft service, as defined in
§ 205.17(a)fi. Regulation Z (12 CFR
flpartfi 226) rules apply if there is
another type of credit feature, for
example, one permitting direct
extensions of credit that do not involve
the asset account.
fl3. Overdraft service. The addition
of an overdraft service, as that term is
defined in § 205.17(a), to an accepted
access device does not constitute the
addition of a credit feature subject to
Regulation Z. Instead, the provisions of
Regulation E apply, including the
liability limitations (§ 205.6) and the
requirement to provide consumers an
opportunity to opt out of the service
before any fees or charges for paying an

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overdraft may be assessed to the account
(§ 205.17).fi
*
*
*
*
*
flSection 205.17—Requirements for
Overdraft Services
Alternative 1
17(b) Opt-Out Requirement
1. Effect of opt-Out. A consumer’s
election to opt out of a financial
institution’s overdraft service does not
prohibit the institution from paying
overdrafts for ATM withdrawals and
one-time debit card transactions. If the
institution pays such an overdraft,
however, it may not impose a fee or
charge for doing so if the consumer has
opted out, except as permitted under the
exceptions set forth in § 205.17(b)(5).
These provisions do not limit the

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institution’s ability to debit the
consumer’s account for the amount of
the overdraft if permitted to do so under
applicable law.
2. Examples of reasonable
opportunity to opt out. A financial
institution gives a consumer a
reasonable opportunity to opt out if:
i. By mail. The institution provides a
form for the consumer to fill out and
mailto opt out. The consumer is given
30 days from the date the consumer is
provided the initial opt-Out notice to
opt out before an overdraft fee or charge
is assessed to the consumer’s account.
ii. By telephone. The institution
provides a toll-free telephone number
that consumers may call to opt out. The
consumer is given 30 days from the date
the consumer is provided the initial optout notice to opt out before an overdraft
fee or charge is assessed to the
consumer’s account.
iii. By electronic means. The
institution provides an electronic means
to opt out, such as a form that can be
accessed and processed at an Internet
Web site, provided that the institution
directs the consumer to the specific Web
site address where the form is located,
rather than solely referring to the
institution’s home page. The consumer
is given 30 days from the date the
consumer is provided the initial opt-out
notice to opt out before an overdraft fee
or charge is assessed to the consumer’s
account.
iv. At the time of account-opening.
The institution provides the opt-out
notice prior to or at account-opening
and requires the consumer to decide
whether to opt out of the institution’s
payment of ATM withdrawals and onetime debit card transactions pursuant to
the institution’s overdraft service as a
necessary step to opening the account.
Paragraph 17(b)(3)—Implementation of
Opt-out

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Alternative B Only
1. Example of impermissible variation
in account terms. A financial institution
may not vary the terms, conditions, or
features of an account that does not
permit the payment of overdrafts for
ATM withdrawals and one-time debit
card transactions such that the
differences in the terms, conditions, or
features are so substantial that they
would discourage a reasonable
consumer from opting out of the
institution’s overdraft service. For
example, an institution may not decline
to provide ATM and debit card services
altogether because the consumer has
opted out of the institution’s overdraft
service for ATM and one-time debit card
transactions.

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Paragraph 17(b)(4)—Exceptions to the
Notice and Opt-out Requirement
1. Compliance. A financial institution
that qualifies for either of the exceptions
in § 205.17(b)(4) is not subject to the
requirements to provide a consumer
notice and a reasonable opportunity to
opt out of the institution’s payment of
overdrafts for ATM withdrawals and
one-time debit card transactions.
2. Opt-in. A financial institution that
requires the consumer’s affirmative
consent before paying overdrafts on the
consumer’s behalf need not obtain the
consumer’s affirmative consent prior to
each transaction that may cause the
consumer to overdraw the account. It is
sufficient for the institution to require
that the consumer affirmatively consent
to the institution’s overdraft service
prior to the institution’s assessment of
any fees or charges for paying an
overdraft.
Paragraph 17(b)(5)—Exceptions to the
Fee Prohibition
1. Examples of transactions
authorized on an institution’s
reasonable belief.
i. Balances not updated in real-time.
A consumer has opted out of a financial
institution’s overdraft service. The
financial institution uses a daily batch
balance method for authorizing
transactions, and updates the balance
used for authorization at the end of the
processing day. The consumer has $100
in her deposit account after the
institution has finished processing
transactions at the end of the day. The
next day, the consumer makes two $40
debit card purchases followed by a $25
debit card purchase. Because the
institution does not update the
authorization balance during the day,
each transaction, including the $25
debit card purchase, is authorized by
the institution based on the same $100
balance that was calculated at the end
of the prior day’s processing. Under
these circumstances, the institution may
assess a fee for paying or honoring the
$25 debit card purchase because the
institution authorized the transaction on
the reasonable belief that the consumer
had sufficient funds available in her
account to cover the transaction.
ii. Returned deposit. A consumer has
opted out of a financial institution’s
overdraft service. The consumer has $30
in his deposit account and deposits a
$100 check. The institution provides
immediate availability to the consumer
for the deposited funds. Subsequently,
the consumer makes a $75 debit card
purchase which is authorized by the
institution based on a balance of $130.
The $100 check is later returned on

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5239

insufficient funds. Under these
circumstances, the institution may
assess a fee for paying or honoring the
$75 debit card transaction because the
institution authorized the transaction on
the reasonable belief that the consumer
had sufficient funds available in his
account to cover the transaction.
iii. Settlement amount exceeds
authorization amount. A consumer has
opted out of an institution’s overdraft
service. The consumer has $30 in her
deposit account and uses a debit card to
purchase fuel. Before permitting the
consumer to use the fuel pump, the
merchant verifies the validity of the
card by requesting a pre-authorization
hold from the institution for $1. The
institution does not increase the amount
of the hold. The consumer purchases
$50 of fuel. If the institution pays or
honors the transaction, it may assess an
overdraft fee because the actual amount
of the transaction exceeds the amount
requested for authorization and causes
the consumer to overdraw her account.
iv. Intervening transactions between
authorization and settlement of a ‘‘force
pay’’ debit card transaction. A
consumer has opted out of a financial
institution’s overdraft service. The
consumer has $100 in his deposit
account and uses his debit card to make
a $50 purchase at a store, and the
institution authorizes the transaction.
Before the transaction is presented for
settlement, however, checks written by
the consumer totaling $75 are posted to
the consumer’s account. Under these
circumstances, and assuming no
intervening deposits are made by the
consumer, the institution may assess a
fee or charge for paying or honoring an
overdraft when the $50 is presented for
settlement because the institution
authorized that transaction on the
reasonable belief that the consumer had
sufficient funds available in his account
to cover the transaction.
2. Examples of transactions not
submitted for authorization. The
exception under § 205.17(b)(5)(i)
permitting an overdraft fee to be charged
to a consumer’s account when a
financial institution has a reasonable
belief that the consumer has sufficient
funds available for the requested
transaction does not apply where the
transaction is not submitted to the
institution for authorization. Under
these circumstances, the general rule in
§ 205.17(b)(1) prohibits the institution
from assessing a fee on the consumer’s
account for paying or honoring an ATM
withdrawal or one-time debit card
transaction that overdraws the
consumer’s account if the consumer has
opted out of the institution’s overdraft
service. If otherwise permitted under

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applicable law, the institution may debit
the consumer’s account for the amount
of the overdraft.
i. Small-dollar transactions not
submitted for authorization. A
consumer has opted out of a financial
institution’s overdraft service. The
consumer purchases a $3 cup of coffee
using his debit card. Because of the
small dollar amount of the transaction,
the merchant does not submit the
transaction to the consumer’s financial
institution for authorization. At the time
of the transaction, the consumer’s
account does not have sufficient
available funds to cover the transaction.
The institution may not assess an
overdraft fee to the consumer’s account
for paying or honoring the debit card
transaction. If otherwise permitted
under applicable law, the institution
may debit the consumer’s account for
the amount of the overdraft.
ii. Stand-in processing. A consumer
has opted out of a financial institution’s
overdraft service. The consumer
withdraws $20 from an ATM. At the
time the consumer initiates the
withdrawal request, the card network is
temporarily unavailable and the request
is not submitted to the institution for
authorization. Instead, the consumer’s
financial institution uses a ‘‘stand-in’’
processor to authorize transactions
based on the institution’s predetermined amount, rather than the
consumer’s account balance. The
consumer’s account does not have
sufficient available funds at settlement
to cover the transaction. The institution
may not assess an overdraft fee to the
consumer’s account for paying or
honoring the debit card transaction. If
otherwise permitted under applicable
law, the institution may debit the
consumer’s account for the amount of
the overdraft.
3. Example of a transaction presented
by paper-based means. A consumer has
opted out of a financial institution’s
overdraft service. The consumer has $50
in her deposit account and presents her
debit card to make a $60 purchase. At
that time, the merchant takes an imprint
of the card but does not submit the
transaction for authorization. Later that
day, the merchant submits a sales slip
with the card imprint to its processor for
payment. If the transaction overdraws
the consumer’s account and the
consumer’s institution pays the
transaction, the institution may assess a
fee or charge for paying or honoring the
overdraft.

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17(c) Timing

Alternative 2

Paragraph 17(c)(1)

17(b) Opt-In Requirement
1. No affirmative consent. A financial
institution may pay overdrafts for ATM
withdrawals and one-time debit card
transactions even if a consumer has not
affirmatively consented or opted in to
the institution’s overdraft service. If the
institution pays such an overdraft,
however, it may not impose a fee or
charge for doing so without the
consumer’s affirmative consent, except
as permitted under the exceptions set
forth in § 205.17(b)(5). These provisions
do not limit the institution’s ability to
debit the consumer’s account for the
amount of the overdraft if the institution
is permitted to do so under applicable
law.
2. Overdraft transactions not required
to be paid or honored. Section 205.17
does not require a financial institution
to pay or honor an overdraft on an ATM
withdrawal or a one-time debit card
transaction even if the consumer has
affirmatively consented to an
institution’s overdraft service for such
transactions.
3. Examples of reasonable
opportunity to provide affirmative
consent. A financial institution provides
a reasonable opportunity for the
consumer to affirmatively consent to the
institution’s overdraft service if—
i. By mail. The institution provides a
form for the consumer to fill out and
mail to affirmatively request the service.
ii. By telephone. The institution
provides a toll-free telephone number
that consumers may call to provide
affirmative consent.
iii. By electronic means. The
institution provides an electronic means
for the consumer to affirmatively
consent, such as a form that can be
accessed and processed at an Internet
Web site, provided that the institution
directs the consumer to the specific Web
site address where the form is located,
rather than solely referring to the
institution’s home page.
4. Implementing opt-in at accountopening. A financial institution may
provide a notice regarding the
institution’s overdraft service prior to or
at account-opening and, as a necessary
step to opening an account, require a
consumer to choose whether to opt in to
the payment of ATM withdrawals or
one-time debit card transactions
pursuant to the institution’s overdraft
service. For example, the institution
could require the consumer at account
opening to choose between an account
that does not permit the payment of
ATM withdrawals or one-time debit
card transactions pursuant to the
institution’s overdraft service or an

1. Existing customers. The
requirement to provide notice before
overdraft fees are assessed for payment
of an ATM withdrawal or one-time debit
card transaction pursuant to a financial
institution’s overdraft service is
applicable only to accounts opened on
or after øthe effective date of the final
rule¿. However, the requirement to
provide notice of the opt-out right
following the institution’s assessment of
a fee or charge for paying an ATM
withdrawal or a one-time debit card
transaction pursuant to the institution’s
overdraft service applies on or after [the
effective date of the final rule], unless
the consumer has previously opted out
and the consumer has not revoked the
opt-out.
17(d) Content and Format
Paragraph 17(d)(1)—Initial Notice
1. Range of fees. If the amount of a fee
will vary from transaction to
transaction, the financial institution
may indicate that the consumer may be
assessed a fee ‘‘up to’’ the maximum fee
or provide the range of fees.
2. Additional opt-out notice content.
Section 205.17(b)(1) requires an opt-out
notice that is substantially similar to
Model Forms A–9(A) and A–9(B). A
financial institution, may, however,
briefly describe in its notice the
consequences of the consumer’s election
to opt out of the institution’s payment
of overdrafts. For example, the
institution may state that if a consumer
opts out of the institution’s overdraft
service for ATM withdrawals and onetime debit card transactions, the
institution may decline such
transactions if the consumer’s account
does not have sufficient funds. An
institution may also include language
describing other types of transactions
that are not subject to the opt-out right
or indicating that the institution pays
overdrafts at its discretion.
17(g) Time to Comply With Opt-Out
1. Fees or charges assessed prior to
implementing opt-out. Section 205.17(g)
provides that a consumer may opt out
of a financial institution’s future
payment of overdrafts at any time. If a
consumer, who has not initially opted
out, later elects to exercise his or her
opt-out right, this provision does not
require the institution to waive or
reverse any overdraft fees or charges
assessed to the consumer’s account
prior to the institution’s implementation
of the consumer’s opt-out request.

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account that permits the payment of
such overdrafts.
Paragraph 17(b)(3)—Implementation of
Opt-In
Alternative B Only
1. Example of impermissible variation
in account terms. A financial institution
may not vary the terms, conditions, or
features of an account that does not
permit the payment of overdrafts for
ATM withdrawals and one-time debit
card transactions such that the
differences in the terms, conditions, or
features are so substantial that they
would compel a reasonable consumer to
opt in to the institution’s overdraft
service. For example, an institution may
not decline to provide ATM and debit
card services altogether unless the
consumer affirmatively consents to the
institution’s overdraft service for ATM
withdrawals and one-time debit card
transactions.

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Paragraph 17(b)(5)—Exceptions to the
Fee Prohibition
1. Examples of transactions
authorized on an institution’s
reasonable belief.
i. Balances not updated in real-time.
A consumer has not affirmatively
consented to a financial institution’s
overdraft service. A financial institution
uses a daily batch balance method for
authorizing transactions, and updates
the balance used for authorization at the
end of the processing day. The
consumer has $100 in her deposit
account after the institution has finished
processing transactions at the end of the
day. The next day, the consumer makes
two $40 debit card purchases followed
by a $25 debit card purchase. Because
the institution does not update the
authorization balance during the day,
each transaction, including the $25
debit card purchase, is authorized by
the institution based on the same $100
balance that was calculated at the end
of the prior day’s processing. Under
these circumstances, the institution may
assess a fee for paying or honoring the
$25 debit card purchase because the
institution authorized the transaction on
the reasonable belief that the consumer
had sufficient funds available in her
account to cover the transaction.
ii. Returned deposit. A consumer has
not affirmatively consented to a
financial institution’s overdraft service.
The consumer has $30 in his deposit
account and deposits a $100 check. The
institution provides immediate
availability to the consumer for the
deposited funds. Subsequently, the
consumer makes a $75 debit card
purchase which is authorized by the

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institution based on the $130 balance.
The $100 check is later returned on
insufficient funds. Under these
circumstances, the institution may
assess a fee for paying or honoring the
$75 debit card transaction because the
institution authorized the transaction on
the reasonable belief that the consumer
had sufficient funds available in his
account to cover the transaction.
iii. Settlement amount exceeds
authorization amount. A consumer has
not affirmatively consented to a
financial institution’s overdraft service.
The consumer has $30 in her deposit
account and uses a debit card to
purchase fuel. Before permitting the
consumer to use the fuel pump, the
merchant verifies the validity of the
card by requesting a pre-authorization
hold from the institution for $1. The
institution does not increase the amount
of the hold. The consumer purchases
$50 of fuel. If the institution pays or
honors the transaction, it may assess an
overdraft fee because the actual amount
of the transaction exceeds the amount
requested for authorization and causes
the consumer to overdraw her account.
iv. Intervening transactions between
authorization and settlement of a ‘‘force
pay’’ debit card transaction. A
consumer has not affirmatively
consented to a financial institution’s
overdraft service. The consumer has
$100 in a deposit account and uses his
debit card to make a $50 purchase at a
store. The institution authorizes the
transaction. Before the transaction is
presented for settlement, however,
checks written by the consumer totaling
$75 are posted to the consumer’s
account. Under these circumstances,
and assuming no intervening deposits
are made by the consumer, the
institution may assess a fee or charge for
paying or honoring an overdraft when
the $50 is presented for settlement
because the institution authorized that
transaction on the reasonable belief that
the consumer had sufficient funds
available in his account to cover the
transaction.
2. Examples of transactions not
submitted for authorization. The
exception under § 205.17(b)(5)(i)
permitting an overdraft fee to be charged
to a consumer’s account when a
financial institution has a reasonable
belief that the consumer has sufficient
funds available for the requested
transaction does not apply where the
transaction is not submitted to the
institution for authorization. Under
these circumstances, the general rule in
§ 205.17(b)(1) prohibits an institution
from assessing a fee to the consumer’s
account for paying or honoring an ATM
withdrawal or one-time debit card

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transaction that overdraws the
consumer’s account if the consumer has
not affirmatively consented to the
institution’s overdraft service. If
otherwise permitted under applicable
law, the institution may debit the
consumer’s account for the amount of
the overdraft.
i. Small-dollar transactions not
submitted for authorization. A
consumer has not affirmatively
consented to a financial institution’s
overdraft service. The consumer
purchases a $3 cup of coffee using his
debit card. Because of the small dollar
amount of the transaction, the merchant
does not submit the transaction to the
consumer’s financial institution for
authorization. At the time of the
transaction, the consumer’s account
does not have sufficient available funds
to cover the transaction and the
consumer has not affirmatively
consented to the institution’s overdraft
service. The institution may not assess
an overdraft fee to the consumer’s
account for paying or honoring the debit
card transaction. If otherwise permitted
under applicable law, the institution
may debit the consumer’s account for
the amount of the overdraft.
ii. Stand-in processing. A consumer
has not affirmatively consented to a
financial institution’s overdraft service.
The consumer withdraws $20 from an
ATM. At the time the consumer initiates
the withdrawal request, the card
network is temporarily unavailable and
the request is not submitted to the
consumer’s financial institution for
authorization. Instead, the institution
uses a ‘‘stand-in’’ processor to authorize
transactions based on the institution’s
pre-determined amount, rather than the
consumer’s account balance. The
consumer’s account does not have
sufficient available funds at settlement
to cover the transaction. The institution
may not assess an overdraft fee to the
consumer’s account for paying or
honoring the debit card transaction. If
otherwise permitted under applicable
law, the institution may debit the
consumer’s account for the amount of
the overdraft.
3. Example of a transaction presented
by paper-based means. A consumer has
not affirmatively consented to a
financial institution’s overdraft service.
The consumer has $50 in her deposit
account and presents her debit card to
make a $60 purchase. At that time, the
merchant takes an imprint of the card
but does not submit the transaction for
authorization. Later that day, the
merchant submits a sales slip with the
card imprint to its processor for
payment. If the transaction overdraws
the consumer’s account and the

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consumer’s institution pays the
transaction, the institution may assess a
fee or charge for paying or honoring the
overdraft.
17(d) Content and Format
1. Range of fees. If the amount of a fee
may vary from transaction to
transaction, the financial institution
may indicate that the consumer may be
assessed a fee ‘‘up to’’ the maximum fee
or provide the range of fees.
2. Additional consent notice content.
Section 205.17(d)(1) requires an opt-in
notice that is substantially similar to
Model Form A–9. A financial institution
may, however, briefly describe in its
notice the benefits of the institution’s
payment of ATM withdrawals or debit
card transactions. For example, the
institution may state that if a consumer
does not affirmatively consent to the
institution’s overdraft service in
connection with ATM withdrawals and
one-time debit card transactions, the
institution may decline such
transactions if the consumer’s account
does not have sufficient funds. An
institution may also include language
describing other types of transactions
that are not subject to the opt-in right or
indicating that even if the consumer
affirmatively consents to the overdraft
service, the institution pays overdrafts
at its discretion.fi
*
*
*
*
*
flSection 205.19—Debit Holds

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19(a) General Rule
1. Transactions for which the actual
transaction amount can be determined
shortly after authorization. Examples of
transactions involving a hold in
connection with a debit card transaction
for which the actual transaction amount
can be determined within a short period
of time after authorization is obtained
include:
i. A fuel purchase at a pay-at-thepump dispenser.
ii. The payment of a restaurant bill
where an estimated amount is added to
the amount of the requested
authorization to account for service tips.
2. Additional reasons for overdraft.
Section 205.19 does not limit a financial
institution from assessing an overdraft
fee or charge for paying a particular
transaction pursuant to the institution’s
overdraft service if the consumer would
have incurred an overdraft for other
reasons, such as a prior debit card
transaction that may have been
authorized but not yet presented for
settlement or if a deposited check is
returned.
3. Waiver of overdraft fees caused by
debit holds. A financial institution does

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not violate § 205.19 if it promptly
waives or refunds any overdraft fees or
charges assessed to the consumer’s
account caused by a debit hold in excess
of the actual amount of the transaction.
For example, assume that a consumer
has $50 in a deposit account. An
institution does not violate § 205.19 if it
assesses an overdraft fee on the
consumer’s account as a result of a $75
hold placed in connection with a payat-the-pump fuel transaction, but
promptly waives or refunds the
overdraft fee after determining that the
consumer has only purchased $40 worth
of fuel. The institution may not require
the consumer to provide notice or other
information that an overdraft fee was
caused by a debit hold on funds in the
consumer’s account before the
institution waives or refunds the fee.
4. Example of prohibition in
connection with a debit hold placed for
same transaction. A consumer has $50
in a deposit account and is enrolled in
a financial institution’s overdraft
service. The consumer makes a fuel
purchase using his debit card. Before
permitting the consumer to use the fuel
pump, the merchant obtains a preauthorization hold for $1 to verify that
the consumer’s account is valid. The
institution increases the amount of the
hold to $75, or the maximum amount it
guarantees to the merchant for the
authorized transaction under card
network rules. The $75 hold exceeds the
consumer’s funds. The consumer
purchases $20 of fuel. Under these
circumstances, the financial institution
is prohibited from assessing a fee or
charge in connection with the debit
hold because the overdraft would not
have occurred but for the excess amount
of the debit hold. However, if the
consumer had purchased $60 of fuel,
the institution could assess a fee or
charge for an overdraft because the
transaction exceeds the funds in the
consumer’s account.
5. Example of prohibition in
connection with a debit hold placed for
another transaction. A consumer has
$100 in a deposit account and is
enrolled in a financial institution’s
overdraft service. The consumer makes
a fuel purchase using her debit card.
Before permitting the consumer to use
the fuel pump, the merchant obtains a
pre-authorization hold for $1, which the
institution increases to $75, or the
maximum amount it guarantees to the
merchant for the authorized transaction
under card network rules. The
consumer purchases $20 of fuel, but the
transaction is not presented for
settlement for two days. The next day,
the consumer withdraws $75 at an
ATM. Under these circumstances,

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§ 205.19 prohibits the institution from
assessing a fee or charge for paying an
overdraft with respect to the $75
withdrawal because the overdraft would
not have occurred but for the $75 hold.
6. Example of prohibition when
authorization and settlement amounts
are held for the same transaction. A
consumer has $100 in a deposit account
and is enrolled in a financial
institution’s overdraft service. The
consumer makes a $50 fuel purchase
using his debit card. Before permitting
the consumer to use the fuel pump, the
merchant obtains a pre-authorization
hold for $1, which the institution
increases to $75, or the maximum
amount it guarantees to the merchant for
the authorized transaction. The
consumer purchases $50 of fuel. When
the merchant presents the $50
transaction for settlement, it uses a
different transaction code to identify the
transaction than it had used for the preauthorization, causing both the $75 hold
and the $50 purchase amount to be
temporarily posted to the consumer’s
account at the same time. As a result,
the consumer’s account becomes
overdrawn. Under these circumstances,
and assuming no other transactions,
§ 205.19 prohibits the institution from
assessing a fee or charge for paying an
overdraft because the overdraft would
not have occurred but for the $75 hold.
7. Example of permissible overdraft
fees in connection with a debit hold. A
consumer has $100 in a deposit account
and is enrolled in a financial
institution’s overdraft service. The
consumer makes a fuel purchase using
her debit card. Before permitting the
consumer to use the fuel pump, the
merchant obtains a pre-authorization
hold for $1, which the institution
increases to $75, or the maximum
amount it guarantees to the merchant for
the authorized transaction. The
consumer purchases $35 of fuel, but the
transaction is not presented for
settlement for two days. The next day,
the consumer withdraws $75 at an
ATM. Notwithstanding the existence of
the hold, the consumer’s financial
institution may charge the consumer an
overdraft fee for the $75 ATM
withdrawal because the consumer
would have incurred the overdraft even
if the debit hold had been for the actual
amount of the fuel purchase.
19(b) Safe Harbor
1. Example of two-hour safe harbor. A
consumer has $100 in his deposit
account and is enrolled in a financial
institution’s overdraft service. The
consumer makes a $35 fuel purchase
using his debit card. Before permitting
the consumer to use the fuel pump, the

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merchant obtains pre-authorization hold
for $1, which the institution increases to
$75, or the maximum amount it
guarantees to the merchant for the
authorized transaction. One hour after
the transaction is completed, but before
the transaction is presented for
settlement, the consumer withdraws $55
at an ATM. Notwithstanding the
existence of the debit hold, the
consumer’s financial institution may
charge the consumer an overdraft fee for
the $55 ATM withdrawal even though
the overdraft was caused by the hold,
because the institution has procedures
and practices to release the hold within
two hours and the ATM withdrawal
occurred within the two-hour safe
harbor period.

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2. Relationship between § 205.17 and
§ 205.19. If a consumer is not enrolled
in the institution’s overdraft service for
ATM withdrawals and one-time debit
card transactions (because the consumer
has opted out or not opted in), the
institution may not assess any fees or
charges to the consumer’s account for
paying a debit card overdraft even if the
institution is not otherwise prohibited
from doing so by the debit hold
provision in § 205.19. For example,
assume a consumer has $100 in her
deposit account and has opted out of the
institution’s overdraft service. The
consumer uses her debit card to
purchase $30 of fuel at a pay-at-thepump fuel dispenser. At the time of
authorization, the financial institution

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increased the gas station’s $1
preauthorization hold to $75. One hour
after completing the fuel purchase, the
consumer makes a $60 debit card
purchase at a grocery store.
Notwithstanding the fact that the
consumer made the purchase within the
two-hour safe harbor, the institution
would not be permitted to assess an
overdraft fee because the consumer had
opted out of the institution’s overdraft
service.fi
By order of the Board of Governors of the
Federal Reserve System, December 18, 2008.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E8–31184 Filed 1–28–09; 8:45 am]
BILLING CODE 6210–01–P

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