Compliance Q&A: Reg E and Negative Balance Fees

May 14, 2010

Q Does the new Reg E overdraft rule allow credit unions to charge a negative balance fee when the member’s ATM/debit card overdraft leads to a negative balance for a long period of time?



A Under the rule, it doesn’t matter whether you call the fee an “overdraft fee” or a “negative balance fee.” If the fee results from an ATM/one-time debit card overdraft, it’s covered by the regulation.

So, come July 1st (Aug. 15 for accounts opened prior to July 1), the credit union will only be permitted to charge these types of fees for ATM and one-time debit card overdrafts if the member is provided the proper written notice and opts in to the service.

The notice to the member must disclose all applicable overdraft fees, including per-items fees, daily overdraft fees, and sustained overdraft fees where fees are assessed when the member has not repaid the amount of the overdraft after some period of time.

The Fed issued proposed clarifications to the Reg E overdraft rule in late February. The Fed’s proposed clarification (comment 17(b)-9.i) states that where a consumer’s negative balance is attributable solely to an ATM/one-time debit card transaction, the rule prohibits the assessment of any “sustained overdraft fee” if the consumer has not opted in.

However, the rule does not prohibit an institution from assessing a daily or sustained overdraft, negative balance or similar fees or charges if a negative balance is attributable in whole or in part to a check, ACH, or other transaction not subject to the fee prohibition.

In such a case, the date on which the fee may be assessed is determined by the date on which the check, ACH, or other transaction is paid into overdraft. The proposal includes several example of how this works []

Source: CUNA’s e-Guide to Federal Laws and Regulations