Reg E Opt-in question

If a current customer specifically declines to opt-in to the ATM/Debit Card overdraft any time before 8-15-10, is the bank reguired to not charge an OD fee from the time we receive the acknowledgment of declination to opt-in?
For example; if we begin a campaign today to obtain opt-in consent and a current customer specifically declines, do we have to honor that decision either before 7/1 or 8/15?

Up-date: This is what our vendor sent us in a Q & A...

The effective date of the Reg E Amendments is July 1, 2010. Can I start my Opt-in campaign prior to July 1, 2010? How will I manage Opt-in Declines obtained prior to July 1, 2010?

***Vendor*** has received verbal feedback from a Federal Reserve Bank attorney concerning Opt-in campaigns initiated prior to July 1, 2010. Our understanding is that if your Opt-in notices that are mailed prior to July 1, 2010 clearly state that the Opt-in decision (accept or decline) will be put into effect on July 1, 2010, Opt-in Declines do not have to be recognized until July 1, 2010. This will enable the bank to solicit Opt-in responses over several months without concern over managing Opt-in declines prior to receiving software upgrades to support the full rulings. ***Vendor*** strongly recommends that your organization seek your own opinion on this topic directly from the Federal Reserve Bank.

From the supplementary information accompanying the final regulation:

Of course, if an existing account holder contacts his or her financial institution in response to the opt-in notice before August 15, 2010 to express a desire not to opt in, the Board expects that the institution would honor the consumer’s choice at that time.

Although I have some difficulty imagining that what "the board expects" is the equivalent of law or regulation, their sentiment is clear.

I am told that fed representatives have said the model form could be worded so the consumer's decision (in or out) would take effect on August 15. Personally, I would need to see that in something written by the Fed before I relied on it.

My understanding was if we mail out the noticed prior to 7/1 adn the customer opts-out we need to make sure we honor their request.

That's correct, AHK. It's not in the regulation or in the Comments, but you'll find a very brief statement in the left column, about two inches down, on page 59047 of the FR document. If you are still working with the Fed's 93 page document, the discussion starts on the bottom of page 55.

The language is also quoted in blue in post #1337724 .

Then why do they allow us to put in the notice requirement "After August 15, 2010, we will not authorize and pay overdrafts for the following types of transactions unless you ask to...". (Per 205.17(d)(6)0 Doesn't that imply if we send out the notice early, this does not go into effect until August 15th?

What? You were expecting LOGIC in all of these regulatory changes?

However, as illustrated in my Example , I don't think your biggest issue is regualtory comdemnation but the perception of your customers that you're only interested in soaking more money from them.

The Board has tucked its expectations away in Federal Register supplemental information, rather than spell them out in the regulation or commentary before. The last two examples I recall also involve overdrafts, as a matter of fact.

One was the requirement to split up and disclose separately overdraft fees and fees for the return of items unpaid. Given the number of banks that were using only one fee whether a check was paid or not, that should have been enough to convince the Board that the requirement belonged in plain sight in the regulation or commentary, but it wasn't. This, of course, related to the July 1, 2006 amendments to Reg. DD.

The other also involves Reg DD, more specifically the amendments effective 1/1/2010 requiring all banks to disclose periodic and YTD totals of OD fees and fees for the return of items unpaid. Only by reading the "subtext" of the information accompanying that final rule -- and the amendment to the final rule -- could you divine that the Board expects those gridlines to appear.

When requirements get buried like this, the result, I think, is a banking community some of which gets the word for the first time when cited in an exam, and compliance isn't uniform until the word finally reaches everyone. It's just easier for people to do things correctly the first time when they know what the rules actually are.

Kristin,
They made two statements. One in the supplementary regulation:

Of course, if an existing account holder contacts his or her financial institution in response to the opt-in notice before August 15, 2010 to express a desire not to opt in, the Board expects that the institution would honor the consumer’s choice at that time

Another in the regulation itself:

For notices provided to consumers who have opened accounts prior to July 1, 2010, the financial institution may describe the institution’s overdraft service with respect to ATM and one-time debit card transactions with a statement such as “After August 15, 2010, we will not authorize and pay overdrafts for the following types of transactions unless you ask us to (see below).”

They are not inconsistent. If a bank wants to add that wording on the model form it can. However, if a customer wants to opt out now the very clear indication is that he is allowed to do so; the bank cannot hold him hostage until August 15th.

There may have been verbal FRB comments to the contrary, but it makes less sense every time someone tells me that. Regardless, only when they make that comment in writing will it become the gospel.

Thank you Ken for the clarification. We have to make sure our system is ready for then if we send advance notice.

I hear repeated horror stories about banks that decided to jump right into the notification and new accounts provisions (which makes them subject to all of the provisions of the regulation NOW rather than July 1 -- don't forget the regulation actually was effective in January and it's the compliance date that is July 1 -- only to realize they didn't have the operations and systems pieces ready yet.

The systems limitations are causing a lot of grief. I am hearing a number of stories of systems that cannot differentiate between an OD created by check, ACH, debit card or ATM.

Since you cannot refuse your Courtesy Pay for checks just because someone opts-out of debit card, institutions are faced with not charging them for ANY OD item if they send out the Opt-In letter early and the customer responds with "No."

The institutions that use these data processors have also told me that they have been told the programming changes will not occur until July 1st.

The commentary seems to say that is you want to start early, you have to have your program in place prior to sending opt-in notices. Then you can notify existing customers, telling them you will no longer authorize overdrafts for ATM & one-time debit card trans after 8-15-10. Until 8-15 it looks like you could still assess fees on existing cust unless they opt out. So if you don't hear from some of those cust, you'd be able to assess fees until that time. Does that sound accurate.

17(c) Timing
1. Early compliance. A financial institution may provide the notice required by § 205(b)(1)(i) and obtain the consumer’s affirmative consent to the financial institution’s overdraft service for ATM and one-time debit card transactions prior to July 1, 2010, provided that the financial institution complies with all of the requirements of this section.

That sounds precisely correct, Ahou. The risk, of course, is that a customer will get the notice, think about it, and decide to tell you NOW that she doesn't want overdraft service on card transactions, and that means you need to shut it down reasonably promptly, not wait until 8/15/10.

This is what I am worried about...therefore, we should not be sending out the notice too early unless we know our systems are ready for those members who want to opt-out immediately.

Another question about Reg E - If a customer has an ATM/Debit Card transaction that clears their account, and we pay those first before checks, then, a check clears their account the same day, which overdraws the account, are we allowed to charge the OD fee for the check that overdrew them, if they haven't opted in?

If you clear debit card and ATM trans first and the customer still has a positive balance and then clear checks that overdraw, you can charge overdraft fees for the checks even if the customer has not opted in.

What are the documentation requirements? I know we have to send a confirmation of opt-in (we'll keep a copy), but is that it?

My interpretation is that yes, you can charge OD fees for those transactions. If the overdraft was caused by a check, ACH, or recurring debit card transaction, you can still charge the OD fee. The key is to show that the overdraft was caused by something other than an ATM withdrawal or one-time debit card purchase.

I know of several banks who are switching the order of posting items from largest to smallest (which gave them the maximum fee income) to smallest to largest (which will most likely post debit card and ATM transactions first and the larger items such as checks and ACH debits last).

Ironically, going from smallest to largest for transaction posting order will be the new way to get maximum fee income after July 1st, since the larger transactions are usually the check and ACH debits.

clarification on opt-in or opt-out.
205.17(b)(4) exception to the notice and opt-in requirements:
This section says if you have a policy and a practice to decline to authorize and pay any ATM or on-time debit card transactions when you have a reasonable belief at the time of the authorization request that the consumer does not have sufficient funds to cover the transaction that you don't have to get an opt-in.

Our bank does not add any overdraft limits to available balances and we only authorize on the account balance at the time of the authorization request.
Questions: Does this mean we do not have to send out any opt-in notices to existing or new customers? Even though we authorize on actual account balance, if somehow an overdraft occurs on an ATM or Debit card transaction, can we charge an OD fee? (like after authorization of transaction, they have a chargeback of a deposited item and no longer have the same balance)

I just found the Reg E proposed rule which clarifies the intention of the 205.17(b)(4) on exceptions. This proposal states that you would not have to send opt-in notices but if you don't have an opt-in approval you can NEVER charge an NSF/OD fee if on an ATM/debit card transaction and you cannot charge a daily od fee either on those type of overdrafts. This makes it more complicated!

Can you disclose the vendor?

I need a bit of education.

Our 'standard overdraft practice' is that we sometimes do authorize and pay overdrafts. Each morning the clerk shares the list of overdrafts with the Executive Officer, who will indicate a 'Pay and Charge', 'Pay and Not Charge' or 'Reject and Charge' for each overdraft. The clerk will then allow the overdraft (or not) and charge (or not) the account accordingly.

So far as I know, the only advisement that a customer currently gets as to this practice is the Rate & Fee schedule when they open the account. I don't believe their told the "full story" (at least they don't get a written disclosure from what I understand).

In reading through the Model Consent Form of Overdraft Services (A-9), I take it that this will become the official disclosure statement that MUST be given to the customer at time of account opening, both advising them of our standard practice and getting an 'opt-in' if they want to also include ATM/one-time debit card transactions included. Is that correct?

I'm unclear as to what we need to do for existing accounts. I presume we cannot charge them for the ATM/POS until and unless they come in to sign the form, but that we can continue our current practice of making the decision to pay/not pay the overdraft. Is that correct?

I'll be talking to several more people here just to ensure that I fully understand our current Standard Overdraft Practices. I now feel more comfortable with the 'sweep' accounts as they are an alternative to the SODP and don't seem to be affected by this change.

I have what may appear to be a silly question. Does the confirmation notice have to be mailed to the customer, or can it be given to the customer if they are sitting in front of you and complete the opt in/out request?

It's not a silly question unless you don't ask it!

There is no mandate that it be delivered by mail. The whole process can be completed at the "sit down" during which you provide the opt-in notice (a/k/a overdraft services disclosure), converse with the customer about the OD service, obtain the opt-in from the consumer and provide the confirmation (with the notice about revocation of an opt-in).