Additional Change To Regulation DD For Overdrafts

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by Blair Rugh


On June 4, 2010 the Federal Reserve published an amendment to Regulation DD to clarify its 2009 amendment relative to the disclosure of overdraft fees on periodic statements and available balance disclosures at ATMs and to conform the Regulation DD requirements with the recent changes to Regulation E.



The first change relates to the disclosure of overdraft fees on periodic statements. The 2009 amendment to the regulation requires a bank to disclose on a periodic statement the overdraft fees imposed during the statement cycle and year-to-date and the same information for NSF fees. The change requires a bank to include in the overdraft fees not only the fee imposed for the overdraft item but also any other fees or charges imposed on the account because an item was paid into overdraft creating an overdrawn balance in the account such as a daily or other periodic fee charged because an account is in an overdraft status. For example assume that in addition to a $25 per item overdraft fee, a bank charges an additional fee of $5 each day that an account is overdrawn. On Monday I have $50 in my account, an item is presented for $100 and the bank pays it, creating a $50 overdraft balance. On Thursday I make a deposit which takes the account back to a positive balance. In addition to the $25 overdraft fee, the bank charges $5 for each of the three days my account was overdrawn. The reportable overdraft fees were therefore $40. As with the prior amendment a bank is not required to include in overdraft fees charges for a transfer from another deposit account or credit line established for overdraft protection.



Additionally the regulation requires that the nomenclature “Total Overdraft Fees” be used to describe the overdraft charges. No variation of that description is allowed.



Compliance with this part of the regulation is mandatory on and after October 1, 2010 therefore all periodic statements provided to covered customers on October first of this year and thereafter must be in conformity with the new rules. Because of the relatively short time frame I recommend that all banks check with the automation provider that generates the content of their periodic statements to assure that they will have the necessary system enhancements sufficiently in advance of the mandatory date to install and test them.



The second change in the new amendment relates to the disclosure of available balances at ATMS or through other automated systems. First it clarifies that the requirement to provide a single account balance does not apply to what the regulation refers to as “retail sweep programs” but which are more generally described in the industry as reserve reclassification accounts. Many banks, to reduce their reserve requirements establish an account that has a transaction sub account and a savings sub account. Transfers are made between the two accounts by the bank to the extent allowed by regulation D to minimize the balance in the transaction account. The customer receives one statement of the aggregate of the two accounts and the account transfers are transparent. Where a bank has that type account product it may show as the account balance the aggregate balance in the two sub accounts, not just the balance in the transaction account.



The amendment also clarifies the description that is required it a bank discloses a second balance after the actual account balance that includes other funds that are available whether through a linked account or a courtesy overdraft program. If the second balance contains funds available from linked accounts or from a courtesy overdraft program there must be a statement that the balance includes overdraft funds. If the bank has a courtesy overdraft program that is not available to a particular customer because the customer has opted-out or not opted-in or otherwise the balance should not include funds that might otherwise be available under that service. If the courtesy overdraft program is available to the customer for some but not all types of transactions then it may be included in the second balance but there must be a statement that the additional funds may not be available for all transactions or reference the types of transactions for which the funds are not available. The compliance date for this portion of the amendment is July 6, 2010.



The most significant part of the amendment is the new requirements for periodic statements. Banks have less than four months to assure that their statements are compliant with the new requirement. Bankers should receive assurances immediately from their automation providers that their systems will accommodate the new requirements.