Magazine article American Banker

Rule on Overdraft Protection Ads Is Unconstitutional

Magazine article American Banker

Rule on Overdraft Protection Ads Is Unconstitutional

Article excerpt

The Federal Reserve Board's recent action regarding "bounced check protection" suggests that the board members might do well to take another look at the Constitution.

The First Amendment, which says Congress shall make no law that abridges freedom of speech, applies to all branches of our government, including the Fed.

Overdraft programs, typically offered as an alternative to traditional ways of covering customer overdrafts, are not subject to the Truth-in-Lending Act or Regulation Z, because the fees charged are not regarded as finance charges. However, the Fed and the other federal banking agencies issued guidance last February for banks and thrifts to follow when they offer overdraft protection programs. In May the Fed imposed additional disclosure requirements under Regulation DD, Truth-in-Savings.

The Fed decided that if a bank advertises its overdraft protection service, it must separately disclose in the customer's periodic statement the amount of overdraft fees it imposed that month and the amount of fees collected for the year to date. Many banks urged the Fed not to require those disclosures, estimating that the necessary reprogramming and statement redesign would cost them $300,000 to $1 million.

Banks that offer but do not advertise overdraft programs are not required to disclose this information on customers' statements. And therein lies the rub. To exercise their constitutional right to advertise a product that is perfectly legal, banks will have to comply with the Fed's additional disclosure requirements and incur those costs. …

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