Compliance Blog

An “overdraft service” as defined by Regulation E is 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, 12 CFR §1005.17 (a). For any courtesy pay or overdraft protection offered for ATM and one-time debit card transactions, Regulation E requires disclosures and the member’s affirmative consent (opt-in) to coverage for those transactions and the associated fee. See, 12 CFR §1005.17 (b). But, what constitutes affirmative consent and how is such consent confirmed?  Let’s go over the relevant provisions.

Affirmative Consent

Under Regulation E, when it comes to obtaining a member’s affirmative consent, credit unions are allowed to obtain consumers’ affirmative consent by in person, by mail, through electronic means and by telephone.

Even though the term “affirmative consent” per se is not defined in the regulation, it contains provisions related to consumers reasonable opportunity to provide such affirmative consent. The commentary to section 1005.17(b)-4 explains a credit union provide consumers with a reasonable opportunity to provide affirmative consent when “it provides reasonable methods by which the consumer may affirmatively consent.” Depending on the means the credit union utilizes to obtain affirmative consent, the methods utilized vary. However, regardless of the method, credit unions are required by the Regulation to comply with the disclosure requirements under section 1005.17 (b)(1). A credit union provides such reasonable methods if:

The regulation contains a sample disclosure for Overdraft and Overdraft Fees as Model Form A-9. 

Opt-in Confirmation

Section 1005.17(b)(1)(iv) also requires credit unions to provide confirmation that a member has consented to participate in the overdraft service. It is important to point out that, while Section 1005.17(b)(1)(iv) requires credit unions to provide confirmation that a member has consented to participate in the overdraft service, the rule does not require a confirmation to be sent when a member declines to participate in the program or subsequently revokes consent. The preamble to the Federal Reserve’s Regulation E provides a discussion of this requirement:

“The Board believes that written confirmation will help ensure that a consumer intended to opt into the overdraft service by providing the consumer with a written record of his or her choice. This is particularly important when a consumer opts in by telephone. New comment 17(b)(1)–7 permits an institution to comply with the requirement, for example, by providing a copy of a consumer’s completed opt-in form or by sending a letter or other document to the consumer acknowledging that the consumer has elected to opt into the institution’s service. The final rule permits the confirmation to be provided electronically, if the consumer agrees. Section 205.17(b)(1)(iv) also requires the written confirmation to include a statement informing the consumer of the right to revoke consent. To the extent an institution complies with § 205.17(b)(1)(iv) by providing a copy of the opt-in notice to the consumer, the institution may include a statement about the right to revoke in the opt-in notice. See also, section 205.17(d)(6).” See, 74 Fed. Reg. 59033, 59042 (Nov. 17, 2009).

In this preamble, the Federal Reserve indicates the policy underlying the confirmation requirement is to help consumers be abundantly aware that they have opted into overdraft services by providing the consumer with a written record of his or her choice. Arguably, declining overdraft services may not present the same consumer protection concerns as inadvertently opting into overdraft. Furthermore, a consumer is possibly aware of the consequences of revocation of consent so this also does not appear to raise the same consumer protection concerns.

Keep in mind, when consumers have not opted in credit unions are not prohibited from paying overdrafts, however, if the consumer has not opted in, then the credit union is not allowed to charge a fee. 

Additional Resources

·  NCUA AIRES Exam Questionnaires, Overdraft (Bounce) worksheet;

·  Risk Alert 10-RA-12, "Member Notice Requirements for Overdraft Services";

·  Letter to Credit Unions 05-CU-03, "Overdraft Protection (Bounce Protection) Programs";

·  NAFCU FAQs - Overdraft and Bounce Protection Programs;

·  NAFCU Compliance Blog Post: Regulation E Lesser Known ODP and Compulsory Use Provisions;

·  NAFCU Compliance Blog Post: Overdraft Class Action Litigation Trends; and

·  NAFCU June 2018 Compliance Monitor Article: When Members Have Insufficient Funds - Overdraft Requirements and Increasing Litigation Risks.