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ALEXANDRIA, Va.-NCUA has approved its version of a rule requiring credit unions offering overdraft and courtesy pay programs to disclose the associated fees. Upon publication in the Federal Register, credit unions providing members with “bounced-check protection” or “courtesy overdraft protection” on an ad hoc basis will be required to disclose on periodic statements the total fees imposed for that statement period and year-to-date. Fees must also be disclosed at account opening. If the credit union advertises this service, the potential for associated fees must be disclosed in those as well. The applicable fees and charges; the time period for repayment; and the circumstances where an overdraft would not be paid must be disclosed. “Stating the available overdraft limit or the amount of funds available on a periodic statement would be considered an advertisement triggering the required disclosures,” the regulation states. However, `safe harbors’ exist for educational materials, member-initiated inquiries into overdrafts or share accounts, or notifying a member about a specific overdraft to their account. There are also exceptions for ATM receipts due to space, broadcast advertising, billboards, and telephone response systems. Limited disclosures are required for ATM screens, telephone response machines and indoor signs. The rule also addresses misleading advertisements with five examples: * Representing an overdraft service as a “line of credit;” * Representing that the credit union will honor all overdrafts, but actually retaining discretion for approval; * Representing that members may keep accounts overdrawn if prompt repayment is required; * Describing the service as solely protecting against bounced checks if it also charges a fee for covering ATM and other withdrawals; and * Describing an account as “free” or “no cost” in advertisements that also promotes a service-like bounce protection-for a fee, unless “clearly and conspicuously” indicating the cost. For credit unions without an overdraft program, NCUA Chairman JoAnn Johnson assured, “It won’t affect them at all.” She also pointed out that if they do not advertise the service, the credit unions do not have to disclose the fees in that aspect either. Though the rule is effective upon publication, examiners will not be enforcing it until July 1, 2006, to give credit unions and vendors time to comply. NCUA Board Member Gigi Hyland inquired about the number of credit unions impacted by the rule and the cost to them. NCUA Staff Attorney Moisette Green said she expects all credit unions to be affected in some way. “As far as cost, we don’t anticipate any significant burden to any credit union,” she added. NCUA’s rule is “substantially similar” to the Federal Reserve’s recent changes to Regulation DD, according to Green. The Fed felt public pressure to do something about overdraft fee disclosures but placing it under the Truth in Lending Act regulation would have required a disclosure of the annual percentage rate, which would likely be very high given the short-term of the relatively small dollar amount of the credit. Given the 18% cap on credit union loans, they would be out of the equation, a significant source of fee income for a number of credit unions. Credit unions also charge less for the service than banks and many have financial education mechanisms built in. Instead, the disclosures are being regulated under the Truth in Savings Act, as a fee charged to a share account. The credit union community has struggled with the ethics of overdraft protection. Though it covers the payments for members avoiding fees tacked on from retailers, it can lead to abuse by the member. Additionally, the fees for overdrafts can be greater than the actual overdraft. Vendors have been accused of advertising that overdraft fees can substantially boost an institution’s non-interest income. [email protected]

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