June 27, 2008
Ms, Jennifer J. Johnson
Board of Governors of the Federal Reserve System
20th Street and Constitution Ave, NW
Washington DC 20551
Re: Regulation AA- Unfair or Deceptive Acts or Practices and Regulation DD- Truth in Savings
Office of Thrift Supervision: Docket ID OTS-2008-0004
National Credit Union Administration: RIN 3133-AD47
Federal Reserve Board: Regulation AA: R-1314 & Regulation DD: R-1315
Dear Chairman Bernanke, Members of the Board, and Board Secretary Johnson:
Consumers Union of U.S., Inc, the nonprofit publisher of Consumer Reports, writes to comment on proposed Regulation AA – Unfair or Deceptive Acts or Practices [R-1314], the recent proposal to curb unfair and deceptive credit card and overdraft practices and companion proposal Regulation DD [R-1315] regarding the form and content of disclosures under the Truth in Savings Act. We appreciate the fact that the Federal Reserve Board (Board), Office of Thrift Supervision (OTS), and National Credit Union Administration (NCUA) (collectively “Agencies”) recognize that the current practices in the application of overdraft loan programs, which the proposals refer to as “overdraft services,” are unfair. However, there are changes that should be made to the proposed rules to ensure that they adequately address the abuses and unfair practices in overdraft loans.
Our comment will address the positive changes proposed in Regulation AA [R-1314], and Regulation DD [R-1315], and will highlight those issues we believe could better protect consumers from unfair practices. This comment addresses overdraft loan and deposit services issues. A separate comment letter addresses the credit card issues in docket R-1314.
Our comments will discuss the following issues:
• The rule should provide consumers the right to affirmatively opt in to overdraft loan programs rather than opt out.
• Financial institutions should decline debit transactions if there are insufficient funds, rather than applying an overdraft loan program.
• If the Agencies retain the opt-out approach, it should be limited to check and ACH payments with affirmative opt-in required for debit card transactions. Also, financial institutions should not be permitted to asses any overdraft fee until after the first overdraft instance when explicit opt-out notice is given.
• Fee-based overdraft loans are extensions of credit and should therefore be subject to the Truth in Lending Act requirement to disclose the cost in terms of the annual percentage rate.
• Financial institutions should provide consumers with fee-triggered opt-out notification, or at the very least, notify consumers of the opt-out right once within the month during which an overdraft fee has been assessed, even if the account has quarterly statements.
• The rule should address unfair transaction clearing practices in deposit accounts.
• The rule should prohibit financial institutions from assessing bounced check (NSF) fees when a check bounces solely due to a debit hold.
• The rule should ban overdraft fees and NSF fees when the overdraft would not have occurred but for a funds availability hold on deposited funds.
• The format and content requirements detailed in Section 230.10(b) need to be slightly modified.
• Financial institutions should not display as available those balances that reflect funds not yet available for use due to a check hold.
For full comments click here (PDF fromat).