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HR 946 IH

To extend the protections of the Truth in Lending Act to overdraft protection programs and services provided by depository institutions, to require customer consent before a depository institution may initiate overdraft protection services and fees, to enhance the information made available to consumers relating to overdraft protection services and fees, to prohibit systematic manipulation in the posting of checks and other debits to a depository account for the purpose of generating overdraft protection fees, and for other purposes.

February 8, 2007

Mrs. MALONEY of New York (for herself, Mr. FRANK of Massachusetts, and Ms. CARSON) introduced the following bill; which was referred to the Committee on Financial Services

To extend the protections of the Truth in Lending Act to overdraft protection programs and services provided by depository institutions, to require customer consent before a depository institution may initiate overdraft protection services and fees, to enhance the information made available to consumers relating to overdraft protection services and fees, to prohibit systematic manipulation in the posting of checks and other debits to a depository account for the purpose of generating overdraft protection fees, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Consumer Overdraft Protection Fair Practices Act'.

SEC. 2. RESTRICTIONS ON OVERDRAFT PROTECTION PROGRAMS OR SERVICES.

(a) Truth in Lending Act Amendments-

(1) DEFINITION- Section 103 of the Truth in Lending Act (15 U.S.C. 1602) is amended by adding at the end the following new subsection:

`(cc) Terms Relating to Short-Term Extensions of Credit Under Overdraft Protection Programs-

`(1) OVERDRAFT PROTECTION FEE- The term `overdraft protection fee' means any fee or charge imposed in connection with any account on which checks or other debits are paid by the institution in which such account is held even though there are insufficient funds in the account to cover such checks or other debits, unless such fee or charge--

`(A) is imposed on an incidental basis as a customer accommodation and no more than 3 such overdraft fees are imposed during any calendar year;

`(B) 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 Consumer Overdraft Protection Fair Practices Act; or

`(C) has been disclosed in connection with a program under which the overdraft is covered by funds transferred from another deposit, share, or other asset account.

`(2) OTHER TERMS-

`(A) CHECK- The term `check' has the same meaning as in section 3(6) of the Check Clearing for the 21st Century Act.

`(B) OTHER DEBITS- The term `other debits' includes withdrawals from an account by the consumer through an automated teller machine and electronic fund transfers from an account that are initiated or authorized by the consumer.

`(C) ELECTRONIC FUND TRANSFER- The term `electronic fund transfer' has the same meaning as in section 903.

`(D) ACCOUNT- The term `account' means any account intended for use by and generally used by a consumer primarily for personal, family, or household purposes into which the consumer deposits funds.

`(E) TRANSACTION ACCOUNT- The term `transaction account' has the same meaning as in section 19(b)(1)(C) of the Federal Reserve Act.'.

(2) RESTRICTIONS ON OVERDRAFT PROTECTION PROGRAMS OR SERVICES-

(A) IN GENERAL- 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:

`Sec. 140. Restrictions on overdraft protection programs or services

`(a) In General- In the case of any transaction account of a consumer at any institution, no overdraft protection fee may be imposed on such account for any extension of funds by the institution to cover any check or other debit for which there are insufficient funds in the consumer's account to pay such check or other debit, unless--

`(1) the consumer has provided specific written consent to any program or service that provides for charging of such fees in connection with any such extension of funds;

`(2) such fee is imposed pursuant to the terms of a written agreement with the consumer which discloses, in a clear and conspicuous manner--

`(A) the amount of any fee imposed in connection with paying an overdraft;

`(B) any applicable disclosure required by this title in connection with such extension of credit, including the disclosures required by section 127;

`(C) the categories of transactions for which a fee for payment of an overdraft may be imposed, including whether an overdraft created by withdrawals at automated teller machines or other electronic fund transfers will be covered and a fee imposed;

`(D) the time period by which the consumer must repay or cover any extension of credit in the form of payment of an overdraft; and

`(E) the circumstances under which the institution in which an account is held will not pay an overdraft; and

`(F) other information required to be disclosed by regulation;

`(3) such fee is separately and conspicuously disclosed, each time the fee is imposed, in any periodic statement provided to the consumer with respect to such account and is included in the calculation of the annual percentage rate as required by sections 107 and 127(b)(6).

`(b) Clarification Relating to Overdraft Fees- In the case of any transaction account of a consumer at any institution, the prohibition against an overdraft protection fee under subsection (a) shall apply regardless of whether the amount of such fee is the same as, or less than, any fee imposed by the institution with respect to such account for a check or other debit that is returned unpaid.

`(c) Prohibition on Misrepresentations- If any institution--

`(1) will not extend funds under specific circumstances to cover an overdraft in any transaction account of a consumer at the institution; or

`(2) reserves the right to extend funds to pay any such overdraft on a discretionary basis,

any representation by such institution that the institution will extend credit to cover all overdrafts on such account shall be a violation of this title.'.

(B) CLERICAL AMENDMENT- The table of sections for chapter 2 of the Truth in Lending Act is amended by inserting after the item relating to section 139 the following new item:

`140. Restrictions on overdraft protection programs or services.'.

(3) RESTRICTIONS ON ADVERTISING OF OVERDRAFT PROTECTION PROGRAMS OR SERVICES-

(A) IN GENERAL- Chapter 3 of the Truth in Lending Act (15 U.S.C. 1661 et seq.) is amended by adding at the end the following new section:

`Sec. 148. Restrictions on advertising of overdraft protection programs or services

`(a) In General- In the case of an institution that maintains transaction accounts for consumers and offers a program or service under which the institution pays any overdraft on the account in exchange for payment of an overdraft protection fee, the institution may not make any of the following representations or statements with respect to such program or service in any advertisement or promotion:

`(1) Any representation or statement describing a transaction account as free or no cost if the account includes, or is promoted as including, overdraft protection services that involve the payment of overdraft protection fees.

`(2) Any representation or statement encouraging use of the account as a service to meet short-term credit needs or to obtain advances on a consumer's next payment of salary, wages, benefits, or other income.

`(3) Any representation or statement that the financial institution will honor all checks or other debits presented against the account, if the institution retains discretion at any time not to honor any check or other debit presented.

`(b) Regulations- The Board shall prescribe regulations implementing the restrictions set forth in subsection (a) pursuant to the authority of the Board under section 18(f) of the Federal Trade Commission Act, and may, by regulation or order, restrict such additional acts or practices that the Board finds to be unfair or deceptive in connection with the offering, operation, and advertising of overdraft protection programs and services.'.

(B) CLERICAL AMENDMENT- The table of sections for chapter 3 of the Truth in Lending Act is amended by inserting after the item relating to section 147 the following new item:

`148. Restrictions on advertising of overdraft protection programs or services.'.

(4) CLARIFICATION OF FINANCE CHARGE- Section 106(a) of the Truth in Lending Act (15 U.S.C. 1605(a)) is amended by adding at the end the following new paragraph:

`(7) Overdraft protection fee.'.

(b) Electronic Fund Transfer Act Amendments- Section 904 of the Electronic Fund Transfer Act (15 U.S.C. 1693b) is amended by adding at the end the following new subsection:

`(e) Restrictions on Overdraft Protection Services and Fees-

`(1) IN GENERAL- A financial institution that holds a consumer's account may not impose an overdraft protection fee on the account in connection with any payment of an electronic fund transfer initiated by the consumer at an automated teller machine in spite of a lack of sufficient funds in the consumer's account to pay such electronic fund transfer, unless--

`(A) the consumer has affirmatively requested such service pursuant to section 140(a)(1), including specific consent to allowing overdrafts at an automated teller machine or by debit card at a point-of-sale terminal;

`(B) the financial has provided a notice to the consumer after the transaction is initiated and before the consumer is irrevocably committed to completing the transaction, that the electronic fund transfer the consumer has requested will result in an overdraft protection fee, together with the amount of any such fee;

`(C) the consumer elects to continue in the manner necessary to effect the requested electronic fund transfer after receiving such notice; and

`(D) the overdraft protection fee imposed in connection with such transaction is clearly disclosed in the written documentation of the electronic fund transfer required by section 906(a).

`(2) PROHIBITION ON FEE IN ABSENCE OF NOTICE- If the notice required by paragraph (1)(B) is not feasible, the financial institution may not charge an overdraft protection fee in connection with any payment of an electronic fund transfer initiated by the consumer at an automated teller machine or by debit card at a point-of-sale terminal in spite of a lack of sufficient funds in the consumer's account to pay such electronic fund transfer.

`(3) DISCLOSURE OF ACCOUNT BALANCES- In the case of any financial institution that offers a program or service under which the institution pays any overdraft on a consumer's account in exchange for the imposition of an overdraft protection fee in accordance with paragraph (1), the financial institution shall, in response to a balance inquiry initiated by the consumer at an automated teller machine operated by the financial institution, disclose only the actual dollar balance in the consumer's account at the time of the request, which shall not include any additional amount of credit or overdraft protection the financial institution will pay under any agreement with the consumer that permits the imposition of the overdraft protection fee.

`(4) OVERDRAFT PROTECTION FEE DEFINED- For purposes of this subsection, the term `overdraft protection fee' has the same meaning as in section 103(cc)(1).'.

(c) Expedited Funds Availability Act Amendments-

(1) DEFINITION- Section 602 of the Expedited Funds Availability Act (12 U.S.C. 4001) is amended by adding at the end the following new paragraph:

`(26) OVERDRAFT PROTECTION FEE- The term `overdraft protection fee' has the same meaning as in section 103(cc)(1) of the Truth in Lending Act.'.

(2) RESTRICTIONS ON OVERDRAFT PROTECTION FEES- Section 607 of the Expedited Funds Availability Act (12 U.S.C. 4006) is amended by adding at the end the following new subsection:

`(f) Restrictions on Overdraft Protection Fees- A depository institution may not--

`(1) impose an overdraft protection fee on an account at such institution for paying any check drawn on the account in spite of a lack of sufficient funds in the account to pay such check or any similar activity unless the accountholder has affirmatively requested such service pursuant to section 140(a)(1) of the Truth in Lending Act; or

`(2) engage in a pattern or practice of delaying the posting of any deposit in an account, or manipulating the process of posting any check or other debit against an account, if such pattern or practice results in 1 or more overdrafts that trigger payment by the accountholder of an overdraft protection fee.'.