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New Rules Will Require Consumer Consent for Assessing Overdraft Fees on ATM and One-Time Debit Card Transactions

November 18, 2009
Joseph D. Simon

Under new rules adopted by the Federal Reserve Board, financial institutions will not be permitted to assess an overdraft fee for paying ATM and one-time debit card transactions that overdraw a consumer’s account, unless the consumer affirmatively consents, or opts in, to the payment of overdrafts for these transactions.

This new requirement is set forth in amendments to Regulation E, the regulation implementing the Electronic Funds Transfer Act. Compliance with these amendments is mandatory as of July 1, 2010.

I. Requirements for Assessing Overdraft Fees for ATM Withdrawals and One-Time Debit Card Transactions

Under current rules, a financial institution may impose an overdraft fee if a consumer overdraws an account through either check or non-check transactions. Examples of non-check transactions that could potentially cause an overdraft include an ATM withdrawal, a debit card transaction at a point-of-sale terminal, an on-line transaction, a preauthorized transfer, and an ACH transaction. The amendments to Regulation E will now prohibit an institution from assessing an overdraft fee for two of these types of transactions—ATM withdrawals and one-time debit card transactions—unless the institution:

II. Written Notice Describing Overdraft Service

The written notice describing the financial institution’s overdraft service must be substantially similar to the model form developed by the Federal Reserve Board (a copy of which is attached), and must include the following information:

III. Timing of Requirements

Compliance with the amendments to Regulation E is mandatory effective July 1, 2010. Accordingly, for accounts opened on or after July 1, 2010, a financial institution must comply with the new requirements and obtain the consumer's affirmative consent before the institution assesses any fee or charge for paying an ATM or one-time debit card transaction.

For accounts opened prior to July 1, 2010, the financial institution cannot assess any fees or charges on or after August 15, 2010 for paying an ATM or one-time debit card transaction, unless the institution has complied with the new requirements and obtained the consumer's affirmative consent.

IV. Additional Provisions

The amendments contain some additional provisions regarding the new notice and opt-in requirements. These provisions include the following:

V. Further Information

Please note that this advisory is a general overview of the amendments to Regulation E and is not intended as a comprehensive explanation of all of the provisions of the amendments or as formal legal advice. For further information, please feel free to contact Joseph D. Simon at (516) 357-3710 or via email at jsimon@cullenanddykman.com.