H. R. 5198
IN THE HOUSE OF REPRESENTATIVES
May 11, 2016
Mrs. Carolyn B. Maloney of New York (for herself, Mr. Blumenauer, Ms. Judy Chu of California, Mr. Israel, Mrs. Lowey, Mr. McGovern, Ms. Norton, Mr. Ryan of Ohio, Ms. Schakowsky, Mr. Serrano, Ms. Slaughter, Ms. Tsongas, Mr. Sherman, Mr. Capuano, Ms. Moore, Mr. Ellison, and Mr. Foster) introduced the following bill; which was referred to the Committee on Financial Services
To amend the Truth in Lending Act to establish fair and transparent practices related to the marketing and provision of overdraft coverage programs at depository institutions, and for other purposes.
This Act may be cited as the
Overdraft Protection Act of 2016.
Findings and purpose
The Congress finds the following:
Overdraft coverage is a form of short-term credit that depository institutions provide for consumer transaction accounts. Historically, depository institutions covered overdrafts for a fee on an ad hoc basis.
With the growth in specially designed software programs and in consumer use of debit cards, overdraft coverage for a fee has become more prevalent.
Many depository institutions offer a range of overdraft options but aggressively encourage consumers to consent to the most expensive option, where a high flat fee is collected for every individual overdraft transaction.
Most depository institutions collect a high flat fee, including for small dollar transactions, each time the institution covers an overdraft, in some cases impose multiple overdraft coverage fees within a single day, and many charge additional fees for each day during which the account remains overdrawn.
Such abusive practices in connection with overdraft coverage fees have deprived consumers of meaningful choices about their accounts and placed significant financial burdens on low- and moderate-income consumers.
It is the purpose of this Act to protect consumers by limiting abusive overdraft coverage fees and practices, and by providing meaningful disclosures and consumer choice in connection with overdraft coverage fees.
Section 140B of the Truth in Lending Act, as added by section 4, is amended by adding at the end the following new subsection:
Definitions relating to overdraft coverage
For purposes of this section:
The term check has the same meaning as in section 3(6) of the Check Clearing for the 21st Century Act (12 U.S.C. 5001 et seq.), other than a travelers check.
The term depository institution has the same meaning as in clauses (i) through (vi) of section 19(b)(1)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)).
Nonsufficient fund fee
The term nonsufficient fund fee means a fee or charge assessed in connection with an overdraft for which a depository institution declines payment.
The term overdraft means, in a withdrawal by check or other debit from a consumer transaction account in which there are insufficient or unavailable funds in the account to cover such check or debit, the amount of such withdrawal that exceeds the available funds in the account.
The term overdraft coverage means the payment of a check presented or other debit posted against a consumer transaction account by the depository institution in which such account is held, even though there are insufficient or unavailable funds in the account to cover such checks or other debits.
Overdraft coverage fee
The term overdraft coverage fee means any fee or charge assessed in connection with overdraft coverage, or in connection with any negative account balance that results from overdraft coverage, unless such fee or charge is imposed in connection with—
an extension of credit through an overdraft line of credit program where such fee or charge was considered a finance charge under this title as in effect immediately prior to the enactment of the Overdraft Protection Act of 2012; or
any transfer from an account linked to another transaction account.
Overdraft coverage program
The term overdraft coverage program means a service under which a depository institution assesses an overdraft coverage fee for overdraft coverage.
The term transaction account has the same meaning as in section 19(b)(1)(C) of the Federal Reserve Act (12 U.S.C. 461(b)(1)(C)).
Section 107(5)(A)(vi) of the Federal Credit Union Act (12 U.S.C. 1757(5)(A)(vi)) is amended by inserting
, other than an overdraft coverage fee, as defined in section 140B(o) of the Truth in Lending Act after
inclusive of all finance charges.
Fair marketing and provision of overdraft coverage programs
Chapter 2 of the Truth in Lending Act (15 U.S.C. 1631 et seq.) is amended by adding at the end the following new section:
Overdraft coverage program disclosures and consumer protection
No depository institution may engage in acts or practices in connection with the marketing of or the provision of overdraft coverage that are unfair, deceptive, or designed to evade the provisions of this section.
Each depository institution that provides or offers to provide overdraft coverage with respect to transaction accounts held at that depository institution shall clearly and conspicuously disclose in all marketing materials for such overdraft coverage—
any overdraft coverage fees with respect to such overdraft coverage; and
that by not opting in to such overdraft coverage—
a consumer’s transaction may be declined if there are insufficient funds in the related transaction account; and
the consumer will not be charged a fee if such transaction is declined.
Consumer consent opt-in
A depository institution may charge overdraft coverage fees with respect to the use of an automatic teller machine or point of sale transaction only if the consumer has consented in writing, in electronic form, or in such other form as is permitted under regulations of the Bureau.
Each depository institution shall clearly disclose to each consumer covered by an overdraft protection program of that depository institution—
the consumer may be charged for not more than one overdraft coverage fee in any single calendar month and not more than 6 overdraft coverage fees in any single calendar year, per transaction account; and
the depository institution retains the discretion to pay (without assessing an overdraft coverage fee) or reject overdrafts incurred by the consumer beyond the numbers described in subparagraph (A);
the overdraft coverage fee as an annual percentage rate, so as to permit consumers to meaningfully compare the overdraft coverage to alternative forms of overdraft options and other sources of credit;
information about any alternative overdraft products that are available (such as linked accounts, lines of credit, and alerts), including a clear explanation of how the terms and fees for such alternative services and products differ; and
such other information as the Bureau may require, by rule.
Each depository institution that offers an overdraft coverage program shall, in each periodic statement for any transaction account that has an overdraft coverage program feature, clearly disclose to the consumer the dollar amount of all overdraft coverage fees and nonsufficient fund fees charged to the consumer for the relevant period and year to date.
Exclusion from account balance information
No depository institution may include the amount available under the overdraft coverage program of a consumer as part of the transaction account balance of that consumer.
Each depository institution shall promptly notify consumers, through a reasonable means selected by the consumer, when overdraft coverage has been accessed with respect to the account of the consumer, not later than on the day on which such access occurs, including—
the date of the transaction;
the type of transaction;
the overdraft amount;
the overdraft coverage fee;
the amount necessary to return the account to a positive balance; and
whether the participation of a consumer in an overdraft coverage program will be terminated if the account is not returned to a positive balance within a given time period.
Terminated or suspended coverage
Each depository institution shall provide prompt notice to the consumer, using a reasonable means selected by the consumer, if the institution terminates or suspends access to an overdraft coverage program with respect to an account of the consumer, including a clear rationale for the action.
Overdraft coverage fee limits
Notice and Opportunity To Cancel
Each depository institution shall—
warn any consumer covered by an overdraft coverage program who engages in a transaction through an automated teller machine or a branch teller if completing the transaction would trigger overdraft coverage fees, including the amount of the fees; and
provide to the consumer the opportunity to cancel the transaction before it is completed.
A depository institution may charge not more than one overdraft coverage fee in any single calendar month, and not more than 6 overdraft coverage fees in any single calendar year, per transaction account.
Reasonable and proportional overdraft coverage fees
The amount of any overdraft coverage fee that a depository institution may assess for paying a transaction (including a check or other debit) shall be reasonable and proportional to the amount of the overdraft.
Safe harbor rule authorized
The Bureau, in consultation with the Board of Governors of the Federal Reserve System, Comptroller of the Currency, the Board of Directors of the Federal Deposit Insurance Corporation, and the National Credit Union Administration Board, may issue rules to provide an amount for any overdraft coverage fee that is presumed to be reasonable and proportional the amount of the overdraft.
In order to minimize overdraft coverage fees charged to consumers, each depository institution shall post transactions with respect to transaction accounts in such a manner that the consumer does not incur avoidable overdraft coverage fees.
No depository institution may charge an overdraft coverage fee on any category of transaction, if the overdraft results solely from a debit hold amount placed on a transaction account that exceeds the actual dollar amount of the transaction.
Nondiscrimination for not opting In
In implementing the requirements of this section, each depository institution shall provide to consumers who have not consented to participate in an overdraft coverage program, transaction accounts having the same terms, conditions, or other features as those that are provided to consumers who have consented to participate in such overdraft coverage program, except for features of such overdraft coverage.
Nonsufficient fund fee limits
No depository institution may charge any nonsufficient fund fee with respect to—
any transaction at an automated teller machine; or
any debit card transaction.
Reports to consumer reporting agencies
No depository institution may report negative information regarding the use of overdraft coverage by a consumer to any consumer reporting agency (as that term is defined in section 603 of the Fair Credit Reporting Act (15 U.S.C. 1681a)) when the overdraft amounts and overdraft coverage fees are repaid under the terms of an overdraft coverage program.
Rule of construction
No provision of this section may be construed as prohibiting a depository institution from retaining the discretion to pay, without assessing an overdraft coverage fee or charge, an overdraft incurred by a consumer.
The table of contents for chapter II of the Truth in Lending Act is amended by inserting after the item relating to section 140A the following new item:
140B. Overdraft coverage program disclosures and consumer protection.
Regulatory authority of the Bureau
Not later than 24 months after the date of the enactment of this Act, the Bureau of Consumer Financial Protection (hereafter in this Act referred to as the Bureau) shall issue such final rules and publish such model forms as necessary to carry out section 140B of the Truth in Lending Act, as added by this Act.
This Act and the amendments made by this Act shall take effect 1 year after the date of the enactment of this Act, whether or not the rules of the Bureau under this Act or such amendments are prescribed in final form.
Moratorium on fee increases
During the 1-year period beginning on the date of the enactment of this Act, no depository institution may increase the overdraft coverage fees or charges assessed on transaction accounts for paying a transaction (including a check or other debit) in connection with an overdraft or for nonsufficient funds.
As used in this section, the terms depository institution, overdraft, overdraft coverage fee, transaction account and nonsufficient fund fee have the same meanings as in section 140B(o) of the Truth in Lending Act, as added by this Act.