Research · 5 min read
What an Overdraft Opt-In Decides When a Recurring Charge Arrives
The federal opt-in rule covers two transaction types and leaves the rest alone. Which side of that line a monthly health charge falls on depends on how the payment reaches the account.
Key takeaways
- The opt-in requirement reaches ATM and one-time debit card transactions; checks, ACH transactions and other types are outside it.
- A fee for paying one of those two transaction types requires a segregated notice, a reasonable opportunity to consent, actual affirmative consent, and confirmation stating the right to revoke.
- An institution may not condition payment of other overdrafts on that consent, nor decline other overdrafts for lack of it, nor give non-consenting consumers different account terms.
- The notice must state fee amounts including the maximum where they vary, the daily cap or its absence, and whether a credit line or a linked-account transfer service is offered.
- An overdraft service excludes Regulation Z credit lines, transfers from another account of the consumer, and certain prepaid-account credit features.
- Consent lasts until revoked or until the institution ends the service, and on a joint account either consent or revocation by any holder governs the account.
Answer first: the opt-in governs ATM and one-time debit card transactions only
Regulation E states the prohibition narrowly. A financial institution holding a consumer's account shall not assess a fee or charge on that account for paying an ATM or one-time debit card transaction pursuant to the institution's overdraft service, unless it has completed four steps.
The four steps are: provide a written notice, or an electronic one if the consumer agrees, segregated from all other information, describing the institution's overdraft service; provide a reasonable opportunity for the consumer to affirmatively consent, or opt in, to the service for ATM and one-time debit card transactions; obtain that affirmative consent; and provide confirmation of the consent in writing or electronically, including a statement informing the consumer of the right to revoke it.
The scope words matter more than the procedure. ATM transactions and one-time debit card transactions are what the opt-in governs. Checks, ACH transactions and other transaction types are outside the opt-in requirement entirely.
A recurring monthly charge for a health program can arrive by more than one route. Where it arrives as an ACH debit, it is not one of the two transaction types the opt-in covers. Where it arrives as a card transaction, whether it counts as a one-time debit card transaction is a question about how the payment is processed, not about how the enrollment page described it.
What the institution may not do to consumers who decline
The section carries two anti-coercion provisions that are easy to skip past.
A financial institution shall not condition the payment of any overdrafts for checks, ACH transactions and other types of transactions on the consumer affirmatively consenting to the institution's payment of ATM and one-time debit card transactions. Nor shall it decline to pay checks, ACH transactions and other types of transactions that overdraw the account because the consumer has not affirmatively consented for ATM and one-time debit card transactions.
The second is about account terms. A financial institution shall provide to consumers who do not affirmatively consent the same account terms, conditions and features that it provides to consumers who do consent, except for the overdraft service for ATM and one-time debit card transactions itself.
Together these two provisions mean the opt-in decision is supposed to be isolated. Declining it is not permitted to change what happens to a check or an ACH debit, and is not permitted to change the rest of the account.
What the notice has to contain
The notice must be substantially similar to a model form set out in the regulation's appendix, must include all applicable items, and may not contain any information not specified in or otherwise permitted by the content paragraph. That closing restriction is unusual — the notice is capped in content as well as floored.
The required items are five. A brief description of the institution's overdraft service and the types of transactions for which a fee or charge for paying an overdraft may be imposed, including ATM and one-time debit card transactions.
The dollar amount of any fees or charges assessed for paying an ATM or one-time debit card transaction pursuant to the overdraft service, including any daily or other overdraft fees. Where the fee amount is determined by the number of times the consumer has overdrawn the account, the amount of the overdraft, or other factors, the institution must disclose the maximum fee that may be imposed.
The maximum number of overdraft fees or charges that may be assessed per day, or, if applicable, that there is no limit.
An explanation of the consumer's right to affirmatively consent, including the methods by which consent may be given.
And a statement of alternatives: where the institution offers a line of credit subject to Regulation Z, or a service that transfers funds from another account of the consumer at the institution to cover overdrafts, it must state that fact. It may, but is not required to, list additional alternatives.
The section permits some additions. An institution may modify the content to indicate that the consumer has the right to opt into, or out of, the payment of overdrafts for other transaction types such as checks, ACH transactions or automatic bill payments; provide a means to exercise that choice; disclose the associated returned item fee and that additional merchant fees may apply; and disclose the right to revoke consent.
What an overdraft service is, and the four things it is not
The definition is functional. An overdraft service means a service under which a financial institution assesses a fee or charge on a consumer's account for paying a transaction, including a check or other item, when the consumer has insufficient or unavailable funds in the account.
The section then excludes four arrangements from that term. Payment of overdrafts pursuant to a line of credit subject to Regulation Z, including transfers from a credit card account, home equity line of credit or overdraft line of credit. A service that transfers funds from another account held individually or jointly by the consumer, such as a savings account. A line of credit or other transaction exempt from Regulation Z under a named provision. And a covered separate credit feature accessible by a hybrid prepaid-credit card, or credit extended through a negative balance on the asset feature of a prepaid account meeting stated conditions.
The exclusions describe the alternatives the notice must mention. A linked savings transfer and a line of credit are not overdraft services under this section, which is why the notice has to say whether the institution offers them.
Regulation Z adds a note about how these charges are classified. It excludes from the finance charge charges imposed by a financial institution for paying items that overdraw an account, unless the payment of such items and the imposition of the charge were previously agreed upon in writing — with stated carve-outs for credit offered in connection with a prepaid account and for certain overdraft credit.
Consent is revocable, joint accounts are all-or-nothing, and the rest is unchanged
A consumer may affirmatively consent at any time in the manner described in the required notice. A consumer may also revoke consent at any time, in the manner made available for providing consent. A financial institution must implement a revocation as soon as reasonably practicable.
Consent is effective until revoked by the consumer, or unless the financial institution terminates the service. The institution's ability to end the service is stated alongside the consumer's ability to revoke.
Joint accounts are treated as a unit. Where two or more consumers jointly hold an account, the institution shall treat the affirmative consent of any of the joint consumers as consent for that account, and shall treat a revocation by any of them as revocation for that account.
What the section does not do is worth stating plainly. It does not cap any fee. It does not require an institution to offer an overdraft service, or to pay any overdraft. It does not decide whether a particular recurring charge will be paid or returned when an account is short. And it does not reach a returned item fee charged by the seller whose payment did not go through, which is a matter between the consumer and that seller.
The consumer-facing consequence is a narrow one: for two transaction types, a fee for paying the overdraft requires a documented affirmative consent, and that consent can be withdrawn at any time by the same means it was given.
Sources
- 12 CFR 1005.17, “Requirements for overdraft services” (Regulation E)The definition of overdraft service and its four exclusions; the opt-in prohibition and its four required steps; the bar on conditioning payment of other overdrafts on that consent and on declining other overdrafts for lack of it; the same-terms requirement for non-consenting consumers; the five required notice content items including the maximum fee disclosure, the daily cap disclosure and the alternatives statement, together with the model-form and no-extra-content constraints and the permitted modifications; the continuing right to opt in and revoke and the as-soon-as-reasonably-practicable implementation duty; the duration and termination rule; and the joint account treatment of consent and revocation.
- 12 CFR 1026.4, “Finance charge” (Regulation Z)The exclusion from the finance charge of charges imposed by a financial institution for paying items that overdraw an account, unless the payment of such items and the imposition of the charge were previously agreed upon in writing, together with the stated carve-outs for credit offered in connection with a prepaid account and for certain overdraft credit.
Frequently asked questions
Which transactions does the opt-in cover?
ATM transactions and one-time debit card transactions. The section bars a fee for paying those pursuant to the institution's overdraft service without a segregated notice, a reasonable opportunity to consent, actual affirmative consent, and written or electronic confirmation stating the right to revoke.
Does it cover an ACH debit for a monthly subscription?
The opt-in requirement is written for ATM and one-time debit card transactions. Checks, ACH transactions and other types of transactions are outside it. The section separately bars an institution from conditioning payment of overdrafts on those other transaction types on the consumer consenting for ATM and one-time debit card transactions.
Can an account be worse in other ways for declining?
The section requires an institution to provide consumers who do not affirmatively consent the same account terms, conditions and features it provides to consumers who do consent, except for the overdraft service for ATM and one-time debit card transactions itself.
What has to be in the notice?
A description of the service and the transaction types for which an overdraft fee may be imposed; the dollar amount of the fees, including the maximum where the amount varies; the maximum number of fees per day or that there is no limit; an explanation of the right to consent and the methods for doing so; and a statement of whether the institution offers a Regulation Z line of credit or a transfer service from another of the consumer's accounts.
Can consent be withdrawn?
A consumer may revoke consent at any time in the manner made available for providing it, and the institution must implement the revocation as soon as reasonably practicable. Consent is effective until revoked by the consumer or unless the institution terminates the service.
Does the rule limit the size of an overdraft fee?
No. The section requires disclosure of the fee amount, of the maximum where it varies, and of the daily cap or the absence of one. It does not set or limit any amount, and it does not require an institution to offer an overdraft service or to pay any overdraft.