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Overdraft opt-out clause identified as CUs' biggest concern

WASHINGTON (7/29/08)—About 155 credit union representatives tuned in for a Credit Union National Association (CUNA) audio conference Monday on proposed credit card and overdraft protection regulations.

The National Credit Union Administration (NCUA), along with the Federal Reserve Board (Fed) and the Office of Thrift Supervision, has published a joint proposed rule that will prohibit a number of credit card practices and will impose restrictions on overdraft protection plans.

The Fed has also published two separate but related proposals that amend Regulation Z, the Truth in Lending Act, and Regulation DD, the Truth in Savings Act (TISA).

Audio conference participants were told that the NCUA has received about 75 comment letters on its proposal. A focus of concerns involves a provision requiring institutions to allow partial opt-outs for overdraft plans. The partial opt-out would allow consumers to choose to opt-out of ATM or debit card overdrafts while allowing overdraft coverage for checks.

Other concerns involve provisions prohibiting overdraft fees if they results from a hold placed on a prior transaction, and a requirement that an opt-out right for an overdraft protection plan has to be provided for each periodic statement period in which an overdraft occurs.

Representing the NCUA during the conference were: Matt Biliouris, NCUA program officer in the Office of Examination & Insurance; Tonya Green, NCUA staff attorney in the Office of General Counsel; and Ross Kendall, also a staff attorney in NCUA 's Office of General Counsel.

A Fed attorney, Ky Tran-Trong, explained that the overdraft rules at least partially arises from a recognition that in some circumstances overdraft and credit card disclosures have been insufficient. Tran-Trong noted that the Fed will also eventually review rules on student loans, automobile loans, home equity lines of credit and that there has been significant consumer testing as part of this rulemaking process.

The federal regulators anticipate finalizing their unfair and deceptive acts and practices (UDPA) by the end of this year. The Fed has said it received more than 30,000 comment letters on its UDAP proposal.

Because credit unions are not covered by the Fed's TISA proposal, the NCUA intends to issue its own TISA proposal for comment early next year. The Federal Trade Commission regulates UDAP for state credit unions. That agency has not issued a proposal, but it is expected that state credit unions will be required to conform to the joint rules on credit cards.

Also participating on the CUNA audio conference, Alan Cameron, president of the Idaho CU League, address issues raise in the Consumer Advisory Council, of which he is a member. CUNA Deputy General Counsel Mary Dunn moderated the session.

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