Regulation E: Opt-In

The following is an article reprinted with permission from the upcoming Fall 2010 edition of The WWR Letter:

By: Kevin A. Susman, Associate

On November 12, 2009, the Federal Reserve Board (“FRB”) adopted a final rule (“Final Rule”) amending Regulation E, which implements the Electronic Funds Transfer Act. The Final Rule is meant to address issues related to the assessment of overdraft fees on automated teller machine (“ATM”) and one-time debit card transactions unless the consumer has “opted-in” to the payment of the overdrafts. The Final Rule is a stronger version of the proposed rule issued in January 2009.

The Regulation E Final Rule adopted the opt-in approach, under which an institution must not assess fees or charges relating to its overdraft service for ATM and one-time debit card transactions unless the consumer provides affirmative consent for such service. Confirmation of the consent, including a statement informing the consumer of the right to revoke the consent, must be provided in writing or, if the consumer agrees, electronically. Consumers may provide consent and may revoke consent at any time. The rule went into effect on January 19, 2010, with a mandatory compliance date of July 1, 2010.

Financial institutions:

> May not condition the payment of overdrafts for other types of transactions, such as checks or ACHs, on opt-in to overdrafts on ATM and onetime debit card transactions, and

> May not decline to pay checks and other types of transactions that overdraw an account because a consumer has not consented to ATM and onetime debit card transaction overdrafts.

Institutions must also provide consumers who chose not to opt-in with the same terms, conditions, and features provided to those who do opt-in.

If an institution has a policy of declining to cover overdrafts on ATM or one-time debit card transactions with respect to a particular type of account, the notice and “opt-in” requirement does not apply to that account. Also, the Final Rule does not apply to overdraft transactions other than by ATM or one-time debit, such as by check, Automated Clearing House (“ACH”) transactions or recurring debit.

If a consumer does not “opt-in” to an institution’s overdraft payment services, an institution may decline ATM withdrawals and one-time debit card transactions that would overdraw the consumer’s account. The institution also may cover overdrafts in these circumstances, but may not charge a fee for doing so. The Final Rule specifically prohibits an institution from declining the payment of a check, ACH transaction, or other type of transaction that may overdraw a consumer’s account, due to that consumer’s failure to “opt-in” to that institution’s overdraft payment service for ATM/debit card withdrawals.

The opt-in notice provided to consumers must be substantially similar to the Federal Reserve Board model notice and contain the following information:

> A brief description of the institution’s overdraft service and the types of transactions for which a fee or charge may be imposed,

> The dollar amount of any fees or charges assessed for paying ATM or one-time debit card transactions under the overdraft service,

> The maximum number of overdraft fees or charges that may be assessed per day, or, if applicable, that there is no limit,

> An explanation of the consumer’s opt-in right to overdraft services, including the methods by which the consumer may consent to the service; and

> If the institution offers a line of credit subject to Regulation Z and services to move funds from another account to cover overdrafts, a statement to that effect.

This notice must not generally contain additional information, although certain modifications to the
model form are permitted, such as description of any right the consumer has to opt-in or out of overdraft services for other transaction types, any associated fees, and the consumer’s right to revoke consent.

The volume of recent developments in the federal regulation of deposits and payment systems has been significant. Until the economic and financial conditions start to normalize, it is likely that even more federal law changes are on the horizon.

Kevin A. Susman is an Associate in Consumer Collections; Consumer Collections (General) Group and is based in the Cleveland office. He can be reached at (216) 685-4298 or


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